When it’s time to scale down, know what you want and be aware of the financial implications.
Retirement is upon you, the boomerang kids look as though they’ve finally left for good and you’re sick of cutting grass no one plays on and cleaning spare bathrooms no one uses.
Chances are you’re aged between 55 and 70 and ready to enter the downsizing phase; where selling up and shifting to somewhere smaller, more convenient and easier to maintain holds serious appeal.
But what are the best ways to move smartly and maximise your financial position?
The keys are judicious planning and an objective approach, says Howard Briggs, 72, who went through the process in 2002, a year after his retirement from the Queensland public service.
He and wife Fay swapped their home of 30 years, on 1000 square metres in suburban Chapel Hill, for a three-bedroom unit in a low-rise complex in Taringa, four kilometres closer to the Brisbane central business district.
The couple originally pondered a sea change to their long-time rental property at Caloundra on the Sunshine Coast before opting to sell it and search for a perch closer to home.
They eyed the market for 12 months and ran the slide rule over a number of units before making their choice.
“I did an assessment of the quality of life versus the cost of several,” Howard Briggs says. Proximity to public transport and amenities and a garden setting were on the must-have list. And having such a list is essential if you hope to be content long-term and avoid the hassle and expense of a further move down the track, he believes.
“It’s easy to buy something that looks nice but you move in and find out it’s not what you want.”
When a prior contract on a unit the pair had their eye on fell through, they swooped, but requested a two-month settlement to be able to arrange renovations and sell their Chapel Hill home.
Transfer costs amounted to about $50,000 and surplus from the sale went to Briggs’ super fund.
A social trends analysis on moving, published by the Australian Bureau of Statistics in 2010, showed that about 17 per cent of older households without children had moved in the preceding five years. Eighty per cent in this bracket owned unmortgaged homes and 23 per cent of older movers cited downsizing as their reason for shifting.
Many receive little change from the exchange, according to Sydney financial adviser Peter Horsfield, who’s helped several clients through the process.
Substantial family homes are typically swapped for upmarket near-city apartments, not grotty shoeboxes, Horsfield says.
”[Downsizers] still want to live life.”
Those who expect to have leftover cash may benefit from advice, to ensure tax is minimised and social-security entitlements maximised. While a principal place of residence is exempt from the Centrelink assets test, surplus funds not tied up in it are not. A rise in the bank balance after a move may mean a corresponding drop in pension entitlements.
Some downsizers struggle to retain equity they’ve spent a lifetime accumulating once it’s converted to ready cash. Blowing large sums on grandchildren, holidays and new furniture is not uncommon and the lure of high-risk, high-return investment opportunities may be hard for some to resist, Horsfield warns.
”There’s a rush of money – people need to be cautious,” he says.
His recommended course of action is to sell, invest the proceeds conservatively and rent for 12 months before buying something new – particularly if you’re contemplating a move out of area.
“It gives you time to make a rational decision, rather than an emotional one … give yourself a break in this time. and de-clutter,” he says.
Smart advice, agrees Melbourne financial planner Wally David. Arranging bridging finance or being under the pump to shift the old home before the new one settles is stress most downsizers could do without.
“You may have to reduce the selling price if you need the equity for the new place,” David says. “Sell first, then buy – you know where you stand and what you’ve got to play with.”
That’s unless you find the perfect house and need to jump on it, says retired business owner Elizabeth Armour, 71.
This year, she and partner Don Parker, 70, said goodbye to their sprawling, three-storey waterfront home of 14 years at Gunnamatta Bay near Cronulla, and hello to a low-maintenance pad across the street.
Bought a year ago and renovated, the new place is smaller but not small – three bedrooms, three bathrooms, easy-care backyard, a lift to the living area “and a huge garage workshop area so His Nibs can have his little hobbies”, Armour says.
Their original home took a year to sell and holding two places concurrently for so long was do-able, if not desirable.
“I won’t say I wanted to do it but we did it,” Armour says. “It was a case of seize the opportunity – it fitted the bill … We knew it was a bit of a risk but we knew we could do it.”
Surplus funds from the sale have been added to general revenue. While the move was for lifestyle purposes, water views and proximity to amenities mean capital gains on the new home are likely, in time, Armour believes.
“We knew we wouldn’t lose money on it.”
Shifting to smaller digs? Here are some tips:
1. List your requirements before you house hunt – choosing sensibly reduces the chance of wanting to move again.
2. If you’re shifting out of your area, rent before you buy – a sea change may lose its charm six months in.
3. Sell first, then buy – unless you can comfortably afford to hold two properties.
4. Invest conservatively while you house hunt.
5. Take advice to ensure entitlements are maximised.
Date: April 6, 2014