When you’re contemplating a downsize, there is so much to think about! Not only are you considering your future abode, you need to decide what to do with your current one. Do you sell, rent it out, or pass it along to future generations? We sorted through the key factors that can influence what’s best for you.
Any time a large asset is concerned, finances play a major role. With that in mind, you’ll want to contemplate your financial situation carefully before you rush into anything, especially if you don’t plan on selling your current home. Think about how much you can afford to spend on your next home by calculating your monthly spending, income, and down payment. Also, determine what your financial goals are at this point in life. Are you setting aside money for a second career? Do you have debts you want to pay? Would you like to be a snow bird? Map out a budget for all your plans now, before you commit to any one option.
A thoughtfully planned downsize can transform your financial picture. Maximize Your Money explains downsizing often means a lower purchase price for the next home, which means reduced property taxes. And with the smaller size, it usually means less money toward maintenance and utilities as well. If your current home is paid for, you might even be able to sell the house, make the move with cash, and have money left to apply to your other goals.
Also, bear in mind that many houses aren’t senior-friendly or simply require some updates. If one of your goals is to age in place, or you snag a great deal on an older home, budget for appropriate renovations. Then connect with Mighty Hand Construction to ensure the work is completed in a high-quality, professional manner.
There is another way to get money from your home, especially if you aren’t ready to sell. Maybe your property is in a great location, promising better yields if you wait to sell later. Or perhaps you want to pass the family homestead along to a loved one. Regardless of why you want to hang onto it, renting your home can mean bringing you ongoing income. There is a lot involved, so think things through carefully.
With a rental, there are expenses you’ll still pay, such as taxes and utilities. As a landlord, there is always the risk of having a bad tenant, there are legal responsibilities, and you still have the home’s upkeep tying you down. If you aren’t particularly handy, live far away, or just don’t want to deal with it, you can hire a property manager. However, even though becoming a landlord isn’t as simple as hanging a “for rent” sign outside, with good planning and good tenants, it’s a great solution for many seniors.
A Family Affair
There are many wonderful, sentimental reasons to pass a house along to family members. Perhaps there is someone who could use the financial boost, or you love the idea of the same four walls that raised your children going on to raise future generations. Whatever your motivation, it’s important to understand that there are often tax consequences, and they can become complicated, depending on your particular circumstances.
There can be capital gains tax, there could be gift tax, and depending on timing, finances, and the method of ownership transfer, your Medicaid eligibility could be affected. As The Balance explains, certain wrong moves can’t always be undone, so for seniors interested in this option, it’s best to discuss the situation with an elder law attorney.
Downsizing often goes hand-in-hand with challenging decisions, especially relating to your home. Sort through your money situation and weigh your goals carefully. The right choices will be revealed, thanks to your careful planning.