Baby boomers and millennials may not agree on many points, but there’s one trend where they agree: the convenience of downsizing. Real estate trends show that Americans are no longer interested in impractical mega-mansions but opting for more compact houses. A smaller property is especially handy for older people. They don’t have to invest as much time and money into maintaining the space and can instead focus on enjoying their retirement years. If you are planning to downsize, you have to figure out what to do with your current piece of real estate. Learn about three possibilities below to decide which one is best for you.
Keep the house for your kids
You may want to keep the house “in the family” and allow your children or grandchildren to live in it. It’s up to you whether you want to rent the property to them or simply transfer the deed to them for free. If you rent to family, make sure you understand the financial repercussions in terms of taxes. If you aren’t careful, renting to relatives can result in the property being classified as a “personal residence,” which will mean you lose valuable tax deductions as a result.
If you were, in any case, planning to leave the house to your family as part of an inheritance, it can be beneficial to simply transfer the deed to your children or grandkids now. You can create a revocable living trust that names another person as the official owner of the real estate. This is useful because it means the home won’t have to go through probate, the process through which courts authenticate a will before assigning assets to beneficiaries.
Sell the property for a profit
If you don’t have family or aren’t feeling sentimental about keeping your house among relatives, you can instead sell your current home for a profit. The real estate market varies depending on current trends and location. Take some time to research recent listings in your neighborhood to get an idea of price points. For example, the average sale price in Draper the last month was about $523K. Of course, you could get more or less depending on the size and state of your property.
You can also use this information to see if the profits from selling your home will allow you to comfortably transition to the next step in terms of downsizing. Are you planning to switch to an assisted living facility? In this case, you need to pay monthly fees. Do you want to simply move to a smaller house? If yes, note that if you take out a mortgage it’s advisable to make a down payment of at least 20% of the sale price in order to secure a loan with a good interest rate and avoid private mortgage insurance.
Rent out real estate for a steady income
If you aren’t emotionally ready to sell your house or the market isn’t great at the moment, you also have the option to rent out your home. This will allow you to collect monthly rent payments, offsetting the fears concerning the lack of funds that many seniors experience after retirement. If you have a larger house, you can even stay where you are and simply rent out a room. The so-called “Golden Girls” trend is growing in popularity and many older persons are living with roommates these days. If you’re moving out and renting, you’ll want to keep in mind that maintenance, repairs and vetting tenants can take up a significant amount of your time. If you’re not keen to handle these tasks, look to property management companies to help — just be prepared to pay a 10% fee.
Whichever of the above options you choose, you will have to be prepared for a change. This can be intimidating, especially since moving gets harder with age. Focus on the positive benefits of downsizing as you move forward. You will save money and have more time for enjoying your retirement and spend less time on household upkeep. Keep a positive mindset and you will be able to embrace the change.
by Jim Vogal
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