Downsizing the house after FIRE

[Monkey Uncle]

I FIREd a little over six years ago, and DW has not worked outside the home for a lot longer than that.  We have been living in a house that's too big for us for quite a while now, and we've been half-heartedly thinking about downsizing for a while.  We've never really gotten serious about it because finding something we like in our real estate market is tough.  But now that we've gotten a bit older and started traveling more, we've gotten more and more disenchanted with keeping up the big house and property, and we're starting to think a little more seriously about downsizing.

The goal is to use the equity in the current house to pay off the mortgage (only about 30k remaining), buy the new smaller house, and pay closing costs, moving expenses, renovations/repairs, and any other costs associated with getting into the new house.  I think all of that is possible, but I'm getting hung up on the timing of the whole process.  Unless we want to get some kind of short term loan to enable buying the new house up front, we'd need to sell the current house first, and then find some place to live while we locate, buy, renovate, and move into the new place.  The short term rental market here sucks, so I'm not sure how likely it would be for that to work out.  We have a small travel trailer, which is fine for the month-long trips that we occasionally take, but I don't know if we'd want to live in it indefinitely while the process plays out.  I've heard of rent-back agreements where the seller continues to live in the house for a while after the sale closes, but I don't know how likely we would be to find a buyer who would agree to that, especially if we aren't sure how long it will take to get into the new house.  The short term loan thing seems unlikely given that the MAGI we report for ACA eligibility is about $28k.  Some of that is my wife's SS benefit, so our AGI is even lower.  Of course we have more than enough assets to back up any loan that we would get, but my experience has been that lenders tend to focus on income instead of assets.

An additional complication is the lack of houses that we like in our market.  It's a small town in a rural area.  We've watched the MLS for years and haven't seen a property that we liked enough to bother going to look at it.  Which means we might be looking at buying a lot and either building or putting a modular home on it.  Which adds even more potential wrinkles to the timing of everything.

Is there anyone out there who has pulled off downsizing after FIRE?  How did you handle it?

[lhamo]

I'm in the middle of it right now.  Isn't going quite as smoothly as I had hoped.  We sold the big house quickly last summer and moved into a rental with an 11 month lease (owner wanted to push the renewal date back to July 1, which is more peak moving time around here).  Idea was that would give me time to find the next house without too much pressure.  Well, I did that -- found a good house at a great price that needed some work to make it my longer term age in place home.  I closed on that one at the end of September.  But have faced delays with getting the remodel work going and now I am facing the current lease running out and I don't want to renew -- rental was shared with TheX who is moving to another state, and is too big/expensive for me to carry on my own even if they would let me go month to month, which they probably wouldn't.  But my new house will not be finished before the end of my lease.  I'm hoping to finalize the contract/schedule next week and then I'll figure out intermediate housing.  I'm going to have to throw more money at the problem, probably rent storage (I had some storage space at the new house but not a ton).  Trying not to get too freaked out and focus on the longer term, big picture.  The house will be great for me for the next 20-40 years.  The changes I'm making to it will make it possible for me to live there even if my mobility declines.  It is an excellent investment, too -- so if I do need to sell and move to a facility with care, I'll have a nice hunk of cash to fund that with in addition to my stash, which will continue to grow.

What makes it a bit more challenging is that I am 55.5, so I still need to cash flow another 4 years of FIRE before I can easily tap my retirement funds without financial consequences.  I DO have a lot of Roth contributions and conversions I could draw on if I absolutely had to, but reluctant to do that since it will cost me more later to get money back into the Roth bucket.

All small problems in the grand scheme of things. 

If I were you, I think I'd look for an acceptable rental and downsize.  Then mix the travel you want to do with the house search.  Maybe you will find another location you would prefer to move to.  Then you won't be stuck with unloading a new/smaller house in an atypical market

[Fru-Gal]

Have you looked into pre-fab tiny houses? I stayed at a hotel that was all tiny houses and you would be surprised at how spacious they are. There were many different designs, and large decks and high ceilings added to the sense of space. You might find some places like that to stay at in your travels and see if you like them.

My fave house hack that I keep hoping someone will do (probably not me since I’m in my forever home & garden) is to buy land or a lot and then put 1 or more tiny houses on it. At least in my area a tiny house is technically a trailer, not an improvement to the land, thus property tax stays low.

You could also rent a space for the tiny house.

Note, the term “tiny” is relative — some of these are quite a bit larger than a travel trailer or RV, but under 600 square feet.

[Monkey Uncle]

Ihamo, thank you for sharing your experience.  That sounds like exactly the sort of complicated scenario I was hoping to avoid. ;)  I hope it all works out for you.

I should have mentioned that relocation to another area probably isn't an option.  Our adult son lives nearby, and due to some ongoing challenges that he's dealing with, we don't want to leave the area.  Also, real estate is more expensive in any other place we would want to live, which makes the math a lot more difficult.

Fru-Gal, I don't think we'd want to do a tiny house.  Although we are fine in our travel trailer for a month or so when we take trips, I don't think we'd want to commit to living in a very small space for potentially the rest of our lives.

Another point I probably should have covered in the OP: If push came to shove, we could use money from the stash to buy a house outright.  But of course that would trigger a large tax bill, which would reduce the amount we could put toward buying/closing/renovating/etc.  And I would be sweating bullets until we sold the current house and replenished the stash that generates our daily living funds.

[2sk22]

Part of the problem with downsizing is that there are fewer small homes being built nowadays. If we have to downsize, it will have to be to some kind of an apartment - not many single level homes in our area (northern NJ)

[Monkey Uncle]

I did a little more poking around and learned that my broker might be able to offer bridge financing in the form of a pledged asset line of credit (PAL).  Basically borrowing against the value of my investment portfolio, which would allow me to get the bridge loan that a regular bank likely wouldn't make for someone like me who has substantial assets but not much income.  So I could leverage the value of the portfolio to buy a new house before selling the old one, without actually liquidating securities and triggering a big tax bill.  Which would mean no need for short term housing, and only one move instead of two.  However, the securities pledged to secure the loan would not be available to fund living expenses, which might mean we would need to make all that happen relatively quickly.

[Monkey Uncle]

Part of the problem with downsizing is that there are fewer small homes being built nowadays. If we have to downsize, it will have to be to some kind of an apartment - not many single level homes in our area (northern NJ)

In our area there aren't many new homes of any kind.  And we also have the problem of not many single level homes.  We could make do with two levels as long as the primary bedroom and bath are on the ground level.  Another problem limiting our choices here is that most homes have steps accessing the entry, usually too many and too steep to build a ramp over them.  Although we don't have any mobility problems now, it's a major consideration for a house that might be our last move.

[Morning Glory]

Part of the problem with downsizing is that there are fewer small homes being built nowadays. If we have to downsize, it will have to be to some kind of an apartment - not many single level homes in our area (northern NJ)

In our area there aren't many new homes of any kind.  And we also have the problem of not many single level homes.  We could make do with two levels as long as the primary bedroom and bath are on the ground level.  Another problem limiting our choices here is that most homes have steps accessing the entry, usually too many and too steep to build a ramp over them.  Although we don't have any mobility problems now, it's a major consideration for a house that might be our last move.

A social worker I used to work with called them "peter-pan houses".

Are there any split levels with the garage underneath? Those are fairly simple to convert to a duplex with the lower level being accessible, provided that there are no issues with water seepage.