Guide to Downsizing a House in Australia
Downsizing to a smaller house can sometimes feel overwhelming, but at some stage in our lives, the pros will begin to outweigh the cons.
After all, downsizing your home to a smaller one is a great opportunity to save money and free up both your time and property equity.
And it could help unlock some extra funds for a better retirement too.
But if you’re thinking about moving to a smaller home, you need to have a clear idea of all the key things to consider before making the final decision.
As with any property sale, purchase or move, downsizing takes a lot of planning.
It’s a significant event and one that shouldn’t be rushed into.
Here’s a full guide to downsizing a house in Australia.
Reasons to downsize property in Australia
There are 3 key reasons why you might want to downsize your property in Australia.
1. Downsize a home for retirement
Downsizing can be a strategic move for Aussies preparing for, or already in, retirement.
Downsizing, or “rightsizing” as it is sometimes called, to a smaller home can unlock equity tied up in a larger property, adding extra funds to retirement savings and investments or even helping fund your retirement lifestyle.
By moving to a smaller and potentially more affordable home, retirees can stretch their retirement savings further and potentially reduce financial stress.
Downsizing may also enable retirees to relocate to areas with a lower cost of living or better amenities, enhancing their quality of life during retirement.
Remember that many retirees are also likely to be empty nesters.
When children grow up and move out, parents often find themselves with more space than they need.
So downsizing to a smaller home can help empty nesters simplify their lives, reduce upkeep responsibilities, and free up equity tied up in a larger property.
2. Downsize a home to save money
One of the most common reasons for downsizing is to save money.
Whether that’s for retirement or even far before that point, downgrading to a smaller home typically means lower mortgage repayments and lower maintenance and insurance costs.
This can be especially appealing for retirees, individuals or families looking to save money or allocate funds towards other financial goals like retirement savings or travel.
3. Downsize a home to get out of debt
Given the money-saving advantages of downgrading to a smaller home, downsizing can also be a great strategy for people looking to manage or pay off their debt.
By selling a larger home and moving into a smaller, more affordable one, homeowners can use the proceeds from the sale to pay off existing debts, such as mortgages, credit cards, or personal loans.
Downsizing not only provides a lump sum of cash from the sale of the larger property but also reduces ongoing housing expenses, making it easier for individuals to allocate more of their income towards debt repayment.
4. Changing lifestyle needs
From retirees to empty nesters, or even a career change, there are many reasons why your lifestyle needs might change.
As people age or experience changes in their work, finances, health or mobility, their housing needs may change.
Downsizing to a smaller, more accessible home can accommodate these changing lifestyle needs, such as single-floor living, proximity to medical facilities, or easier maintenance.
5. Relocation
Downsizing might also allow families and individuals to relocate to a different neighbourhood or community that better suits them.
For example, moving from a high-net-worth suburb might mean your money doesn’t stretch so far, so a smaller or lower-priced property might be necessary.
6. Property declutter
Downsizing provides an opportunity for owners to declutter and simplify their living space.
Many people find that living in a smaller home forces them to prioritise their belongings and adopt a more minimalist lifestyle, which can lead to reduced stress, better organisation, and a greater sense of contentment with fewer material possessions.
The pros & cons of downsizing your home
As with any major decision, there are always pros and cons to consider when downsizing.
Downsizing: The pros
There are many advantages of downsizing your property.
1. Downsizing helps to free up your equity
By buying a smaller, cheaper property, you’ll (hopefully) be left over with excess equity to use however you wish.
Freeing up your equity also means you may be able to buy your new, smaller, home with cash, which gives you more buying options, makes the process quicker and allows you to live mortgage-free.
2. Reduced costs
Downsizing also often leads to lower housing costs because, typically, smaller homes come with lower (or not) mortgage repayment, lower insurance costs, lower energy bills and less maintenance.
3. Helps to fund retirement
Freeing up your current property’s equity, and reducing your outgoings helps you to save money.
More money in the bank and lower bills give you the finances to put towards retirement.
