😳 Before Downsizing in Retirement…
Dear Rich Lifer,
Three reasons why downsizing is a bad idea:
- Your house is not worth what you think it is
- Popular retirement destinations tend to have higher property taxes
- You’re likely out of touch with how much a new home costs
These are some of the arguments against downsizing.
What about the benefits?
The pros to downsizing are hard to ignore. Otherwise, four in 10 Americans wouldn’t be considering downsizing after retiring.
But the most obvious benefit is saving money.
If you downsize, you’ll likely cut your monthly housing expenses by 25 percent.
Assuming you profit from the sale of your current home, you should also be able to add a little cushion to your retirement nest egg.
But we think you shouldn’t have to choose between aging in place vs. downsizing.
Instead, what if you could get the benefits of downsizing without having to move?
Aside from the drawbacks mentioned above, a big reason not to move is simply because you like the house you’re living in now.
Moving to a whole new city, where you have new neighbors and you’re far away from friends and family is not ideal.
But some retirees have no choice. Downsizing is framed as the only option to make up for a small nest egg.
But is that true?
Downsizing Without the Move
It’s not a new idea to rent out a portion of your house as a stream of income. In fact, that’s how you can downsize without moving.
Real estate blog Trulia estimates there are 3.6 million rooms in people’s homes across the country that could potentially be rented out to a family member or stranger.
Before you discount the idea, consider what you’d be missing out on.
Depending on where you live, renting a room could bring in up to $14,000 annually. That’s a decent size cheque every month that could be funding your groceries or golf habit. .
What About Safety and Privacy Concerns?
While renting out a room to a stranger during a pandemic doesn’t sound like the smartest idea, you can always start to prepare so that when things settle down, you can jump on the opportunity.
And if you’re worried about someone you don’t know living in your house as you age and become more vulnerable, consider the upside.
Maybe you negotiate cheaper rent for your tenant in exchange for help around your property.
As you get older, chores like mowing the lawn, shoveling snow, raking leaves and cleaning out your gutters will become a hassle.
Outsourcing these tasks to a younger roommate in exchange for lower rent could be a win-win situation for both of you.
We’ve also heard of couples renting out a portion of their house exclusively to traveling nurses and other medical personnel. So this doesn’t have to be a permanent situation. This works great if you live near a hospital.
Renting Is On the Rise
If you’re still not convinced, consider the fact that since 1975 renting has been on an upward swing.
In 2019, there were approximately 43 million housing units occupied by renters in the United States. This number has stayed steady since 2014.
It’s also reflected by the downward trend of residential vacancy rates across the country. Which suggests that demand for rentals is on the rise.
Not being able to afford to buy a home was the biggest reason renters gave when asked why they didn’t currently own a home, says Statista.
The monthly costs of homeownership versus rental costs vary by state. In 2018, it was less expensive to rent a home in Hawaii, Washington D.C. and Colorado than it was to buy.
However, the opposite was true in California, New York and Louisiana.
Think Outside the Bedroom
Another option you have is to rent out a portion of your house for storage.
There’s such a thing now as peer-to-peer storage companies. These are typically apps that facilitate storage arrangements between regular Joes like you and me.
It could be as simple as an extra shelf in your garage or an unused shed on your property.
The upfront investment is minimal. As long as your storage space is clean, dry and secure, there’s no reason why you can’t pull in an extra $100-150 per month storing someone else’s stuff.
Peer-to-peer storage is attractive because it typically costs half of what traditional storage costs.
Lastly, if you don’t like the idea of storing someone else’s stuff inside your home, consider renting space outside.
Apps like Stow It, ParkStash and Pavemint are designed to help you broker extra space in your driveway. Next time there’s a big football game or parade nearby, try one of these apps and profit off someone paying you to park in your driveway.
As you can see, there are all sorts of ways to downsize without having to move. While there’s nothing wrong with moving to a new location after retiring, it’s not your only option to fatten your savings.
To a richer life,
The Rich Life Roadmap Team