Author Topic: Downsizing the house after FIRE  (Read 7890 times)

Monkey Uncle

  • Handlebar Stache
  • *****
  • Posts: 1752
  • Location: West-by-god-Virginia
Downsizing the house after FIRE
« on: May 05, 2024, 07:24:08 AM »
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

  • Magnum Stache
  • ******
  • Posts: 3177
  • Location: Seattle
Re: Downsizing the house after FIRE
« Reply #1 on: May 05, 2024, 09:04:08 AM »
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

  • Handlebar Stache
  • *****
  • Posts: 1277
Re: Downsizing the house after FIRE
« Reply #2 on: May 05, 2024, 09:34:05 AM »
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 Iím 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 ďtinyĒ is relative ó some of these are quite a bit larger than a travel trailer or RV, but under 600 square feet.
« Last Edit: May 05, 2024, 09:37:34 AM by Fru-Gal »

Monkey Uncle

  • Handlebar Stache
  • *****
  • Posts: 1752
  • Location: West-by-god-Virginia
Re: Downsizing the house after FIRE
« Reply #3 on: May 05, 2024, 11:29:40 AM »
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

  • Handlebar Stache
  • *****
  • Posts: 1523
Re: Downsizing the house after FIRE
« Reply #4 on: May 05, 2024, 02:22:56 PM »
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

  • Handlebar Stache
  • *****
  • Posts: 1752
  • Location: West-by-god-Virginia
Re: Downsizing the house after FIRE
« Reply #5 on: May 06, 2024, 07:33:58 AM »
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

  • Handlebar Stache
  • *****
  • Posts: 1752
  • Location: West-by-god-Virginia
Re: Downsizing the house after FIRE
« Reply #6 on: May 06, 2024, 07:38:20 AM »
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

  • Magnum Stache
  • ******
  • Posts: 4901
  • Location: The Garden Path
Re: Downsizing the house after FIRE
« Reply #7 on: May 06, 2024, 07:50:17 AM »
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.

BlueHouse

  • Magnum Stache
  • ******
  • Posts: 4158
  • Location: WDC
Re: Downsizing the house after FIRE
« Reply #8 on: May 10, 2024, 02:31:51 PM »


My fave house hack that I keep hoping someone will do (probably not me since Iím 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.

That sounds awesome to me too. One of my biggest fears is building on land that will flood.  Has anyone ever built a home that instead of a foundation has basically an ice-breaker style of boat under it, so if floods come, you just rise with the water?  (aside from Noah, of course)

Fru-Gal

  • Handlebar Stache
  • *****
  • Posts: 1277
Re: Downsizing the house after FIRE
« Reply #9 on: May 10, 2024, 04:32:22 PM »
There are many techniques worldwide for building in areas that flood, but my favorite technique is not building in an area that will flood.

bill1827

  • Stubble
  • **
  • Posts: 183
Re: Downsizing the house after FIRE
« Reply #10 on: May 11, 2024, 01:55:13 AM »


My fave house hack that I keep hoping someone will do (probably not me since Iím 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.

That sounds awesome to me too. One of my biggest fears is building on land that will flood.  Has anyone ever built a home that instead of a foundation has basically an ice-breaker style of boat under it, so if floods come, you just rise with the water?  (aside from Noah, of course)

https://www.granddesignsmagazine.com/grand-designs-houses/grand-designs-amphibious-house-buckinghamshire/

Only available to those with very deep pockets who wish to live in a very desirable and very expensive area.

former player

  • Walrus Stache
  • *******
  • Posts: 8939
  • Location: Avalon
Re: Downsizing the house after FIRE
« Reply #11 on: May 11, 2024, 02:12:04 AM »
There are many techniques worldwide for building in areas that flood, but my favorite technique is not building in an area that will flood.
True, but there are increasing numbers of floating houses in the Netherlands where non-flooding land is limited.

Fru-Gal

  • Handlebar Stache
  • *****
  • Posts: 1277
Re: Downsizing the house after FIRE
« Reply #12 on: May 11, 2024, 04:43:21 PM »
Definitely prefer an already-floating house to one that is prepared to float in an emergency! Flooding is incredibly dangerous, and flash floods (such as what happens in desert canyon areas like Moab or Death Valley) are even more so.

Beyond that, there is a very cool ecological value to not building in areas prone to natural disaster: It leaves them pristine. At least in the US, this has not been seen as a win-win, however, so there are tons of settlements and developments in areas prone to fire, flood, landslide, earthquake, hurricane, sea level riseÖ Not to say that humans havenít always been drawn to create ingenious solutions to such problems, but in our modern era where we have so many alternative options, it just seems wasteful and destructive to willfully build where natural disaster has a higher statistical likelihood of happening.

BlueHouse

  • Magnum Stache
  • ******
  • Posts: 4158
  • Location: WDC
Re: Downsizing the house after FIRE
« Reply #13 on: May 11, 2024, 04:49:14 PM »

Only available to those with very deep pockets who wish to live in a very desirable and very expensive area.

two out of three. 

