Author Topic: Would you downsize?  (Read 4589 times)

TOgirl

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Would you downsize?
« on: May 10, 2016, 09:39:40 AM »
Hi everyone,

This is my first post, so please be easy on me! I will do a detailed case study in coming weeks, but I really respect the feedback on this forum and wanted to know - would you downsize in this situation?

We are family of 4 - 2 adults, 2 younger children.

Our current home is a detached 4 bedroom, 2.5 bathrooms, fairly large for us. In the current market, our house is worth approx $650,000. Our existing mortgage is $275,000. Current house needs some upgrades in coming years.

A house down the street from us has come up for sale - categorized as a townhouse, but only connected by garages on either side, 3 bed (plus den upstairs that could be 4th bedroom), 1.5 bathrooms. Downside is that most of the backyard is taken up by an in-ground pool, so no place for the kids to play unsupervised. Asking price is $519,000. if we were to downsize, our mortgage would be reduced to approx $145,000. This house has no upgrades required other than repainting some rooms. Additionally, property taxed and utilities would all be lower (minus pool associated costs).

My mustachian gut is telling me to go for it... any thoughts?

meandmyfamily

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Re: Would you downsize?
« Reply #1 on: May 10, 2016, 09:42:43 AM »
Do you plan to have more kids?  Pools can add up.  If there was no pool it would be tempting.  I can't imagine not having a yard for my small children to run around in.  We have a yard and a pool.  My husband would love to cover the pool with dirt but the kids and I love it.  Just some thoughts.

TOgirl

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Re: Would you downsize?
« Reply #2 on: May 10, 2016, 09:46:20 AM »
No more kids. I agree with you. Actually that is the exact comment I made to hubby - wonder how much it would be to fill in the pool...
We are very close to two parks, a school yard, and a field, but there is the factor of shoving them out the back door that I would miss. That said, they are 7 and 5, so it would only be a few more years until they would think the backyard is the most boring place on earth.

Thanks for the feedback!

Ceridwen

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Re: Would you downsize?
« Reply #3 on: May 10, 2016, 10:13:54 AM »
We are a family of 2 adults, 2 young children, and live in a 3 bedroom, 1.5 bath townhouse.

When we first bought the townhouse, we thought the biggest issues that would make us want to move eventually (we did not necessarily see it as our "forever house") was the lack of private backyard, and the lack of guest bedroom (we have frequent out of town visitors).  We are now finding that those things don't both us much at all. 

The thing we like the least, now that we've lived there for 5 years, is the lack of second full bathroom.  We did not foresee this as a problem, but it is starting to get annoying.  We all wake up at the same time, and even though it's only my husband who showers in the morning, the bathroom is extremely crowded and there is no chance for privacy.  I think this will be an issue when the kids get older.

Obviously, many families get by with no problem with one bathroom.  A second bathroom falls into the "wants" and not "needs" category.  But it's something to think about if you're considering downsizing.

RichMoose

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Re: Would you downsize?
« Reply #4 on: May 10, 2016, 10:17:06 AM »
We are looking to downsize as well. Our current house is quite large, about 2500 sqft finished space. Our goal is to shrink that down to under 1500 sqft.

One comment I would make is that $519k is very expensive for an attached house. What market are you in? Have you done the math to see if you would be much better off renting. Here's a good calculator to find out.

US: http://www.nytimes.com/interactive/2014/upshot/buy-rent-calculator.html?_r=0
Canada:  http://www.getsmarteraboutmoney.ca/tools-and-calculators/buy-or-rent-calculator/buy-or-rent-calculator.aspx#.VzIJSPkrKM8

TOgirl

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Re: Would you downsize?
« Reply #5 on: May 10, 2016, 10:35:52 AM »
Thank you for the feedback!

As for the asking price - it is high, but we are very close to Toronto, so everything is high (and despite high asking prices, everything has multiple offers too!!) My main concern was using the equity that this high market has provided us with in our current home to decrease our mortgage by more than half if we sell and purchase the cheaper home.

In terms of a second full bath - I agree - we are going to view the house today, and I will be looking to see if space in the basement allows a bathroom.

