Skip to main content

A little planning goes a long way when downsizing.

At many different times in a homeowner’s life, they’ll realise that their current property is no longer suitable for them. For growing families, it’s usually the case that their home is too small and they need to upgrade. But for the growing population of older Australians, the buzzword is ‘downsizing’.

There are many reasons downsizing can be an appropriate option for homeowners. Whether you have many empty rooms after your children have moved out, you are recently divorced or bereaved, you’re longing for a change in lifestyle or you’re hoping to make a wise financial decision, it’s unsurprising you’re considering this change.

But before you put your home on the market and take the plunge, you should carefully consider your circumstances to make sure it’s the right choice for you. Here are the main considerations to have in mind before you downsize.

Your financial circumstances

Many older homeowners are currently living in a large home worth a substantial sum, usually with a significant chunk of equity after years of diligent repayments. The ‘norm’ for downsizers is to sell your family home and move into something smaller, but smaller doesn’t always mean cheaper.

Traditionally, downsizers would do a sea-change or a tree-change. But one of the recent trends has been for older homeowners to sell out of their larger estates and move into inner suburban or inner city apartments. While many of these apartments can be bought for a good price, depending on what you’re looking to buy there can be a substantial price tag attached.

You need to understand how much your home will sell for, what your budget is when buying and what you’re looking to get out of your next home. It’s worthwhile asking us for a free appraisal of your home and a discussion of what’s available in the market, as we can help you get an understanding of what the outcome of selling and buying could be.

You also need to take into account:

  • Stamp duty
  • Any Capital Gains Tax you need to pay (on a family home there is usually no CGT incurred, but if you have rented the property out for any period you may find yourself liable)
  • Other transaction costs (agent fees, marketing costs, inspection charges and legal fees)
  • Moving costs

Before you make a decision, it is wise to speak to your accountant. For those who downsize and have money left over, this can impact on your benefits when you retire and could reduce the pension you receive. The proceeds from the sale of a home are exempt from the asset test for up to 12 months if you are using the money to buy another home, but any surplus cash after purchasing will be counted.

You should also start considering the financial changes in your life when you have downsized, as these can also impact your decision. For instance, moving into an apartment may substantially reduce the time and money spent on upkeep and maintenance, as well as the utility bills. Look at all your living costs and housing expenses to get a clear picture of the benefits of downsizing.

Your personal circumstances

Downsizing is different for every person and some of it depends on the lifestyle you have in mind. While some will be downsizing to create a lock-up and leave property that allows them to travel at will, others will want to move to be closer to family or to amenities that they value. You should spend some time considering what features are valuable to you.

You should write down your answers to the following questions:

  • Do you want relatives to stay over?
    If so, you may want to consider a home with a spare room or usable space for overnight guests.
  • Are your pets welcome?
    Some apartments have bylaws that don’t allow for dogs or certain animals.
  • Why do you want to downsize?
  • What does your ideal lifestyle look like?
  • How much space do I physically need?
    If you have items you don’t want to get rid of, research the cost of storage.
  • How accessible do you need the property to be?
    Consider your mobility requirements, particularly when looking at older apartment blocks that might not have elevators.

Some will consider alternatives to downsizing when they have looked at all their options. This could include converting a home into dual occupancy and renting out a proportion, or renting out some rooms. Others will consider a reverse mortgage. But, for most, downsizing will be the preferred option.

With these answers in mind, you should have a clear picture of your desired lifestyle and your financial circumstances that will leave you in good stead to downsize for the right reasons.