Gerard

  • Handlebar Stache
  • *****
  • Posts: 1580
  • Location: eastern canada
    • Optimacheap
Re: Downsizing the house after FIRE
« Reply #14 on: May 16, 2024, 01:11:11 PM »
there is a very cool ecological value to not building in areas prone to natural disaster

This is sort of what happened in Toronto. A bunch of people died, and a bunch more lost their homes, in Hurricane Hazel (1954). People weren't allowed to rebuild in the flood plains, which became parks that are now pretty heavily forested (which further controls any future flooding). The forested ravines are now wildlife corridors and bike paths, and an important contributor to quality of life in the city.

GilesMM

  • Handlebar Stache
  • *****
  • Posts: 1620
  • Location: PNW
Re: Downsizing the house after FIRE
« Reply #15 on: May 16, 2024, 10:11:02 PM »
Most people talk of downsizing but wat they really mean is living in a space that is better suited to their needs and probably requires less mental and physical effort to maintain.  So think about what you really need in terms of space, location, any outdoor space and then what maintenance requirements you are willing to manage.  Some people downsize into a high-rise because their maintenance budget and effort goes to near zero (but they have a condo fee). Outdoor space may be a balcony plus shared common areas that are spotlessly maintained.  Others just change from a high-maintenance property to one that is low maintenance or readily maintained by others.


We recently upsized in square footage but the house is overall far easier to manage.  One of the oddest impacts is that none of the flooring anywhere in the house shows dog fur.  That is a first for us.  We "inherited" the cleaner and yard guy who already take care of everything inside and out, even when we are away, so it is way better than the former house which could easily suck up 100% of my time and then some.


Everyone has their own financing approach. We had some cash undeployed and sold some stock and thus had two houses at once.  You can sell first, rent, then buy.  You can try to synch them with a contingent contract.  You can maybe get a line of credit somehow.

Monkey Uncle

  • Handlebar Stache
  • *****
  • Posts: 1752
  • Location: West-by-god-Virginia
Re: Downsizing the house after FIRE
« Reply #16 on: May 17, 2024, 05:29:15 AM »
Most people talk of downsizing but wat they really mean is living in a space that is better suited to their needs and probably requires less mental and physical effort to maintain.  So think about what you really need in terms of space, location, any outdoor space and then what maintenance requirements you are willing to manage.  Some people downsize into a high-rise because their maintenance budget and effort goes to near zero (but they have a condo fee). Outdoor space may be a balcony plus shared common areas that are spotlessly maintained.  Others just change from a high-maintenance property to one that is low maintenance or readily maintained by others.


We recently upsized in square footage but the house is overall far easier to manage.  One of the oddest impacts is that none of the flooring anywhere in the house shows dog fur.  That is a first for us.  We "inherited" the cleaner and yard guy who already take care of everything inside and out, even when we are away, so it is way better than the former house which could easily suck up 100% of my time and then some.


Everyone has their own financing approach. We had some cash undeployed and sold some stock and thus had two houses at once.  You can sell first, rent, then buy.  You can try to synch them with a contingent contract.  You can maybe get a line of credit somehow.

Yeah, that's what makes it so hard to find something we like.  We want something smaller in square footage and number of rooms, but that has adequate storage and a spacious, well-laid-out kitchen.  Single level (or at least master and all living spaces on a single level) for aging in place.  Enough outdoor space to buffer us from neighbors, but not a high maintenance yard.  We aren't really "neighborhood" people, and any kind of multi-unit situation is definitely out.  And the cost numbers have to work out.  We don't ask for much, LOL.

For financing, if we do it reasonably soon, I think we can get a pledged asset line of credit from our broker that is secured by the investments in our taxable account.  If we wait too long, we may spend down that account too far to both cover the loan and fund living expenses during the transition.  The PAL would allow a buy first, move once approach, which we would greatly prefer to a temporary living situation and moving twice.  The risk with that approach is that we have to be careful not to spend too much on the new house such that the proceeds from the sale of the old house won't cover it all.

Verdure

  • Stubble
  • **
  • Posts: 168
Re: Downsizing the house after FIRE
« Reply #17 on: May 17, 2024, 09:02:09 AM »
What about the tiny house idea as a temporary solution? Could you buy land with enough room to put a tiny house to live in while you build a traditional house? Then when your house is finished you could sell the tiny house to someone willing to haul it away, or potentially rent it out, or use it for your own purposes (studio, workshop, guesthouse, etc)

Monkey Uncle

  • Handlebar Stache
  • *****
  • Posts: 1752
  • Location: West-by-god-Virginia
Re: Downsizing the house after FIRE
« Reply #18 on: May 17, 2024, 05:51:38 PM »
What about the tiny house idea as a temporary solution? Could you buy land with enough room to put a tiny house to live in while you build a traditional house? Then when your house is finished you could sell the tiny house to someone willing to haul it away, or potentially rent it out, or use it for your own purposes (studio, workshop, guesthouse, etc)

I suppose that's possible, but it seems like a lot of extra and unnecessary hassle.  We'd still have to buy the land and the tiny house, put in utilities, do site work, etc. prior to selling the existing house.  Then move and put stuff into storage while the new house is being built.  Then move into the new house when it is finished.  Then sell the tiny house (may or may not recoup the entire amount paid for it).  If I were going to go the temporary housing route, I'd probably try to find a way to use our existing travel trailer.

