Is your house too big? Does it cost too much? Or, are you simply considering a life change? Making the decision to move to a smaller home is never easy. We wrestled with it recently and agonized over the choice. Eventually, creating a list of pros and cons of downsizing our home helped us make a decision.
Table of contents
We’ve made many financial changes to reverse lifestyle creep. We’re applying saving strategies to almost all aspects of our life. Yet, one expense is significantly slowing our progress to financial independence – our house.
We’ve discussed selling our home before, and always quickly landed on “no.” From the very beginning it was to be our “forever home.” We love where we live, we’ve invested in upgrades to bring it close to dream home status, and the space and layout work well for us.
Yet, our spring break road trip, and the hours of conversation it led to, caused us to seriously consider selling again. It wasn’t an easy decision. Our first step was to consider all the pros and cons of downsizing. Clearly laying those out helped us make a decision.
If you are considering downsizing for any reason, I urge you to do your own pros and cons. Here are ours as an example, and to help spark your thinking. Yours may be different but many of these apply to any downsizing decision.
Pros of Downsizing our Home
Lower costs
This one is obvious. We own too much house. Two of us with almost 3000 sq ft. We live in a high cost-of-living (HCOL) area, so even though we bought at the bottom of the market and put 20% down, the mortgage is large. Add in expensive taxes, cost of heating and cooling, and a high city water bill and the monthly costs to own our dream home are too high.
A smaller home, outside of the city limits, will cost significantly less to own and operate.
Cash out equity
We have a significant amount of equity tied up in our home. Almost 25% of our net worth is the equity in our primary home. This is the result of both mortgage paydown (additional money applied for the last several years) and appreciation of more than 50%.
Selling would free this money up for other uses.
Mortgage Free
If we choose to sell the house, we would choose to be mortgage free going forward. We like the idea of living mortgage free. Less debt, and more money applied to investments!
More options (Finances and Living Experience)
Obviously, being mortgage free with lower costs has significant financial implications. This would give us a number of options with the freed up capital and additional savings each month.
Selling our current house also frees us up to try a number of other living options. We have not yet decided WHERE to move. We could try houses in different parts of our region, buy a condo, or rent an apartment. We’ve even considered trying life on a floating home in the nearby river.
Easier to maintain
All houses take effort to maintain. One of the arguments for a rental is that one can simply have the landlord take care of maintenance issues. Our current home has several things that make it challenging to maintain and prone to exterior maintenance issues. It’s surrounded by tall trees, on a steep slope, and three levels. Even if we buy another home, it will have fewer things to maintain.
A smaller size means that simply keeping it clean will also be easier. TFI says, “I never want to move until I decide to vacuum.” Three floors and almost 3000 square feet means a lot of routine cleaning even though we aren’t generally messy people.
Cutting that in half (or more) sounds great.
Shorten FI timeline
This could have been the headline reason. It’s certainly the reason we seriously considered downsizing.
For us, due to #1 and #2 we believe that downsizing our home will cut our time to full financial independence by more than 3 years. Depending on the final sales price, it may even make us FI instantly.
Travel
Slow travel is part of our retirement plan. Our city does not allow short-term whole house rentals. Leaving a large house empty for long periods of time is both economically inefficient and a security risk.
More intentional with stuff
We are not minimalists. I’m close, but TFI accumulates. In our 20+ year relationship we started in an 800 sq ft apartment then moved to a 1200 sq ft apartment. Our first house was 2100 sq feet, and our current one is almost 3000. Each space we’ve lived in has filled up.
A smaller living space would require us both to declutter and eliminate “stuff” from our life and cause us to be more intentional in the future. We have both agreed that this is a benefit. This agreement was easy for me, and more challenging for TFI. But, it’s definitely a pro for both spending and quality of life.
Redesign life
We have lived in our current house for almost 8 years. They’ve been 8 of the happiest years of our life. But, anytime you spend that long in one place, you develop certain habits and routines. Each new place you live is an opportunity to build new habits and routines.
Previously, we have let work define those patterns. With this move, we’ll make our choices based on a post-work life. We’ll select a home that fits with our future vision and the life we want to build.
Adventure
As we are considering this, we have no idea where we’ll live if we sell our house. Change is hard (it will show up under the CONS) but the flipside of that is it leads to adventure. We are both excited by the potential adventure of selling our large house and seeking a new home with all of the previous PROS factored in.
Cons of Downsizing Our Home
We Love Our Current Home
The decision would be easy if we had a large expensive home that we hated. Or if it was simply more than we could afford. I know these are true for some people. In that instance, we’d quickly and easily downsize.
Unfortunately, we love almost everything about this home. We can afford it because we bought at the bottom of the market. It has a great location, sits in a beautiful tree-filled setting, and is laid out well for us.
Why would we give that up?
Never get back to neighborhood
As I’ve mentioned several times, we bought this home at the bottom of the local market in 2011. It has appreciated significantly. While there will be housing price dips in the future, I believe our metro area will continue to appreciate more quickly than the national average for the foreseeable future.
If we move, we will be priced out of buying back into the city and neighborhood we love.
