15th Dec 2016
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What are the financial pros and cons of downsizing?
Author: YourLifeChoices
What are the financial pros and cons of downsizing?

To downsize or not, that is the question. Perhaps these financial pros and cons will help you to reach a decision?

Let’s be honest, the reason most of us consider downsizing is to better our financial position. With so much of our capital tied up in the family home, it makes sense to release it and give yourself some extra cash to improve your standard of living. But before you rush off to put your house on the market, here are some of the financial pros and cons you should consider.

Enjoy a smaller home
Pro:
A smaller home often means less money spent on maintenance.

Con: You may have to spend more to buy your home than anticipated, especially if it’s the type property that’s sought after.

The chance to try before you buy
Pro:
Releasing the capital in your home – especially when the market is buoyant – and renting in the area in which you’re keen to live, will give you a real sense of whether it’s truly where you want to be.

Con: Renting can cost more than paying a mortgage, and you may find that when you come to buy, you no longer have the savings required to do so in the neighbourhood of your choice – or that the market has increased considerably and is therefore unaffordable.

Gaining more disposable income
Pro:
Having extra cash on hand for emergencies, or even for some of life’s little luxuries, is comforting.

Con: The more money you have, either in income or assets, the smaller Age Pension you will receive – in fact, you may find you receive none at all.

Downsizing debt
Pro:
More Australians than ever are heading into retirement with a mortgage and a considerable amount of debt. Releasing the capital in your home can help you reduce your debt and you can possibly even become debt-free in retirement.

Con: When you factor in the costs of buying and selling a home, such as agents, legal and removalists fees, as well as stamp duty, this can considerably reduce the amount of money you have to pay off your debt. You may even find that the proceeds from your sale are simply not enough to cover the full amount you owe.

Diversifying your investment
Pro:
There’s no denying that your home is your greatest investment and with continued speculation about the strength of the Australian property market, it may make sense to look at alternative ways of making your money work for you.

Con: Any investment comes with risk, and if you haven’t received the correct advice, you could find your nest egg drastically reduced.

Disclaimer: This information is general in nature and has been prepared without taking into account your objectives, financial situation or needs. Before making any decision based on this information, you should seek professional advice.

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    COMMENTS

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    Graezie
    6th Jan 2017
    10:25am
    One other problem with downsizing is that is usually goes with retirement. Then you have 2 people at home more often living on top of each other in smaller premises. At this time you are more likely to need your own space. Saw Mabel the other day and asked her where Fred was. She said "In the shed!!!"
    Old Geezer
    6th Jan 2017
    1:39pm
    Yes it's funny but we send each other messages via messenger to find each other in the house or sheds.
    pb tom
    6th Jan 2017
    10:33am
    Stamp duty will kill it.
    Our wonderful government !!!
    Old Geezer
    6th Jan 2017
    1:36pm
    There is talk of doing away with stamp duty on the sale of properties and replacing it with a land tax that is added to your rates every year. This would certainly help those downsizing.

    There is also talk about car rego being calculated on the number of kilometres travelled each year too. Cheaper rego would certainly help self funded retirees.
    PlanB
    6th Jan 2017
    1:51pm
    No it wouldn't OG as we would be paying through the nose -- they would not be doing it UNLESS it was THEM that was gaining -- also don't people that have more than one house OR land pay land tax already ? -- it did come in decades ago about late 1980s
    Old Geezer
    6th Jan 2017
    2:34pm
    Yes if you have land value over a certain amount you pay land tax so it would be quite easy to extend it to all landowners.
    notelle
    6th Jan 2017
    4:54pm
    I heard on the radio the other day that IF a person is down sizing by buying a smaller home, and providing that person has a Health card - there is NO stamp duty to be paid here in Victoria.
    PlanB
    7th Jan 2017
    7:01am
    Stamp duty or not -- still a lot of expense with movers etc and once you get to a certain age -- can't be bothered with all that -- and plus as I said no way will I move from here -- to WHERE this is where I worked hard to be and thats where I am STAYING
    fred
    7th Jan 2017
    12:23pm
    Old Geezer Why would a land tax charged on the value of your new property be any less than Stamp duty charges ?
    Existing Stamp duty is a fixed percentage amount on the purchase value of the new property at time of purchase and one time charge only. It has nothing to do with the sale of a property . A proposed new land tax charged every year would increase every year with the value of the property forever and who knows what it would cost in the future given governments bat all levels keep ripping into property owners
    Bonny
    7th Jan 2017
    5:35pm
    With the existing stamp duty it is not a steady stream of income so why not change it to one that increases every year with inflation and property values? Makes sence to me from a governments prespective.
    TREBOR
    7th Jan 2017
    8:23pm
    Government is not a business and should not be seeking profit from its shareholders - a government budget is not ITS budget - it is a budget for those shareholders, the people.

