The four bedroom house you have in the suburbs may have been great when the children were at home, but now they have flown the nest it’s probably all getting a bit too big and unwieldy.
So it makes sense to think about downsizing, not only to ease the burden of looking after that quarter-acre block but also to hopefully free up some capital to either pay off your mortgage or, if that is already done, to bolster your retirement savings.
Matthew Bell, economist with Australian Property Monitors, says the two big winners in a rising market are investors and those looking to downsize.
“If you are looking to downsize, then you can crystallise the capital gain in your property,” says Bell.
And given that markets are on the rise, now is probably a good time to consider making a move to a smaller place.
Buy before you sell
But if you’re planning on downsizing, to maximise your returns, buyer’s agent Patrick Bright suggests you consider buying before you sell.
Bright says that in a rising market, by buying first you will be paying today’s prices and then selling at a higher level.
“If you sell first your money will be devalued while you are looking to buy,” says Bright. “Let’s say you sell for a million and buy several months later. That $1 million may be only worth $900,000 (in terms of buying power) by the time it comes to buying.”
Bright says before you buy, you should get a valuation on your existing property so you know how much you have to spend.
He then says you should ask for a delayed settlement once you have found the property so you have time to sell your current home.
However, if the vendor is unwilling to delay settlement, you could find yourself faced with having to finance the new property. But if you no longer have a mortgage and just need to borrow for the very short term, you might find it difficult as some lenders may be reluctant to lend for such a short period.
Most people tend to buy where they currently live, as they have got their social networks in place.
But if you choose to downsize to a different area, particularly out of the city, then you might enjoy the double whammy of not only paying less for a smaller property, but also buying in a cheaper market.
Angie Zigomanis, senior analyst at BIS Shrapnel, says if you stay in the same market, there may not be too much change from downsizing as the costs involved in moving can be quite high.
According to Zigomanis, you could find the fees you pay the estate agent to sell your house, coupled with the stamp duty you pay on the property you purchase and the solicitor’s fees, could add up to about 10 per cent of the sale price of your property.
It’s important to calculate the changeover costs before you act. However, if you are moving from, say, Melbourne to Tasmania you could also release a fair bit of money.
Many empty nesters consider buying two properties with the proceeds from their property – for example, a house near the beach or in the bush, plus a city pad.
Or perhaps you could buy two units in the same area – one to live in and one as an investment property or to house your children while they are at university. You might even consider just settling for one smaller property and use the balance to help make up any shortfall in your retirement savings.
Whatever you do, if you are an empty nester, it’s probably a good time to consider downsizing in order to build your nest egg and finance your future lifestyle.