4. Frees up your time
Alongside the benefit of freeing up more money, downsizing to a smaller home with less upkeep means you have more time to do the things that you love.
Instead of spending your weekends mowing a vast lawn and cleaning rooms of the house that are barely used, you can put that time to better use.
5. Improves accessibility issues
Downsizing to a more accessible home, particularly for individuals with mobility issues or those looking to age in place, is another significant benefit.
Smaller homes typically have fewer stairs and require less physical effort to navigate, making them suitable for individuals with limited mobility or elderly residents.
6. Improves flexibility
Moving to a smaller home might allow you to live a more flexible lifestyle – many like the idea of a ‘lock and leave’ apartment or townhouse and the added security this type of property offers.
7. Helps you move to a better location
In the past, you may have settled on your location because that’s where you could afford to buy your family home, but now it’s surplus to requirements; you want to fulfil your dream of living by the beach, in the city or closer to loved ones.
By being willing to downsize, you are able to look at a larger range of locations, which means you can live in a better location, or wherever you want.
Downsizing: The cons
While there are many pros of downsizing, you also need to consider all the cons attached to such a move.
1. It can be emotional
It makes sense that if you’ve lived in a property for a long amount of time, or brought your family up in that home, it can be emotional to part with it.
Sometimes downsizing, and the idea of leaving all those memories, and a life’s worth of possessions, can be a traumatising experience.
2. Smaller may not be cheaper
Downsizing to a smaller property might not be cheaper.
Sometimes the new property or location can end up being more expensive than you’d want to pay, or more costly than simply staying put.
There might be additional costs to consider too, like strata or body corporate fees.
And of course, there will be stamp duty to pay when you purchase your new home.
3. You might struggle with less space
Downsizing often means sacrificing living space, so someone who has spent years living in a 4-bedroom house, with or without children, will initially struggle to downsize into a 2-bedroom apartment, for example.
Or families, accustomed to larger outdoor areas might struggle with smaller living areas which don’t accommodate all their belongings or activities.
Having less space than you are used to can be a bonus when it comes to cleaning and maintenance but you might also feel cramped and claustrophobic.
4. There is less privacy
Someone used to their own home where they can come and go as they please without detection might be shocked at the lack of privacy of an apartment, villa or townhouse complex where properties are much closer together.
Limited space can also make it difficult to find quiet areas for relaxation or personal time inside the property, particularly if multiple family members need to share common spaces.
5. There will be less storage availability
Limited storage space can also make it challenging to store certain items, hobby equipment, or other belongings that are not frequently used.
It means you might be forced to cut back on your possessions to fit into a smaller space, which might be a difficult task.
6. The selling process might be difficult
Selling a property is filled with many costs and can be a stressful time for the vendor.
Depending on the current state of the property market, you also may not get the sale price you’re looking for.
7. Selling up might affect your aged pension entitlements
Selling your home when you retire may affect any income support payments you get, including the Age Pension.
That’s because, to receive the aged pension you need to meet asset and income tests which assess the amount of cash you have in the bank.
As your assets are reviewed three times a year, selling your home to downsize can obviously have an impact on how much pension you are eligible for.
If you have higher-value assets and or your income is higher after the sale of your home, it’s possible you will no longer be eligible for the full aged pension.
The best way to downsize your home
Downsizing to a smaller home isn’t as straightforward as you might think – first you need to think about what you want to downsize to.
You might think about downsizing from a house to a townhouse, or an apartment or even look at downsizing to a smaller house.
Deciding the type and location of your next home is a crucial decision that should not be rushed.
Here’s a list of options to help you decide the best way to downsize:
Downsizing from a house to a unit or apartment
Downsizing to a unit or apartment would suit many downsizers.
This type of property is compact and manageable with minimal maintenance and, if well located, can be within a short and convenient distance from lifestyle amenities and facilities.
The downside with this type of property downsize is that you need to be aware of the strata costs.
Downsizing from house to retirement living
If a safe, secure and social environment for retirees is what you’re after, then a retirement village could be another perfect downsizer option.