    Therefore nobody gives a rat's about the government's bottom line - they are to arrange that properly without recourse to robbing the poor and the worthy. It is well within the province of government to cut some of its QANGOs, social commissions and so forth that primarily serve as a nice little sinecure for an old politician mate or other crony, should it need to make the books balance.

    The public is not an endless cash cow for government's intrusion into areas where they have no real business.
    tams
    6th Jan 2017
    10:42am
    Renting longer than 12 months will see all of the net sale value become assessable for age pension
    MICK
    6th Jan 2017
    11:17am
    This bit sounds like a Turnbull government piece as this bad bad government wants people to be destitute when they die rather than leave their children even a razoo. The same rule does not apply to Malcolm Turnbull of course. The Turnbulls have an offshore tax haven where taxes are and will leave their own family very well off when they go.

    People should not spend all of their lifetime of work on self indulgence keeping in mind that most of us received something from our own parents and we need to pass it on in the same manner.

    This post is a part of the class warfare this government is involved in and YLC should not be running propaganda like this.
    Sceptic
    6th Jan 2017
    1:07pm
    So YLC are the trolls now Mick?
    Farside
    6th Jan 2017
    1:24pm
    Mick, you keep on fighting the fight. I have just downsized and been able to get a newer house with less maintenance, top up super and a patch in the country. My kids think it's great as we have spread risk in the event of market falls. We received squat from our parents, only gift was free uni education thanks to Whitlam. Let us sing ...

    https://youtu.be/dcXNXKtu8z4
    Old Geezer
    6th Jan 2017
    1:33pm
    I'd be disgusted if any of my children expected an inheritance from me. They keep laughing at me and tell me to stop fixing things and get new ones instead.
    tia-maria
    6th Jan 2017
    3:17pm
    old Geezer what your saying your going to give your kids any inheritance??
    Farside
    6th Jan 2017
    5:07pm
    Tia-maria, there is a difference between giving and expecting. My kids expect nothing from me. No doubt they would appreciate it any crumbs left over but they are each independent and self-reliant, preferring to make their own way without receiving handouts or favours.
    tia-maria
    6th Jan 2017
    5:29pm
    Farside........ my comment was to Old Geezer????.....What I meaning to say to Geezer why would he be upset with his kids if they expected anything from him??? I thought be nice to leave your kids some thing when you pass away........
    Old Geezer
    6th Jan 2017
    5:43pm
    My kids expect nothing from me but they will get what's left when I depart this mortal world. They actually prefer that we spend time as a family and enjoy our time together.
    PlanB
    6th Jan 2017
    12:09pm
    I like where I am and worked long and HARD to get here -- even though I loved the home I had in Sydney -- I wanted OUT of that mad place -- I would never buy a home that I did not like or in a place I did not like -- I wanted to be HERE many decades b4 I moved but I had to stay where the work was.
    Farside
    6th Jan 2017
    1:26pm
    exactly PlanB. I am currently executing my exit plan.
    Old Geezer
    6th Jan 2017
    3:07pm
    I think I have found something good and then keep finding something better.

