Moving to a smaller home makes sense especially if your children are all grown and “flown off the nest”. You might wonder when the right time to downsize should be. This could be when the children join college or when they start working and are financially independent. In such circumstances, you no longer need to live in a larger property. For many other people, retirement is one of the reasons to downsize. Basically, at retirement age, you are cash poor and asset rich. Therefore, it makes sense to create a balance by disposing of some property. Your larger home is one of the assets to use when you need to strike a balance.
There are different options on how to go about it. For some people, they will sell their current property and buy or even live in a smaller rental apartment. Others will rent out their home and build or buy a smaller retirement home. Most typically, people will sell their home, pay no tax on the capital gain since it is their principal residence and purchase a smaller home or condo. The leftover equity can be used as retirement income or as an investment. Even young families may discover they can easily be accommodated in a smaller space and enjoy the many benefits of a smaller space. According to AEIdeas, “US homes are 1000 sq ft larger than they were in 1973 and living space per person has nearly doubled”(https://bit.ly/2c7EVxE). There is an emerging trend of the tiny home, which may be the extreme, but the benefits can be shared by anyone that is willing to downsize to some degree.
So what are some of the advantages of moving to a smaller home? Keep reading to find out.
Additional Income Stream
We have seen that you have an option of renting out your home to someone else. The money you are paid as rent is an additional income stream. You can invest this income as a retirement security or use it to cover living costs in your new smaller home. Ideally, once one has retired they need to earn money to pay their expenses at old age. Your bigger home is one of the resources you can turn into a source of income to finance your desires at old age. There are tax implications however. If you change your principal residence to a rental you may not be protecting the full exemption on the capital gain when you go to sell your home. There is a way to protect your principal residence status on the property for 4 years after you turn it into a rental, in Canada. CRA states that you can make an election not to be considered as having turned the principal residence into a rental for up to 4 years. You still have to claim the rental income and cannot claim CCA on the property. You also cannot designate a different property as your principal residence during that period of time and have to remain a resident of Canada. The process is simple, you write a letter stating you want subsection 45(2) of the Income Tax Act to apply to your property. Look at the CRA link here to read more about this election and how to file it. (https://bit.ly/2EB0W6h)
Reduce the Burden of Cleaning the Home
Your smaller home will have fewer rooms and smaller spaces. Therefore, you will not need to spend the whole day cleaning the home! Even if you hired a cleaner before, now their cost will be less, or you may decide to do it yourself. Consider the fact that as you age, you have less energy (or perhaps, less desire) to complete household chores. Therefore, you cannot maintain a big house and instead, moving to a smaller home really makes sense. You will spend less energy and less time cleaning your new home. Therefore, for the aged generation, or even busy families, why not consider moving to a smaller home?
Save on Utility Bills and Property Taxes
Heating or air conditioning a smaller home consumes less energy than a bigger home. Therefore, you will save a huge amount of your bucks which can possibly be more than half of what you are spending currently. Basically, less square footage will decrease the amount of heat you need to keep the rooms warm or cool. This is not only good for your pockets but also the environment you are living in. You may benefit from lower property tax bills as well which can be a significant difference for some people. This freed up cash can be used for something more enjoyable – like going on a vacation!
Helps in Controlling your Expenditure
Let’s face the facts here. The reason for purchasing more items is because you have got a lot of space to keep them. Basically, the shopping you do is because you want to fill the empty space in your home. If you move to a smaller home, you will not need to purchase new items. In fact, you might need to dispose more clutter from your home. This brings me to the first advantage of moving to a smaller home. There will be more disposable income available to you when you move to a smaller home. Also upkeep and renovations will also cost you less because there is less of a home to maintain. For all these reasons, you can save more money by moving to a smaller home.
Enjoy a Simplified, More Active Lifestyle
A simplified lifestyle gives you less stress. For some people stretched for time or energy, this may become the primary reason to downsize. People appreciate a stress-reduced lifestyle that comes with living in a smaller home. There is more time to enjoy your life as you are able to stay away from mundane tasks. We have talked about less cleaning time and less cost of maintaining your home. These are contributing factors that afford you the benefits of a simplified lifestyle. You have more time to enjoy the activities you love to participate in and therefore a more balanced lifestyle. It also seems that people that live in a smaller space and property are more likely to go out into their town or city to explore its offerings. This is evident in large cities where people are always out and about and think of their apartment as a place to lay their head down at night. A more physically active and social life is healthy for people.
In many households, people keep clutter because they have space. Most of the things are no longer needed, but because they have space to keep them, they will just not dispose of them. However, downsizing is beneficial since you will not keep what you no longer want. Basically, you will dispose of the excess items that you no longer want just to afford you more space. This doesn’t necessarily mean you will part with memories. It is basically starting off on a new phase of life. You have different options when it comes to de-cluttering. You can give to relatives, sell and make money, donate to charities, recycle or even dispose of as trash. You also save your family from dealing with your clutter when you are elderly and move to a retirement home. A further benefit is being able to keep or acquire high quality items, since you need less stuff, you can choose the better stuff. A lot of the people living in tiny homes or small city apartments will agree with that statement and are more selective on what they do keep in their small space. They would say “Quality over Quantity”.
Those are some of the advantages of downsizing. You are able to live with less and love the new lifestyle. You have more revenue streams depending on what you decide to do with the original living space. You might be struggling to earn more money to pay for the large lifestyle and the high cost of utility bills. However, with downsizing, you are able to save this cost as you live on affordable bills. You also enjoy the simplified lifestyle since you don’t have to spend all the time to clean and maintain the house. Consider downsizing to enjoy the benefits of living in a smaller house. This can be at your retirement years, or after your children are all grown up and financially independent, or even possibly as a busy young family that discovers a smaller place can accommodate them quite well.
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