Conventional wisdom states that as you prepare for retirement you should automatically downsize your home. By doing so, you eliminate the hassle of yard work while saving on maintenance and monthly payments. Today, however, many financial experts urge seniors to… look at their finances more broadly and consider a more holistic view of the costs associated with downsizing. A recent Huffington Post article noted that closing costs, realtor fees, and moving expenses may actually cost you more in the long run compared to the potential monthly savings. Plus, depending on when you bought and refinanced your home, your mortgage on an older home may be less than what you’d pay for a smaller place in today’s real estate market. Selling your home isn’t the only way to prepare for retirement. We’ll show you how to downsize your life without sacrificing the equity you’ve accumulated in your current home, leaving you with plenty of options such as refinancing or a reverse mortgage.
Create an On-site Income Property
If you want to know how to downsize your space without having to actually move, consider converting part of your existing home into a rental property. With the right tenant, you can easily supplement your monthly income with minimal effort. You don’t have to build a detached suite in your backyard to appeal to renters. Instead, think creatively about the space you already have on site. Do you have a finished basement or a spare bedroom that you could convert into a rental unit? How quickly would the rent pay for the costs of installing a bathroom and small kitchen in your garage? Talk with a local real estate agent specializing in income properties to determine a realistic cost benefit analysis.
Rent Out Your Entire Home
Perhaps your heart is set on moving to a smaller home but you’re hesitant to take the plunge. Think about renting out your entire existing home and leasing a condo or apartment for yourself. You’ll save on closing costs and agent fees, keep your home equity, and be able to take tax deductions on any rental maintenance costs and interest. With a booming rental market across the nation, you could easily command top dollar rent to supplement your own living expenses. Depending on just how much you make each month, you may even be able to afford hiring a property manager so you don’t have to field phone calls from your tenants.
Cut Back on Utilities
Becoming a landlord isn’t for everyone. Luckily, there are a number of ways you can save money on your existing home bills, particularly your utilities. If you have the cash available, consider installing a dual zone heating and AC unit. The effectiveness of this setup largely depends on how your house is configured and works best for two story homes. While the cost of installation runs around $5,000 depending on where you live, the U.S. Department of Energy estimates that a dual zone system can save up to 30% on your heating and cooling bill. Assuming an electric bill averages $350 each month, those savings could quickly add up to over $1200 a year. If a dual zone unit doesn’t work for you, there are many less expensive (and even free) energy-saving options, such as installing new windows, caulking around windows and doors to prevent drafts, and closing vents in rooms you’re not using. Cutting back on your utilities can quickly help you scale back on your monthly budget without having to leave your home.
As you prepare for retirement, be sure to consider your long-term financial picture, not just your monthly budget. While it may seem like a good idea to downsize to a smaller home and cash in on your equity, that’s not necessarily the best case for each individual’s personal situation. When deciding how to downsize, talk to an expert about the implications of each option. How much cash from equity will you actually walk away with after the expenses associated with moving? Will your money earn any significant interest with today’s rates? Could a reverse mortgage offer you increased monthly cash flow? As you consider all of your choices, be sure to contact iReverse Home Loans to determine if a reverse mortgage may be a viable alternative for you.