    6th Jan 2017
    12:15pm
    The politicians who are in favour of the latest Aged Pension changes will burn in hell before I would ever even think about downsizing my home for their benefit!
    Farside
    6th Jan 2017
    5:08pm
    I am downsizing for my benefit. No point downsizing to benefit someone else.
    Sundays
    6th Jan 2017
    12:55pm
    We downsized from a large family home to a 3 bedroom duplex and love it! However, it was not a financial decision but to have less work. As our duplex is bear the beach it was actually more expensive than our previous home. To downsize and free up capital may have meant living in a place we didn't like. A big consideration
    Farside
    7th Jan 2017
    12:44am
    Fair point Sundays and perfectly understandable but it's a bonus when you can downsize to live somewhere better and free up capital
    McGroger
    6th Jan 2017
    1:15pm
    I have good neighbours, and a shed and gardens to potter around in. There’s room for family and friends to visit and play. The house is old but I know its faults.

    Or I could downsize, paying good money on stamp duty, solicitors, removalists and whatever unexpecteds there would no doubt be. And possibly end up with poor neighbours, no shed and no garden nor room for them. And my visitors would have to stay in motels or caravan parks.

    Oh, and I live in a small country town so the “downsizing” costs would eat up any difference between sale price and purchase price. No thanks.
    PlanB
    6th Jan 2017
    1:45pm
    I also like a lot of room between me and my neighbours -- not that I don't get along with them but hate to be close to other homes I like to be able to look out my windows and see trees and not houses
    Old Geezer
    6th Jan 2017
    2:36pm
    I was at a new house about a week ago and you could touch the neighbours house from the path on that house on both sides. You couldn't swing a cat in the front or back yard either. It wasn't a good feeling at all.
    Anonymous
    6th Jan 2017
    3:01pm
    It was sooo small that you had to step outside to change your mind.
    Old Geezer
    6th Jan 2017
    3:05pm
    It was a big house but on a smaller block of land.
    TREBOR
    7th Jan 2017
    2:24am
    One of the options in 'down-sizing' from the rural property was a house and block that looked good and was only about twenty minutes from the ex's grand-kids.... upon inquiry the agent told us that -

    "Oh, No! The owner is only selling the run-down house at the front and is splitting off the back of the block for another house!"

    .... distance from back verandah to next block was about one metre.

    Asking price for the old house was about $230k - I said to send him back to me when he was prepared to sell the old house and the extra yard it currently had, as one block, for about half that.....

    Tell 'im e's dreamin'!
    PlanB
    9th Jan 2017
    1:07pm
    I have at LEAST a block between me and anyone else, sometimes more
    tia-maria
    6th Jan 2017
    3:21pm
    We down size into a relocatable home.......unfortunately big company are buying out our villages (just like ours) and unfortunately because of their greedy investors will make it so impossible that wont be able to keep up with the fees...........
    TREBOR
    6th Jan 2017
    4:58pm
    Having recently down-sized from a rural property to a town house (not a townhouse - a house in town), we (the disabled ex and I) looked at quite a few different scenarios. They ranged from living in a 'retirement park' filled with mobile homes (trailer trash), on flat sandy soil with no view and neighbour's six feet away - to what I would deem the best - the current house in a nice small town with big backyard (now filling with vegie gardens) and with views to the mountains on all sides, and only twenty minutes from the ocean.

    My point is that there is a lot more to 'down-sizing' than just getting a smaller place to live in and look after - NOBODY in retirement wants to be anywhere near the bad or the mad neighbour (we had one of the latter - almost a book in itself), and NOBODY needs the hassles of having to deal with the bad and the mad.

    Look very carefully at what you are considering and make sure you aren't crowding yourself in and surrounding yourself with problems, and be very careful to read the full details of any contract you sign. Put yourself in a pokie little unit with no views and you might as well be in a prison cell... put yourself into a 'village' and there is a chance the owners will sell up for development etc, and leave you high and dry, and certainly sometimes their 'managers' think they are running a prison for old folk....

