Downsizing to condoland? Why it’s best to rent, not own. After cashing out home equity, buying a condo might seem a logical move but there are better uses for that jackpotMoe Doiron/The Globe and Mail
In our Living in Retirement blog, a recent retiree chronicles the ups and downs of her real-life retirement journey.
When my daughter left for university and it was me and me alone inhabiting my spacious suburban home, I started to think about downsizing. Did I really require a 3,000 square foot house when I basically lived in the kitchen, bedroom, and study?
Real estate pundits and condo developers are among those who present downsizing as a sensible financial next step for empty nesters. And for some people, downsizing makes good sense.
As a single woman, and one who was approaching sixty, the fear factor played an enormous role in my decision to downsize. I convinced myself that I was being profligate, wasting money on utility bills and lawn maintenance. I could be mortgage free and paying a designated condo fee instead of worrying about expensive unforeseen repairs. Worse: what if Gen Y, struggling as they are, couldn't afford to buy my home at the current market price?
So I sold my house and downsized to a condo. Most recently, I've admitted to myself that I made a mistake. In my case, staying put would have been a wiser decision. Condo living was an experiment but not one I'd wish to repeat.
Before listing the family home to downsize, I wish I had asked myself these six questions:
1. Housing prices in Canada have skyrocketed in recent years. Many economists believe that because of low interest rates, consumers have taken on too much mortgage debt and that prices are likely to fall. But if you've owned the same home for 25 years, chances are you've seen a considerable rise in the price over the years. Do you really need to sell it now?
2. If you are counting on selling your home to fund your retirement, that is one thing. But if you simply feel pressured to downsize, what will you do with the money from the sale of your home? Will you invest in stocks, bonds and mutual funds with ridiculously high MERs? Do you even have a plan? Two factors accounted for the rising net worth of Canadian families in a recent Statistics Canada survey of financial security: rising home and pension plan gains. Ask yourself how much money you've made in the stock market since the financial crisis of 2008. Weigh that with a potential future drop in housing prices and then make your decision.
3. The condo market in Canada is more worrisome than the single or semi-detached family housing market. Research the numbers. Ask yourself where you'd stand if you needed to sell a condo during the next five years. My condo, which I purchased in 2007 for $320,000, will sell for about $450,000 today. Seven years ago, if I'd been clever enough to buy a semi-detached home for $450,00 in the same downtown Toronto neighbourhood as my condo, I would be able to list my property for at least double the price. In Toronto, it takes about 30 days on average to sell a condo while detached or semi-detached houses are gone in a few days and often above the listing price.
4.Will you be able to afford condo fees in the future? Condo fees never go down; they just go up. Furthermore, they can go up at any time and they will never disappear. In older condominiums, which are attractive to retirees because the units are more spacious, fees can hover at $1,000 a month. Have you factored that into any downsizing decision you are making?
5. If you downsize, will you have room for your family and friends, let alone yourself? I bought into the idea that I could entertain in the condominium's party room. It's big, but there's no stove so food (and dishes) must be hauled up in the elevator. If I invite more than 20 guests, I must pay for a security guard, and a $500 security fee must be deposited with the property manager.
6. Will you miss your stuff? I know it's fashionable to get rid of 30 years of clutter. When I moved, I hired three separate vans to haul stuff to the dump and that's not counting the Salvation Army trucks that took the remainder of my furniture. Sure you can sell stuff on Kijiji, but do you really want strangers rummaging through your home? A bedroom-sized storage locker costs about $185 per month, which adds to the cost of downsizing. You may think, you'll get rid of the stuff in your storage locker, but my guess is you won't.
For most retirees, downsizing means relocating to a condo. The slick advertisements promise that life will be simpler, more fun and that you can lock the door for months at a time and forget about everything. The trouble is you can't. The bills still pour in as re-sale prices for condos grow less dependable.
Long ago a gracious woman told me that good people could live in small spaces. Many years later, I'm not so sure.