ShoulderThingThatGoesUp

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Re: Would you downsize?
« Reply #6 on: May 10, 2016, 11:02:46 AM »
How much could the $350,000 or so in equity that you have get you closer to FI? Are you at a point you can "cash out" and move to someplace with lower home values?

meandmyfamily

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Re: Would you downsize?
« Reply #7 on: May 10, 2016, 11:38:44 AM »
Definitely worth looking into and running the numbers.  We live in Arizona so we can use our pool a lot.  How often can you use it where you live?  That said it costs us quite a bit in maintenance and electricity.  Are there any around without a pool?

TOgirl

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Re: Would you downsize?
« Reply #8 on: May 10, 2016, 11:50:26 AM »
We are quite new to mustache life, so we can't cash out quite yet.

My job is very necessary right now, and it is right downtown, so our current location is a happy medium of lower than downtown house costs, and not too long of a commute.

We'd be able to use the pool mid-May to mid-September.

I've also looked at the cost of removing the pool - would be between $10,000-$15,000.


crispy

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Re: Would you downsize?
« Reply #9 on: May 10, 2016, 12:17:20 PM »
We downsized this past August and are very happy with the decision so I would go for it if the numbers work out.  My only question is about the townhome.  Is there an HOA involved and is there a monthly fee?  Any potential for special assessments?  That could really eat into any savings advantage.

zephyr911

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Re: Would you downsize?
« Reply #10 on: May 10, 2016, 02:09:52 PM »
Dooo eeeeet! Downsizing was one of the best things we ever did.

patchyfacialhair

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Re: Would you downsize?
« Reply #11 on: May 10, 2016, 02:23:59 PM »
While I'm a big fan of downsizing (walking the talk here in a 1BR/1BA apartment)...one thing I'd consider would be HOA fees if there are any. Being that you'll be attached to neighbors...that could be a factor that closes the gap between your current mortgage and your potential smaller mortgage.

Worst case scenario? HOA fees, pool maintenance fees, and a noisy neighbor all leave a bad taste in your mouth, and you're no better off than you were before, save for a smaller mortgage balance.

Best case? You save a little each month on mortgage and utilities?

icemodeled

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Re: Would you downsize?
« Reply #12 on: May 10, 2016, 02:35:01 PM »
I think it sounds like a good idea, seems like you will avoid some upcoming maintenance costs with current home to. Just really run the numbers and look at the new costs of the pool. Otherwise, since it's in the same area nothing else should increase costs. Half the mortgage left is great!

We are in the process of downsizing now. We own a decent size home, about 2000 sqft and its just 2 of us. A lot of wasted space! We just bought a 1300 sqft home, all one level which is easier I think to maintain(like gutters are easier to get to). Also, we eliminated us having to have flood insurance($1000 a year alone). Looking into all the factors and numbers it just made sense.

clarkfan1979

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Re: Would you downsize?
« Reply #13 on: May 10, 2016, 04:59:40 PM »
My wife and I lived in a 1750 sq. ft. house with no kids and used about 900 sq. ft. We recently moved to a studio apartment that is 322 sq. ft.

To be honest 322 sq. ft. is a little small for us even with no kids. 

I think our sweet spot would 750 sq. ft. with no kids and 950 sq. ft. with 1-2 kids.

okits

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Re: Would you downsize?
« Reply #14 on: May 10, 2016, 10:35:50 PM »
In the current market, our house is worth approx $650,000. Our existing mortgage is $275,000.

Asking price is $519,000. if we were to downsize, our mortgage would be reduced to approx $145,000.

I assume your $650k estimate for your house is based on comparable recent sales in your area.  Is the $519k estimate based on the same kind of research or just an assumption that the asking price reflects what you would be able to get the townhouse for?  Unfortunately, this is Canada, no Zillow yet.

Is the mortgage reduction of $130k based on the below math?

Sell 650k - buy 519k = 131k difference
275k mortgage - 131k difference = 144k new mortgage

Subtract any of the applicable: realtor fees, marketing costs to sell your home if you do it yourself, real estate lawyer fees, land transfer tax (if you're not actually in Toronto hopefully you dodge the double tax), mortgage amendment costs, bridge financing costs (if your closing dates don't line up perfectly), staging costs for your home, home inspection report cost, moving costs, any time off work you need to take to accomplish the sale-purchase-move.  Even if the purchase price for the townhouse is an accurate estimate, I would be pretty surprised if you could carry off the entire transaction for a thousand bucks in costs.