    Wouldn't touch it with a barge pole - and I've already said that if the time comes when I look like ending up in one of those joints, I will leap aboard the yacht and sail off the edge of the world... Show Me That Horizon!
    tia-maria
    6th Jan 2017
    5:40pm
    Hi Trebor
    In some ways I feel sorry we moved into a Relocatable Village....Unfortunately they employed young Managers who have no understanding of retired pensioners.......this new lot of Managers been here two months..... OMG........... he came across so happy at first..... him and his wife...But now his attitude has became so cockie if though this village belongs to him.....He attitude so unreal just wish he will go...........And these big development companies employed Young Couples to run the Village........It was good at first we done our homework and right place etc....it was Privately owned.....he was given an brilliant offer he sold us out .....now we are stuck knowing the fees will sky rocket that will be too costly to stay and than were do we go????
    TREBOR
    6th Jan 2017
    7:14pm
    This issue came up earlier this year - I think the title was about the rights (or otherwise) of people living in those parks.

    Personally I find it absurd to be paying someone rent to stay in a small mobile home, but the biggest negative for me, as a very independent minded old buggar, was that 'loss of personal sovereignty' - meaning you were under the control of someone else and their decision.

    Sounds silly to me...

    I take it Tia - your past owner sold out to a commercial firm and they look intent on raising costs to the consumer? Amazing, isn't it? No cost benefit to the end user from having the whole management thing of several or more parks under the one roof - just a prurient profit motive - kind of like privatisation.... 'private industry' most emphatically does NOT run more efficiently - just on a higher cost basis.
    TREBOR
    6th Jan 2017
    7:16pm
    On privatisation - why would I sell my car to the mechanic, who then replaces the engine with one that costs three times as much to run, and then lease it back from him?

    Do I look that stupid?
    Farside
    7th Jan 2017
    1:18am
    The retirement village decision is a tough one for many retirees as the positives are ever so attractive while risk and the negatives are easily overlooked or deflected.
    TREBOR
    7th Jan 2017
    2:16am
    Spot on, Farside - easy to overlook the negatives when it looks so easy to live in a maintained environment etc, have a small garden, and maybe even get Colonel C'Link to throw in a little rent assistance.

    Once crazy neighbour or a bad manager or a sudden decision to sell off the property and leave you stranded and owning a portable building you can't afford to move to where you have nowhere to go and its market value is nothing - is a bit rough.

    My personal view is that such village retirees should have heaps of protections - you pay well for the building - you pay rent - you have some rights, surely. Apparently not.......another government failure to protect the vulnerable.
    TREBOR
    7th Jan 2017
    2:19am
    Me old dad, a New England boy who caught young galahs in the trees and sold them for pocket money - would call such government 'narrer-gutted' - a description of a pretty poor cow that you'd overlook at market .....

    Other cultures use terms like 'gormless' - meaning having none of the guts, the nuts or the brains to actually do their job.... sounds about right.
    MacI
    9th Jan 2017
    6:44pm
    Beware of the expensive Retirement Villages that offer an attractive retirement lifestyle, e.g. physical security, all maintenance included and great social and communal facilities (indoor pool, bowling greens, snooker tables etc) - for a weekly fee.

    We considered selling up and entering one of these villages for the lifestyle and peace of mind but after doing the sums we realised that the capital loss due to exit fees (Deferred Management Fees and other fees such as a contribution to the refurbishment of the unit) if we ever wanted or needed to exit the village our financial position would be severely compromised.
    Assuming a 4% capital growth and 3% inflation and a $390K entry fee after 10 years we would exit with anywhere from $253K to $334K dependent upon the financial model used by the village. After 15 years between $253K and $391K. I calculated that if our home was worth $390K then applying the same criteria and allowing for cumulative maintenance and selling costs after 10 years we would exit with $539K and after 15 years with $646K.
    PlanB
    10th Jan 2017
    8:05am
    I agree Kenny, they are a total rip off

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