Less storage
I mentioned less stuff as a PRO of moving into a smaller space. It is. However, we already have lots of stuff and TFI attaches emotion to things. She also likes to be “prepared” by having almost anything we need available on short notice.
It will be a real cost to have limited space for things.
Transaction costs
In the long term, this will be a massive financial win. In the short term, it will cause a dip in our net worth. There will be transaction costs including:
- Cost to prepare the house for sale
- Commission and closing costs from selling our large house
- Closing costs or rental deposits for our new home
- Moving costs
People often forget these things when discussing housing values. Changing your living situation has significant transaction costs.
Sentiment
We’ve lived in this house for 8 great years. Our lives have changed significantly all for the better. We have thousands of positive memories in this house. We also spent 6 years and then lost two beloved pets in the house.
Sentimental attachment is real. It’s always hard to move and leave memories behind.
Identity change
We currently have the “cool” house among our peer group. People are also impressed when we share the neighborhood where we live. Our family loves to visit and stay. Virtually everyone comments on how much they love our house.
We will be giving all that up. A smaller place will not be perceived in the same way. We will likely live in a less trendy neighborhood. It is important to factor identity changes like this into decisions – they are often unconsidered or unplanned.
Related and interesting to note – when we mention that we are considering downsizing the most common reaction is to assume we are in financial trouble.
Harder to host guests
When friends or family visit, we always have room to host. We can host multiple couples and sets of kids. Entertaining, while relatively infrequent these days, is easy in our current home.
A smaller home will limit our hosting options both for short-term entertaining and longer term visits.
Moving
Moving sucks. Packing, cleaning, hauling, unpacking. It’s costly and a hassle no matter how you do it. If we don’t downsize, we don’t have to go through it.
Change
Change of any type can be challenging. While I’m generally invigorated by change, TFI can struggle with it.
A significant change like this WILL have an impact on us and introduces the unknown. This is something to factor into any decision to sell. Much like sentiment and identity change it is hard to quantify this downside, but very important to consider.
The Decision
There you have it – our list of pros and cons to downsizing a home. As you read through did you have an idea of where we landed?
While it wasn’t easy, we landed definitively on moving ahead with downsizing. The financial advantages, opportunity to design our future life, and adventure overcame the emotional resistance to remain. And, I have to give some credit to my heavy Bias for Action.
After the decision was made, we had to do the actual work! You can read the financial results of the whole saga here – we reduced our monthly housing expenses by 80%
For the steps we took to make it happen, read the other posts in the series:
- How We Were Able to Sell our House FAST
- How To Find the Right Smaller Home
- Unexpected Benefits of Downsizing Your House to Save Money
- 2020 Downsizing update: We are moving back into our rental property!
Have you downsized your home before? Are you considering it now? What does your list of pros and cons look like?
Thanks for sharing your thought process! We have moved several times, but intentionally bought less how than we could afford (we are currently a family of 4 in a 1400sf 3/2 which works well for now).
Part of the reason we haven’t bought a larger house, even though we’ve found some good deals where we could have added immediate equity, is because once you get used to it (lifestyle creep) it is very hard to go backwards. So I applaud your decision to downsize and overcome the hurdle of giving up your current lifestyle!
Yes – you played it smart! We definitely experienced lifestyle creep and are now trying to reverse it. It makes it harder than getting it right the first time for sure.
Wow, what a surprise. It looks to me like you’re leaning toward staying.
3,000 sq ft is huge to us. We lived in a 2,000 sq ft home and downsized to a 1,000 sq ft condo in 2007.
We didn’t have a ton of stuff, but moving was still a huge deal. We sold and donated quite a bit to fit into a smaller place. Good luck!
I think it’s a great idea to get some money out while the market is still good.
If it reads that way, it shows how tough the decision was for us! We have decided to sell, and as of last night have even already accepted an offer.
We’ve also donated quite a bit of stuff, but there will still be more once we find a new place to live and see the final needs.
This is such a thorough list highlighting several points my husband and I have recently talked about. Like you, a lot of our net worth is tied up in our home. We’d like to see it be a smaller percentage (but we might just have to save more to make that happen). Also, like you, we LOVE our house (including the neighborhood).
Unlike you, we have a small child. When you factor in the transaction costs and the fact we are in a ballooning market where smaller houses are worth about the same (seriously, it’s crazy around here), it’s not worth it for us.
I have to put it out of my mind but it’s hard when reading articles like this!
Best wishes going forward. Keep us updated!
Yes – a little one would definitely add another factor (or 12) into the decision. I definitely plan to post on each phase of the process. I just hope it ends with us having a place to live. 🙂
Such a great post 🙂 I’m making a similar decision. While the monthly expense will be similar if I rent (I’m house hacking currently), getting the cash out will allow me a ton of flexibility and less work where ever I land.
Also, while your house may continue to appreciate, there is an opportunity cost – you recognize this, and hopefully the returns else where work out 🙂
Yes! We’ve had more than 60% appreciation in the time we’ve owned, but I still think it will work out to a net loss. It was a good forced savings plan for when we weren’t really thinking about financial independence, but that was mostly luck.
Good luck on your sale – I look forward to hearing/reading about it!