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The Joys and Pitfalls of Downsizing your Home





The first wave of baby boomers are entering retirement – in 2009 seniors citizens only represented 14% of the population; that figure’s projected to nearly double to 24% in 2036. With nearly a quarter of the Canadian population entering retirement over the next two decades, it’s the perfect time to look at the option of downsizing. .

When I say downsizing I don’t mean “corporate restructuring” – downsizing in this context means scaling back your housing (and lifestyle) and moving to a smaller community. Whether you’re looking to escape the hustle and bustle of the big city or you’re looking at saving money, downsizing is definitely something you should consider.

Pros of Downsizing

  • You are no longer paying top dollar to live close to downtown;
  • You can unlock equity from your house;
  • Housing in outlying towns is traditionally cheaper than in the city;
  • There are plenty of decent smaller communities within driving distance of major cities;
  • You can select a community where all the amenities (stores, library, bank, hospital) are nearby;
  • Less maintenance and upkeep on your property;
  • A small community offers a slower pace of life for those getting older;
  • Potentially less crime therefore less stress and worry; and
  • Property taxes are generally lower in smaller communities

You’ve heard it before: the three most important rules in real estate are location, location, location. If you’re retired and no longer need to commute to work, does it really make sense to pay top dollar to be close to the downtown? By moving to the suburbs or a smaller community within driving distance of the city, you could potentially buy a decent property for a lot less. For example, if you’re consider moving outside Toronto, there are plenty of nice cities and towns within driving distance with all the amenities like Peterborough and London.

The main advantage of downsizing is the ability to unlock equity from your house. If you’re like most Canadians, the majority of your net worth is in your house. That’s alright as long as you have a pension and retirement savings. However, if you’re “house poor,” downsizing is definitely an option to consider – it’s a better option than taking a reverse mortgage on your house if you want to leave something to loved ones. With the extra funds you can top up your RRSP’s and TFSA. With the population living longer, you don’t want to outlive your money.

There are plenty of communities geared towards retirement. If you are less mobile and unable to mow the lawn or shovel the driveway, a smaller community might be what you’re looking for. You might consider hiring a grass cutting and snow removal company to do these tasks for you. One resource that’s worth mentioning is MoneySense.  They do a yearly survey on the best places to retire in Canada based a on number of criteria, such as weather, amenities and crime.

Cons of Downsizing

  • You may not save as much as you’d anticipated due to closing costs;
  • If you depend on rental income, it can be very difficult to rent in a small town;
  • The cost of living can be higher (i.e. gas, groceries, clothing, etc.);
  • You may be further from your family and friends and feel isolated; and
  • You’ll have to actively invest the money you save from your house to make it last.

With great power comes great responsibility. Before you decide to take the plunge and downsize, there are a number of disadvantages you should consider. A lot of retirees overestimate how much they will save from downsizing. According to the Canadian Mortgage and Housing Corporation (CMHC), closing costs can range from 1.5% to 2.5% of purchase price. If you’re selling your house in the city for $500,000 and you’re buying a house in the suburbs for $350,000, your closing costs could easily add up to over $25,000, walking away with less money than you’d anticipated.

The cost of living can be higher in smaller communities. Everything from groceries to gas may be a few cents more expensive, which can be significant over a number of years. Also, if you aren’t within walking distance to all the amenities, you may have to go out and purchase a new car, which can further eat away at your savings.

Proper research is critical: what is the crime rate? Are property taxes lower than the city? Downsizing to a small town isn’t just a financial decision, it’s a lifestyle decision. If you have family and friends nearby it can be helpful, but moving to a small town solely to save money can leave you feeling isolated and lonely – you may end up living there a couple years and moving back to the city, leaving you in worse financial shape than you started.

Final Thoughts

There are a lot of advantages to moving to a smaller community, but it isn’t a decision to take lightly. If you have concerns, you can always try renting for a few months to see how you like the lifestyle. You’ll want to do a lot of research, speak with family and friends and people that live nearby. Downsizing can let you live the lifestyle you’ve always wanted to in retirement, but it’s important to plan wisely, as the wrong choice can leave can waste your money and time.

About the AuthorSean Cooper is a single, 20-something year old, first time home buyer located in Toronto. He has experience in the financial sector as a Pension Analyst, RESP administrator and Income Tax Preparer. He holds a Bachelor of Commerce in business management from Ryerson University.

Source Links:
Baby boomer statistics: http://www.cbc.ca/news/canada/story/2010/12/30/f-boomers-retire.html





19 Comments, Comment or Ping

  1. 1. Al

    Interesting you assume the downsize means moving to a smaller house and out of the city. We moved to the bigger house in the burbs and when we downsize will go back to a smaller house in the city. Admittedly we may have to break even in the deal. So much for the equity. But the kids are grown up and even they are bored of the lifestyle in bustling Missingsauga. We’d like to be able to walk out to places and not always need a car. And in the long run we should do as well if not better given location, location, location.

  2. 2. SST

    Another con of downsizing will be the massive influx of real estate for sale driving the prices down for sellers. Better hope you are one of the first Boomers to downsize. Or sell your house to your children in 20 years and live with them.

