Downsizing

The current economic climate has caused many people to re-think their priorities in life. Or stated more correctly, many people re-thinking their priorities has caused the current economic climate. This dramatic shift in motivation lies at the root of all that we see happening, and the reason stimulus won’t work is because people don’t want to be stimulated.

In real estate this dramatic sea change in thinking from expansion to contraction is showing up as the desire to have your housing work for you rather than you work for your housing. Some of my clients are re-examining the drive to constantly strive for more and better homes, especially as it gets harder to work longer hours as we age, and we are no longer certain that we’ll make more money next year than we did this year. And even if we did manage to make more, we won’t get to keep any more as taxes are certain to increase in the future.

So how do we get housing to work for us rather than vice-versa? It starts with an honest assessment of what we need and want in our lives. What if by downsizing to a less expensive but equally comfortable home gets you out of debt so you don’t have to work so hard just to maintain? What if you could free up equity and buy some investments that produce “mailbox money”, meaning checks that show up in the mail without you having to work for them?

It looks like this – you have a large house that you don’t really need anymore because the kids have moved out. You have empty bedrooms that you never use. You’re in one of the upper tier price points that have declined in value a bit, but not as much as the entry level market that has been hard hit by foreclosures. You’re getting closer to retirement, but you’ve watched your retirement funds in the stock market drop. You could stay where you are and continue to make the big mortgage payments, but you’d rather not. Why not trade that house for a more affordable one and free up capital for investing in cash flowing assets?

What if you downsized and reduced your monthly expenses? If we’re in the eye of the economic storm and there’s more to come, you will be better able to stand. And if happy days are returning soon, then you will be making good money while your expenses are lower, and so you’ll be able to replenish that retirement account. You win either way.

It seems I’m running into more people who are thinking along these lines, which makes sense in light of the social mood shift. It is exactly this shift which tells me the economy is not ready to return to the go-go days of expansion. We have much more de-leveraging ahead.

So how about you? Are you getting closer to the edge where if things don’t turn around soon you’ll be in trouble? Or maybe you’re doing alright but you’re just tired of working so hard? Why not be proactive and make some wise choices while you still have options? That’s called living life by design and not by default. You call the shots.

Depending on your situation, you could reduce your debt, eliminate your debt, purchase cash-flowing rental property or some combination. For example, if your home is worth $950K and you owe $300K on it, you could sell it, buy a house for $500K cash, and buy two rental homes in Hemet for $75K each that rent for $850 per month each. So you’ve eliminated a $2500 a month mortgage payment, reduced your real estate taxes by $500 a month, and increased your income by around $1200 a month. That’s $50K a year you don’t have to make. That could be the difference between working and retiring, or living well on only one income.

So what’s really important to you and what are your priorities? Spending more time with the kids or grandkids? Is there a ministry or worthy cause you’d love to devote more time or money to if only you could? Perhaps you have the means already. Maybe you could free up time and money by restructuring what assets you already have. We can all learn to be better stewards of what God has blessed us with.

Your whole life can change with some strategic moves. If you’re stuck in a rut of working to pay the bank and not getting anywhere, I can help you get unstuck. Feel free to call me any time.