Do you perceive there to be a disconnect between Greater Toronto Area real estate prices and family income levels?  If so, does it concern you?  For the majority of people detached > semi > row/townhouse > high-rise condo.  If you're concerned about an overly hot real estate market I would speculate that detached homes will hold their value best, and if the run up in prices continues, detached homes will continue to rise in value the most.

Just to be sure, double check that the townhouse is in your current school catchment area (or the one you want to be in.)

dess1313

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Re: Would you downsize?
« Reply #15 on: May 10, 2016, 11:03:35 PM »
the differences you really need to be concerned about
cost of pool maintenance/removal
any condo/home owner association fees
how much different are the taxes
and all homes need maintenance at some point.  you don't say what your current one is needing.

sure you could downsize, but if the taxes are similar, or you add condo fees, you haven't really gained anything

Goldielocks

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Re: Would you downsize?
« Reply #16 on: May 10, 2016, 11:04:05 PM »
Based on numbers,

You will still have a large-ish mortgage, and may still be expending a similar amount each month.  The difference is the reduced interest on $100k or so x 3% = $3000 per year.


Most people move in about 5-7 years.  That savings may be overtaken by the realtor  fees / moving costs quickly.

So the difference is maybe a lower monthly mortgage, today plus cost to relocated, today;  versus extricating the equity in 5-7 years.

The question is  -- do you have cash for your closing costs and move?  Will you pull it from your equity?
What would you do with the aniticipated monthly savings of under $300/month?   Would it make a huge difference to you now because income is very tight?


I would move if cashflow demanded it, or if I was solving a specific goal, or if I really disliked something about my current place.... but not just to realize a smaller (but still substantial) mortgage.


TOgirl

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Re: Would you downsize?
« Reply #17 on: May 11, 2016, 05:20:01 AM »
Wow. Thank you so much for all of the responses.

We went to view the townhouse again yesterday, this time with the kids. It does feel quite cramped - mostly just due to layout issues. And when we got home, the kids promptly ran out our back door to play...so I think they answered the most nagging question for me - I do need a place for them to run and play, instead of just a backyard that is usable from May/June- September.

And after reading all of the responses, along with visiting the house, I can see that I would likely grow tired of the nuisances of attached living quite quickly, and might be left longing for our old home fairly soon.

We are already making prepayments to the mortgage every 2 weeks, so I will just continue to chip away at it bit by bit, and likely downsize once the kids are older and on their way out. I can definitely see by trends in our area that detached homes will hold their value well.

Thanks again everyone!

dkaid

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Re: Would you downsize?
« Reply #18 on: May 11, 2016, 11:56:19 AM »
We just downsized last year and I allowed myself to forget how expensive it is to move- thing really add up quickly.  It worked for us because we came out (mostly) mortgage free- we ended up needing about $25K from a home equity. 

I agree the most with the last few posters that's its not enough savings to justify in your situation and that townhouses have greater market downside risk. 
I think you are making the right call to pass for now. 

dess1313

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Re: Would you downsize?
« Reply #19 on: May 11, 2016, 08:34:37 PM »
Wow. Thank you so much for all of the responses.

We went to view the townhouse again yesterday, this time with the kids. It does feel quite cramped - mostly just due to layout issues. And when we got home, the kids promptly ran out our back door to play...so I think they answered the most nagging question for me - I do need a place for them to run and play, instead of just a backyard that is usable from May/June- September.

And after reading all of the responses, along with visiting the house, I can see that I would likely grow tired of the nuisances of attached living quite quickly, and might be left longing for our old home fairly soon.

We are already making prepayments to the mortgage every 2 weeks, so I will just continue to chip away at it bit by bit, and likely downsize once the kids are older and on their way out. I can definitely see by trends in our area that detached homes will hold their value well.

Thanks again everyone!

If a move is still an option something you should consider is this.  Take those extra payments for a short time and make a moving fund.  It could cover some real estate fees, lawyers, prepayment of initial taxes, moving services, etc etc.  It would help keep you from being strapped when you do decide to move quickly