The more I think about it, the more I'm liking the idea of PAL for a bridge loan.  We'd just need to be careful not to overspend on the new house, and we'd need to move fairly quickly so the loan isn't outstanding for too long (the interest rate is pretty ridiculous).  I've submitted an inquiry to my broker to find out more about it. 

Emilyngh

  • Pencil Stache
  • ****
  • Posts: 902
Re: Downsizing the house after FIRE
« Reply #19 on: May 17, 2024, 08:19:16 PM »
We just did this and it was one of the very best decisions I've ever made! TBF it was right before I retired, so I was able to get a HELOC on the house we were downsizing from to use to buy the new house before selling. I'm not sure if being retired would complicate this in that the bank may require employment for a HELOC?

We downsized from a 2000 sqft house on 2 acres outside of town to a 1400 sqft house that's walking distance to the heart of our cute downtown area.  We used the HELOC to buy the new house while we still lived in the old one. As we chose to buy a house that needed a total renovation, we still lived in the old house for almost a year after purchasing the new.  We paid for the contractor and everything for the renovation with the remainder of the HELOC after the house purchase (the renovation cost more than the house) and using our stack of 0% credit cards for everything we could. We then moved into the new house, sold the old house, and used to proceeds to pay off all of the HELOC and credit cards.

By buying an old house in major disrepair in the area we wanted to live and doing a full renovation down to the studs, I was able to design the layout and all of the details to be exactly what I wanted. We really lucked into finding a wonderful contractor (which is another essential component IMO).  I do think it's harder to make a small space work if this isn't the case (eg., we took down walls in the downstairs to make less useable spaces like the foyer more useable, put in a totally new kitchen with an efficient layout and features that expands into what was the dining room, added a half bath and laundry room to the main floor, and opened up one of the upstairs bedroom to make a large upstairs loft, which really helped make the space more useable for us).  We also had the roof replaced, new hvac, plumbing and sewer line replaced, floors restored and refinished, electrical entirely rewired, patio and sidewalks redone, privacy fence added, brand new kitchen and bathrooms with exactly the little details I wanted added, etc.  I decided I'd rather have a smaller place that had the exact details and layout I wanted, in walking distance to town, with no mortgage, and while it was kind of a stressful process, I am so so happy we did it!

Monkey Uncle

  • Handlebar Stache
  • *****
  • Posts: 1752
  • Location: West-by-god-Virginia
Re: Downsizing the house after FIRE
« Reply #20 on: May 18, 2024, 04:49:11 AM »
We just did this and it was one of the very best decisions I've ever made! TBF it was right before I retired, so I was able to get a HELOC on the house we were downsizing from to use to buy the new house before selling. I'm not sure if being retired would complicate this in that the bank may require employment for a HELOC?

We downsized from a 2000 sqft house on 2 acres outside of town to a 1400 sqft house that's walking distance to the heart of our cute downtown area.  We used the HELOC to buy the new house while we still lived in the old one. As we chose to buy a house that needed a total renovation, we still lived in the old house for almost a year after purchasing the new.  We paid for the contractor and everything for the renovation with the remainder of the HELOC after the house purchase (the renovation cost more than the house) and using our stack of 0% credit cards for everything we could. We then moved into the new house, sold the old house, and used to proceeds to pay off all of the HELOC and credit cards.

By buying an old house in major disrepair in the area we wanted to live and doing a full renovation down to the studs, I was able to design the layout and all of the details to be exactly what I wanted. We really lucked into finding a wonderful contractor (which is another essential component IMO).  I do think it's harder to make a small space work if this isn't the case (eg., we took down walls in the downstairs to make less useable spaces like the foyer more useable, put in a totally new kitchen with an efficient layout and features that expands into what was the dining room, added a half bath and laundry room to the main floor, and opened up one of the upstairs bedroom to make a large upstairs loft, which really helped make the space more useable for us).  We also had the roof replaced, new hvac, plumbing and sewer line replaced, floors restored and refinished, electrical entirely rewired, patio and sidewalks redone, privacy fence added, brand new kitchen and bathrooms with exactly the little details I wanted added, etc.  I decided I'd rather have a smaller place that had the exact details and layout I wanted, in walking distance to town, with no mortgage, and while it was kind of a stressful process, I am so so happy we did it!

Thanks for sharing your experience.  I should look into a HELOC more closely.  I briefly looked at HELOC info from my broker's banking arm, which said that a HELOC couldn't be used for bridge financing.  But obviously different banks have different rules.

Hopefully we won't need to get into that kind of gut-it-to-the-studs renovation work.  I'd worry about the possibility of overspending and then not being able to pay off the bridge loan.  Also not thrilled about the prospect of all that stress and hassle.  But if we buy an existing house, we'll almost certainly need to do some work on it.

On Monday we're going to look at a house that is being auctioned.  I don't think this is the one, but it's close enough that we thought we should go see it.