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Real Life Planning Podcast Episode 30: Is It Time to Downsize?

Real Life

In Episode 30, I discuss when you should consider downsizing to a smaller home and how to lower the maintenance costs of your space.

“Downsizing is a natural response to changes in your family needs and your financial priorities.” - Cynthia Meyer

This week on Real Life Planning Podcast:


What is downsizing? [00:00:20]


When should you consider downsizing your home? [00:01:57]


How can you downsize your housing costs without downsizing your space? [00:03:22]


When is it not the right time to downsize? [00:05:35]

Connect with Cynthia Meyer:

About the Real Life Planning Podcast

Host Cynthia Meyer welcomes fascinating guests to share real-life stories of how they are realizing their financial potential. Each episode explores practical, realistic steps to create results.

Transcript of Episode 30

[00:00:11] Did you ever think you'd like a smaller home? Maybe not even going tiny, but just something a little bit smaller than what you currently have? Hi, I'm Cynthia Meyer and this is the Real Life Planning Video Podcast.

[00:00:21] And today we're talking about downsizing and in particular, whether or not it's time to downsize. So how do we define downsizing. Downsizing is simply selling a larger home and moving into a smaller one. Now, these days it seems much more popular than upsizing. Although there are certainly in my part of New Jersey, there are lots of what you might call "McMansions". It does seem that the homes that go the fastest are the ones that are more reasonable sized; not the seven or 8,000 thousand square foot home. The ones that are a little bit smaller; in the 1800 to 3000 range. Not small. Not tiny. But definitely downsizing from the "McMansion".

[00:01:03] Mobile homes and RV parks have been rebranded as tiny houses and there are hours of television shows devoted to stories about families- including families with kids -that have all gone tiny. They've sold larger homes and they've moved into smaller ones.

[00:01:20] So, when my kids were little - we have a relatively larger house and they used to campaign - they thought it was too large when they were little and they used to campaign for us to move into a tiny home. That kind of went away during Covid when everybody was really happy to have their own space. So we haven't heard much talk of it lately.

[00:01:37] You don't have to go tiny to downsize. Any home that is smaller is generally going to be less expensive to own and to maintain. And so, you might consider downsizing when your kids go off to school or when you're retiring to a different state, or even if you're just trying to save more money. So downsizing is a natural response to changes in your family needs and your financial priorities. Downsizing to a less expensive and smaller home could be right for you if you meet any of these criteria. 

[00:02:08] So first, the kids are grown up and you just don't need the space. 

[00:02:12] Second, you can't afford the house that you're in with your related costs.

[00:02:17] If you've got other big goals that you're also trying to fund, like retiring early or starting a business, or maybe even paying off debt or building emergency savings, you may decide you've bitten off more than you can chew and you want to dial it down a notch so that you have more wiggle room in your budget.

[00:02:33] Another reason to downsize would be that you want to move to a better school district, but homes are more expensive there, so the amount of money that you can spend on housing hasn't changed. So you basically are going to get less for your money there.

[00:02:46] Fourth, you're prioritizing financial independence over increasing your lifestyle. So, an example of this might be somebody who is looking to take the equity in their current larger home, use it to buy a smaller home for cash, and then no mortgage payment. 

[00:03:02] It could be that you are seeking a home that's easier to maintain when you get older, don't have to go up and down stairs, for example or the neighborhood's more walkable. 

[00:03:11] And then six, you might want to spend less time maintaining your home. I know as somebody who owns a larger home with my husband, it's a lot of work. It's a lot of gardening. My husband calls it "lawnfitting." And it's just more work, more to clean- there's just more to do in a larger home. 

[00:03:27] So, can you downsize your costs without downsizing your space? It's possible to do that. Typically that means that you'll be switching neighborhoods or switching states altogether, I'm in the New York City area. Homes are insanely expensive here. If Steve and I were to sell the house that we live in now, we could take the equity that we have in this house and we could buy basically the same house or more in another state for no mortgage. So, that's the typical snowbird. They originally went south for the winter and now they're thinking they want to relocate to a less expensive state. That's often something that you can do if you live in a highly priced area, like the New York City area, or let's say parts of California, for example.

[00:04:13] Alternatives to downsizing, particularly for a new retiree. There could be ways to stay in the current larger home that you have and make money from the home that you already own. In this sharing economy, there are lots of ways to do that. The first and I write about this in in my House Hacking 2.0 guide, the first thing is to take roommates; that's home sharing. You could also, maybe, depending on where you live, you could have an accessory dwelling unit, or some states, it's called a studio or a casita. So you could have an extra rental property on your property.

[00:04:49] You could also rent out pieces of your property for other reasons. That could be like renting your home for events. It could be renting some storage space or an RV pad, for example, and to earn a little bit more money from the property that you already own and thus, downsizing the cost of the property without downsizing the space itself.

[00:05:11] Some people rent out their house on Airbnb or VRBO or another vacation rental platform- that's super popular. In my Real Estate Financial Coach Course, my co-founder, Scott Jensen rents his house on Airbnb. He and his wife and kids go and travel. They do that several times a year. That is another way to downsize costs without having to actually downsize the space that you're in. 

[00:05:36] So when would you not want to downsize? When would you go through this process and think, okay, I'm going to stay put right. So if your total housing costs, which is mortgage interest, taxes, utilities, maintenance, et cetera, if they're 35% or less of your net income, which is your income after taxes, I don't really think as a financial planner that there should be any rush to downsize. There are plenty of reasons to stay put for the time being if your housing costs compared to the average are reasonable. You'd stay put because you like your current home and the size fits your family. You like your neighborhood. Your kids are in school and you like the school district. Your home could be easily modified to age in place. So you can make some simple and inexpensive modifications to it so you can stay there for the rest of your life, if you want to. Maybe you want to stay near grown children or you want to stay near aging parents. Moving is such a big decision and our sense of community is tied to our physical locations in many ways.

[00:06:41] Although there are a lot of advantages to downsizing to a smaller home both in terms of financing and in terms of freeing up time that was formerly spent on maintenance activities, it might make sense not to downsize; only you can decide. I think at certain stages of life- when the kids go off to college and when you're going to be work optional or retired completely. Or even at a time when you're thinking about launching a business and it might be a couple years until you make some serious money. Those are times in our lives to ask whether we want to downsize or not.

[00:07:16] So hopefully this conversation has given you some ideas about how to take yourself through that conversation and to figure out if downsizing is right for you.

[00:07:24] So, any questions about this- comments, leave them below and don't forget to subscribe so you can find out new episodes of the Real Life Planning podcast. Thanks everyone.

If you like this video podcast, consider joining Real Life Planning’s Question of the Week where CERTIFIED FINANCIAL PLANNER™ and rental property business owner Cynthia Meyer answers the most common questions about real estate financial planning direct to your inbox each week. 

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