  3. 3. Fit

    I wonder how many people actually pull the trigger and downsize? As owning a big fancy house is a pretty big symbol of “success”, do you think most people do it as a choice… or are forced to?

  4. 4. Geoff

    @ Al – “And in the long run we should do as well if not better given location, location, location.” – So your house in mississauga appreciated more than your house in the city (I assume Toronto?) Interesting and not what I would have thought to be honest.

    Also to the original post – A major downside for moving out to the country when you’re older is lack of easy access to medical care (being 20s, maybe it didn’t make your radar).

  5. Sean,

    Great post! When people decide (my experience) to down size many reasons are given. The number one reason if one digs is(costs) like property taxes going up every year, maintaining the house… costs more and more, plus they want to get the equity out of the house in retirement and live off it!

    Since this is really a question of how one spends their money in retirement.
    Sell RRSPs first, sell open accounts second, sell house etc.

    The question is how to get the most risk free returns later in life and pay the least amount of taxes. This of course requires planning many years before one downsizes their house.

  6. 6. Marianne

    We haven’t actually ‘upsized’ yet. We are still in our starter home and have been here longer than we had originally anticipated. We could move and even make a good profit on our home since we renovated it but I love the low costs associated to living in a smaller home and the thought of moving doesn’t really appeal to me. Eventually we will have to move if we want to have more children but for now I like living in a smaller home much more than originally anticipated. It’s been growing on me! We’ll probably stay put for as long as we can.

  7. 7. Cara

    Interesting take. I’ve seen that a common path is
    1) starter home (condo or townhouse) in the city.
    2) marriage, kids, move to the suburbs and a bigger house.
    3) an even bigger house in the suburbs as income &/or family grows.
    4) kids move out & retirement.
    5) downsize to a smaller place.
    Could be for lower maintenance in same suburbs, move to the country for different lifestyle, or back to the city centre where (as Al points out) lots of activities are within walking distance.

    In fact, I can’t think of anyone I know who has moved to the country or a smaller community when they downsized. They’ve either stayed in the same area or moved back into the city. Unless they’ve moved to another town or province to be closer to kids or grandkids.

  8. Downsizing makes a lot of sense. When I downsize I plan to buy a smaller place to live in, and rent out the bigger home that I have now to supplement my retirement income ( ^^)

  9. 9. Joe

    The baby boomers are going to want to downsize en masse. There’s a five year supply of condos in Toronto (at today’s unsustainably high purchasing rates). GenYs are largely unemployed (and perhaps largely unemployable). The good times for buyers are coming. Just don’t get sucked in at the peak.

  10. 10. krantcents

    I downsized 14 years ago. I no longer needed the 5 bedroom mansion. My children moved out and we moved to a townhouse. We actually moved in a little closer. My mortgage, utilities, insurance, maintenance and property taxes are all lower.

  11. 11. Miki

    The number one reason if one digs is(costs) like property taxes going up every year, maintaining the house… costs more and more, plus they want to get the equity out of the house in retirement and live off it!.Great Post Dude.

  12. 12. ldk

    We’re moving as well now that our oldest is on his own and our youngest is off to college this fall. Like others have mentioned, rather than moving further out, we are selling the large bungalow on the 1 acre lot outside the city and moving closer in to be nearer restaurants, theaters, sporting events, etc.

    New place is actually more expensive (so no unlocking of equity for us!) but we are definitely looking forward to much less yard work and shoveling!

  13. 13. Fit

    it is all about “wasted space”. I know that in the last two home I have owned, there was a lot of wasted space. I don’t know why we needed it haha but we always thought that it would be used. I think a lot of people could downsize, get rid of the useless space, save money, and not even notice a difference

  14. 14. Howard Hare

    Sold and moved to small town, unlocked $300k in equity, now repeating process plus unlocking $400k in equity, smaller house in 55+community as we winter south for six months.

    Inheritance has also provided good cash flow, intend to invest and take higher monthly income, which we may or may not spend.

    I have taught myself how to invest have done so for last 15+ years with good results,beats watching day time TV.

  15. The idea of unlocking equity down the road is an attractive one indeed. The interesting point will be timing. Anyone who downsize by choice the last couple of years certainly sold at or near the bottom of the real estate bull market. (I’m certainly sorry for those who had no choice). The next real estate cycle seems to already be starting. I hope to be in the right place at right time when we become empty nesters.

  16. I’m perfectly happy living in our 900 sq ft two bedroom upstairs portion of our house and don’t see the need for extra space. I don’t know if I could ever live in a 3000 sq ft home- more furniture will be needed etc. etc. more property taxes…

    Another great part about downsizing (many boomers are downsizing into condos and town houses) is that there is no need to do yardwork, maintain the home, clean crap out of gutters, you get the point.

  17. 17. Len

    Better yet, sell now before the bubble bursts and rent. Too much retirement money is tied up what will be a poor and depreciating investment.

  18. Thanks for all the great feedback everyone! All the baby boomers downsizing at the same time is a good point, but I think this is a more gradual thing and something that will happen “en masse”. Maybe now is a good time to think about downsizing while the market is still hot if you can manage it.

  19. The decision to go ahead and downsize is a tough one. Starting a new life all in the name of saving.

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