They often have a range of amenities such as a fitness centre, sports facilities, social clubs and the option of in-house frail or aged care.
They’re also a fantastic option for single dwellers who want to keep social.
The same downsize applies as with apartments, you’ll need to do your research and be aware of all the fees and ongoing charges before signing up.
This might include a deferred management fee (DMF) which is paid when you leave the complex and is calculated based on how long you’ve been living there.
Downsizing from house to townhouse or villa
Downsizers who aren’t at retirement age or who need more space than an apartment might want to look at townhouses or villas.
These types of properties offer the larger ‘house-type-feel’ and are roomy enough to house guests or a small family but without the same costs and running costs of a standalone house.
Townhouse and villa complexes are often also part of a strata title to ensure you know and can handle the ongoing fees involved.
Downsizing to a smaller home
It is possible to downsize your property without having to move into a unit, townhouse, villa or retirement complex.
Perhaps you want to simply downsize the size of your house… To a smaller size house.
This is especially suitable if your current property is high in value or is on a large plot.
Smaller gardens and less space all equate to lower running and maintenance costs while still maintaining an element of space.
Top tips to help with downsizing a home in Australia
As I said above, it’s important to know why you’re selling and what you want to achieve with your downsizing move.
Tip 1: Consider your reasons for downsizing
First, decide what you want to achieve and determine if it is necessary or if there is another solution.
Tip 2: Create a Plan
Research the financial implications carefully and take the time to get to know an area you’re looking at.
Consider where you want to live, look at the type of properties that would work for you, and whether you can afford them.
Also consider whether you want to pay off your mortgage fully before you sell the property.
It pays to speak to an expert and develop a detailed downsizing plan, including key tasks, timelines, and goals.
You’ll need to factor in things like your budget, desired location, property size, and lifestyle preferences to guide your decision-making process.
Tip 3: Start decluttering early
Don’t wait until the last minute to start sorting through your things.
Chances are you’ll have years of build-up of items that won’t fit into your new, downsized, property.
Best to start early and take your time.
Be ruthless and start by sorting items into categories such as essentials, sentimental keepsakes, and items to sell, donate, or throw out.
Be realistic about what you truly need and use, and don’t hold onto items out of guilt or obligation – decluttering is a great opportunity to save money and time on removalists.
When it comes to furniture, focus on keeping pieces that are space efficient – things like extendable tables, sofa beds and wall-mounted storage rather than large items which take up a lot of space.
Tip 4: Get the sale process started
You need to research and select a reputable real estate agent with local experience and a proven track record of property sales in your area.
It doesn’t hurt to compare multiple agents and their fees.
You’ll then need to request a property valuation to estimate your property’s worth.
If you’re happy, then it’s time to prepare the property for sale.
Tip 5: Get professional advice and help
Getting professional advice should be one of the first things you do when you’re considering such a monumental life change.
But did you know you can also get professional help organising and moving your stuff, too?
Tip 6: Prepare your home for selling
Once you’ve decluttered you’ll need to prepare your home for selling.
Small maintenance jobs and a lick of paint might make all the difference to the final sale value.
Tip 7: Start looking at properties to move to
Research thoroughly what and where you want to move.
Start visiting open houses and attending auctions to get a gauge of the value of properties in the area you want to buy.
You can get professional help here too – a buyer’s agent will help to streamline the process and could select suitable properties for you that meet your plan.
Tip 8: Stay flexible
Make sure you stay open to the idea of compromise and flexibility throughout the whole downsizing process.
Your priorities and preferences may change as you go, so try to stay flexible and willing to adjust your plans accordingly.
Tip 9: Celebrate the benefits
Focus on the positive aspects of downsizing, such as financial savings, reduced maintenance, simplified living, and enhanced quality of life.
Embrace the opportunity to start fresh in a new home that better aligns with your needs and wants.
Tip 10: Things to avoid
There are many tips on things to do or how to manage a downsizing move, but you’ll also want to consider what not to do.
Don’t leave it too late to downsize, don’t get too emotional, don’t rush into a sale or purchase and definitely don’t act without getting advice.
