The kids may have flown the coop, but downsizing can still cost

In a recent post we wrote about some of the financial considerations you need to take into account when you’re thinking of selling, such as the cost of stamp duty or whether you may need bridging finance. But because those are the typical costs associated with moving to a bigger or better home, people often forget that there are also some costs to downsize property.

Most of the time, when people think of downsizing, it’s because their kids have moved out and they desire a home with less space to maintain. In other cases, though less commonly, it’s due to mortgage stress and it’s more of an imperative, than it is a desire. Whatever your reasons, however, you should take the following into account, before moving to small digs.

Tax implications

If you’re currently receiving the age pension, then your home, as long as it’s your primary residence, is exempt from the assets test, which determines your eligibility for the pension. If you sell your home, however, the proceeds of the sale would not be exempt. If you currently live in Sydney, there’s a good chance that your family home could fetch more than a million dollars. If you swap that for a $500,000 apartment and the save the difference, you might find that you’re no longer eligible for the pension.

It’s really important, then, if you’re thinking of downsizing that you speak with a financial adviser to see how it would affect your pension now or in the future. If you’re still employed, however, downsizing while retirement is still a few years away is a good investment in your future. Any money left over from the sale of the family home can go into your super and earn interest while you’re still working.

Strata fees

For a lot people, downsizing means moving into an apartment or townhouse complex or some other strata title home, where the costs associated with property maintenance are shared among the other apartment or townhouse owners. These maintenance costs are calculated as an annual fee, known as the strata fees, and are usually payable each quarter.

As a general rule of thumb, strata fees can range from as little as 0.4-0.7 percent of the purchase price for small apartment blocks and townhouses with no facilities, or as much  0.7-1.2 percent of the purchase price for big complexes with lots of facilities. If you’re looking at over 55s resort-style living, with restaurants and tennis courts and the whole nine yards, then those strata levies may be higher, and there may also be fees to sell or leave the complex.

If you’re buying an apartment in an older, more established, you may find these fees are cheaper, as they are set at the time the building is built, and closely tied with the initial potential value of each unit. Before you start looking to buy, it’s a good idea to work out how much you can afford as an ongoing commitment. This will give you a good idea of the types of blocks you can afford, and the ones to avoid.

Stamp duty, loan discharge fees, conveyancing…

Then, of course, there are all the other costs associated with buying and selling property, such as stamp duty on the home you buy, marketing costs on the home you sell, conveyancing fees on both your new and old property, and so forth. So before you make any decisions, be sure to speak to your financial adviser first.

To get a better picture of the costs associated with selling your home, you download our free education guide, called Selling Your Property: What You Really Need to Know, by subscribing to our website. Alternatively, for more property market news, insights and analysis, continue reading our blog.