Author Topic: Sell house and downsize now or at retirement  (Read 1519 times)

surprise

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Sell house and downsize now or at retirement
« on: January 13, 2019, 07:03:02 PM »
I am 45 and plan to retire at 50. Through diligent saving, we should be pretty close to our investable asset number by then. I have a question about what to do with our house. We have about $500K in equity in the house. It is an expensive house to live in, nearly $40K in mortgage, prop taxes and insurance a year. There is no problem in being able to afford it, but I'm walking through the various strategies to see if the money is better spent (saved) elsewhere. We have no plans to live in this house once we're retired and the kids are gone, so it will be sold eventually.

Option 1 is to sell the house and buy a smaller house outright. No mortgage. Prop taxes would be about half on a smaller house, so we'd have an extra ~25K to invest/save for the next 5 years. Most likely more because all utilities etc would reduce as well.

Option 2 is to sell, downsize into a smaller home and carry a mortgage, putting maybe $400K into the market immediately and letting it grow the next 5 years. Mortgage will probably be similar as now, but overall house expenses will be reduced. Putting $400K to work now gets us really close to our 'number' as well, which potentially means retiring even sooner.

Option 3 is to do nothing until we actually retire, and then revisit options 1 and 2 above.

I worry about dumping a lot of money into the market at this moment. There seems to be a lot of uncertainty over where the market is headed. I could put it in safe investments, but would the smallish gain be worth disrupting my family with a big move.

Thanks for any help.


dcheesi

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Re: Sell house and downsize now or at retirement
« Reply #1 on: January 13, 2019, 07:32:28 PM »
Financially, options 1 or 2 are your best bet. Even if the market is in a weird place right now, it's still the best place to be long term.

If you're risk-averse, then option 1 would probably make the most sense. A paid off house brings a lot of peace of mind. Plus your market exposure is limited.

As for option 3, I would ask when your children are expected to go off to college or whatever? If that's before or coincident with retirement, that might be the best time to transition. If it's later, then you'd have to deal with the disruption at some point, only you can know when the best time is for that.

ysette9

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Re: Sell house and downsize now or at retirement
« Reply #2 on: January 13, 2019, 08:21:58 PM »
Now about options 4: sell, downsize, buy with 20% down, invest the rest, and don’t pay off the mortgage early? No one says you have to have a paid-off house to retire.

Freedomin5

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Re: Sell house and downsize now or at retirement
« Reply #3 on: January 14, 2019, 02:52:52 AM »
I would probably pick option 1 or 2. If youíre planning to retire in 5 years, you may want to keep a portion of the proceeds in cash to cover your first few years of FIRE, in case of a market downturn. But if youíll be working for the next five years, you probably donít need a cash buffer right at this moment. In which case, option 2 is probably best financially, whereas option 1 is a more conservative approach depending on your risk tolerance.

Linea_Norway

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Re: Sell house and downsize now or at retirement
« Reply #4 on: January 14, 2019, 04:22:15 AM »
Housing prices can vary over the years and so can the stock market. I would sell and cash in the house now as long as the market is good. Isn't your stock market very low now? Then it is a good moment to put house money into the stock market.

We are in a very similar situation. We are very much at our FIRE number, but it requires the big house to be sold for a good price. We are planning to sell this spring (see my journal).

Downsizing in your case is very smart to reduce the cost of living (property tax etc). As you will FIRE in 5 years, you should also think about where you want to live after FIRE. Are you going to live in the same area and do you want to buy your future FIRE house now? Then go ahead. But if you want to live somewhere else after 5 years, then please calculate if it is profitable to buy another house now, instead of renting a house. Transaction costs and maintenance costs are often ignored when comparing buy vs rent. Use one of the calculators that exist online.

MrThatsDifferent

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Re: Sell house and downsize now or at retirement
« Reply #5 on: January 14, 2019, 07:15:51 AM »
Option 6: sell, invest the money and rent, for life. Youíll save even more and have lots of flexibility.

Laura33

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Re: Sell house and downsize now or at retirement
« Reply #6 on: January 14, 2019, 07:48:38 AM »
First, congrats on being in a good position to FIRE by 50!

Second:  when you are spending lots of money on more than you need, math says the sooner you cut that back, the better.  The issue with real estate, though, is the transaction costs.  In particular, would you downsize now to your permanent retirement house?  Or would you downsize to a medium-sized place now, and then potentially downsize even more and/or move to a different area once the kids are out of the house?  If you are looking at the first option, by all means, downsize now and buy a new house with 20% down and invest the rest.*  If you are looking at the second option, you need to do the math on how much you would save vs. the extra costs of buying/selling/moving twice.


*Yes, what's going to happen next with the market is unknown.  Guess what?  It's always unknown.  Buy now and you are buying the same companies you'd have bought 6 months ago, except now they're on sale.  This is called "timing the market" -- almost impossible to do on purpose, but if you can luck into it and buy in a slump, you should be jumping up and down with joy.

Unique User

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Re: Sell house and downsize now or at retirement
« Reply #7 on: January 16, 2019, 06:22:42 AM »
How old are your kids and how much disruption?  Will the kids have to move schools and if so are they okay with that?  Are you sure you plan to live in the area after retirement?  If you can buy a cheaper house and your kids will go to the same schools, I'd go for #1 or #2, but plans can change a lot in 5 years. 

CindyBS

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Re: Sell house and downsize now or at retirement
« Reply #8 on: January 16, 2019, 09:48:30 AM »

How old are your kids?  Would you be changing communities and/or schools?  I also think it is one thing to have your kids go from a pretty big house to a smaller house when they are older teens or in college and aren't home much due to being in activities, away at college, working, going out with friends, etc..  It is different when kids are younger and less independent and spend more time at home. 

Cassie

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Re: Sell house and downsize now or at retirement
« Reply #9 on: January 18, 2019, 01:43:04 PM »
Options 1 and 2 sound best if you are not disrupting kids schools, friends, etc.

JCGreen

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Re: Sell house and downsize now or at retirement
« Reply #10 on: January 19, 2019, 09:03:12 PM »
I am going to say that selling a house that is too big is better to do sooner than later, but I am not sure why you want to buy a second home so soon? Assuming you still have kids living a home now, might it be wise to sell now,  (to get money into the market, and reduce utility usage) rent a medium sized house with the kids to lower expenses, then buy or rent if and when you are ready? If the house is the perfect size for you now though (given kids) I don't see the point in trying to sell. The only way renting doesn't make sense is if it cost way more per year to rent than to stay at you current place.