Four steps to take before downsizing your home

By Rachel Lane

For many Australians approaching their golden years, the family home starts to feel like the “forever home”, a place to spend the serene retirement years. However, the choice to downsize can be a monumental one, requiring thorough research and introspection.

Step 1: Understanding the ‘why’ behind downsizing

The reasons for downsizing are as diverse as the individuals making the decision. From desiring a seaside retreat or a tranquil abode amidst trees, to wanting a simpler home that requires less upkeep in a familiar suburb, motivations vary. For some, the urge to be closer to family takes precedence, while others yearn for an enriched social life.

Financial reasons also weigh in significantly. Downsizing might be a path to paying off lingering debts, freeing up equity for investments or other expenses, cutting down on maintenance costs, or saving on property taxes and utility bills. This can not only help in padding your savings but also free up time to pursue passions and hobbies.

Step 2: Picking the perfect place

Your living environment plays a crucial role in determining your lifestyle. This isn’t a decision to take lightly, given the permanence of a house move. Think about proximity to loved ones, leisure spots like beaches or clubs, or even essentials like hospitals or shopping centres.

Are you someone who values tranquillity? Then homes near bustling areas might not be the best fit. On the other hand, if you’re relocating interstate and anticipate regular guests, living near an airport might be a boon.

Additionally, contemplate the design and layout. Today’s homes, especially in retirement communities and granny flats, often incorporate forward-thinking designs to facilitate care needs that might arise in the future. It’s wise to avoid homes with restrictive spaces, such as cramped bathrooms or narrow doorways.

Moreover, envision your daily routine in your new place. While binge-watching shows occasionally is fun, it shouldn’t be all there is! Ask yourself, “How do I want to fill my days?”

Step 3: Navigating the paperwork

Every new home, be it under freehold, strata title, leasehold, or a granny flat agreement, will come with its set of contracts. These documents lay down your rights, responsibilities, and the costs involved. Ensure you fully grasp the balance and fairness of these contracts, especially in situations like granny flat arrangements which can get tricky due to familial involvement.

Step 4: The financial deep dive

Beyond the price tag of your new home lie intricate financial details. Retirement villages might have exit fees, and sometimes these fees include complex calculations like the Deferred Management Fee (DMF). This could be a fraction of your buying price or the selling price. Additionally, factors like shared capital gains or losses, renovation costs, marketing, and selling fees could add up.

For freehold or strata properties, while DMFs might not be a concern, other costs such as stamp duty and owners’ association fees could come into play.

Granny flat deals, typically involving family, aren’t always free of financial complexities. The costs incurred upfront, during the stay, and upon exit should be clear. Due to certain state regulations, there might be additional expenses in removing the granny flat or restoring the landscape post-exit.

After delving into these specifics, consider the broader financial scenario: potential investments, pension entitlements, overall cash flow, future aged care costs, and the legacy you’d leave behind.

In essence, the success of downsizing doesn’t solely revolve around contracts or costs. Your happiness and fulfillment post-move will largely depend on how and with whom you spend your time. So, ensure you get the most value out of your decision, both emotionally and financially.

As a downsizing expert and author of Downsizing Made Simple, I always advocate for staying informed about such changes that directly affect your financial well-being. 

Stay tuned for more updates and tips on how you can navigate these changes effectively.

  • Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.

The original article featured in the Sydney Morning Herald on 2 August 2023

Rachel Lane and fellow finance expert Noel Whittaker are the authors of Downsizing Made Simple, the 2nd edition is out now. The Downsizing Made Simple website is here to guide your downsizing journey with great information, tools and easy-to-use resources.



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