Planning to downsize your home? It can be a tough transition, involving several major decisions that can affect your life in dramatic ways. One of those big decisions is what to do with your home. Selling it, renting it out, and passing it to the next generation are all things that might go through your mind. How do you decide what’s best?
Do Some Research
Whenever you plan to buy or sell something, it makes good sense to have a feel for what the item is worth. Decisions involving your home are no different, so to help you organize your thoughts, get a feel for what the market is like where you live. For example, last month, homes in West Chester earned an average sale price of $250K, which is around a 6 percent increase over last year.
Reduced financial stress is one of the benefits many seniors look forward to with a downsize, and one way to achieve this is to purchase your next home outright. If you hope to purchase your new place with cash, do some calculations to determine how much you will have to work with.
When to Sell
Timing can be one of the big conundrums many people face when they downsize. If you decide to sell, should you do so before or after you buy a new home? As LifeHacker explains, there are pros and cons to both propositions. Waiting gives you the advantage of being able to take your time with the move, which can really be a boon if you have a lot of decluttering to do. On the other hand, you will still be responsible for paying on the old house — mortgage, utilities, taxes, insurance, and so forth — until it sells.
Selling first frees you from those financial burdens, and if you need to purchase your new home with a mortgage, it’ll be easier to be approved for financing. However, you need to get your ducks in a row for things to go smoothly, and if you have a gap between the sale of this house and finding the next one, you might need to live in an apartment for a while.
Another idea is to compromise. You can hang onto the old place and rent it out for a while, allowing it to pay for itself, and perhaps even padding your nest egg.
Renting the Old Home
Sometimes seniors decide becoming a landlord is their best option. Having the house occupied keeps vandals at bay, it can provide some passive income, and you can take advantage of the tax breaks involved with the arrangement. However, Investopedia warns many homeowners underestimate the responsibility involved with renting out their home. You need to advertise the property, screen potential tenants, keep the property maintained, and tend the legal and financial obligations that go with owning a rental property, so it can be pretty involved.
Part of Your Legacy
Houses can hold more than financial value. They raise children, host parties, house pets, and listen when you laugh and cry. If you plan to honor the old homestead by passing it to the next generation, there are several things to consider, and ElderLawAnswers notes there are tax considerations relating to your options. You can leave it to family members in your will, although the estate might be required to pay taxes on it. You can gift it to them, but then you might pay capital gains tax. Another option is to sell it to them, and this would also involve potential tax payments.
Consider a Consultation
Many people benefit from consulting an estate planning attorney when they downsize
Downsizing can be pretty complicated, especially when you have a house to sell. Sort your options and priorities for the best results and consider consulting an attorney. You have a major decision to make, but by thinking things through, you’ll find the right choice.
Article Credit – Jim Vogel (elderaction.org)