In preparing for retirement, a common strategy is to downsize the family home to a smaller and lower cost home. By selling and purchasing a lower cost, smaller house, and pocketing perhaps $100,000 to put into your superannuation, you could benefit from drawing an additional income of circa $8,000 pa. in retirement.
The way that most downsizers go about this, is to buy the replacement house first, then sell their existing house second. The main advantage to doing it in this order is that you only need to move once. That is, you move straight from your existing home into the new home. You can then put your existing house on the market and sell after you have moved into the replacement home. Herein lies the problem.
From our experience, we have seen a number of problems arise when doing it in this order (buying the replacement first, and selling the existing home second). The main problem is: “Putting the existing home on the market for sale but finding out the best offer (what someone is willing to pay) is significantly less than what they thought it would sell for.”
Main Problem in buying replacement house first:
Secondary problems arising from the Main problem:
An alternative way to downsize: Sell existing house first
We believe the best way to downsize is to sell your existing house first before buying the replacement house. There is a significant advantage to knowing how much your have to spend, and you can take your time to find the right replacement home. The only disadvantage is that you may need to rent for a period of time which means moving twice instead on only once. The main points on selling the existing house before buying the replacement house are:
If you still insist on Buying the replacement house first.
You’ve found your absolute dream replacement house and have to buy it now or else it will be bought by someone else (I would argue that an even better dream replacement home would come on the market at the right time after you sold your existing home, but let’s forget about that for a minute.). Steps to take to mitigate the risks:
Careful planning can avoid some of the common mistakes that we see. If you are thinking of downsizing in the future, make sure that you table your plans to do so with your financial adviser.
Written by Dallas Davison.
Dallas Davison, Michael Hogue and Ali Hogue.