The Downsizing Math: Does a Smaller Home Really Save You Money After 60?

When people sell their houses, they often buy smaller ones to live in after retirement. But it’s not always an easy decision and may not save money.

I’ve seen people sell their big house and move into a much smaller condo, but they still end up paying almost as much each month. They made the right choice, most would do it again — but they didn’t realize that was the outcome until after the fact.

There are three numbers you need to consider when making this decision: the amount of money you get from selling your house; what your new place costs every month; and how long before you start saving. With these figures in hand, you can figure out if moving into a smaller home is really worth it for you.

Let’s go over each one:

1. How much do you end up getting?

When you sell your house, you don’t get the sale price — you get whatever is left after subtracting what you still owe on the mortgage and all of the costs involved in selling. Most people forget about those costs.

The biggest cost is the commission paid to your agent, which typically comes out to about 5.7% of the total sales price. That amount can be negotiated. Other costs include a title company that legally transfers ownership, the state’s tax on the sale and any repairs the buyer asks for after the inspection. So plan on 7% to 9% of your sales price being deducted from your total proceeds.

For example, if you sell your house for $750,000, you’ll get about $60,000 less than that amount after paying all of these costs.

2. How much will the new place cost?

If you move into a condo, you’ll be paying monthly fees to maintain and insure the building. These fees typically range from $500-$1,000 per month before you buy your own insurance policy for the unit itself.

You’ll also pay property taxes on your new house or condo — an annual bill sent by your county for owning a home. In Florida, these taxes start over when you buy, so if you sell and move to a smaller place, you may be paying more in property taxes than before.

3. How long will it take until the savings kick in?

To figure out how many years it takes for you to break even on your new house or condo, add up all of the one-time costs involved: selling your current home, buying the new one and hiring movers — then divide that by what you’ll save each month.

If your monthly condo fees are $900 less than your monthly mortgage payment, but the entire move cost you $60,000, it will take you about eight years to break even. If you’re 62 or younger, this is a reasonable time to make the switch — but if you’re older, you’ll want to think carefully before moving.

Try it yourself

Start with one of the examples below and adjust anything you know (if you don’t know all of the numbers, they are a reasonable guess).

In the first example, the condo costs $300,000 less than the house, but you’ll save very little on your monthly payment and you’ll have about $230,000 more in cash — because your condo fees and fresh property taxes will eat up most of the savings. If that’s what you’re looking for when buying a condo, this is a good choice. If you were counting on a lower monthly bill, you’ll want to know that before you sell.

Will I owe taxes on my profit?

Yes — but not as much as you might think. If you sell your house and make more than you paid for it, the difference is called a profit. The IRS lets you keep up to $250,000 of that profit tax-free (or $500,000 if you’re married and file jointly). But only if you lived in the house for at least two years out of the last five.

You can also count any improvements you made over the years — such as a new roof or kitchen upgrade — as part of what you paid, which lowers the profit. So it’s always wise to keep receipts on these expenses so you can show them to your tax preparer. (And don’t wait until after you sell to talk to one.)

Florida: A smaller house with a bigger tax bill?

In Florida, when you own the home you live in, you can claim it as your “homestead” and file for it once with your county. Homestead status gives you a few benefits including Save Our Homes — the value of your taxes only goes up three percent per year no matter how fast prices rise. So after 20 years in the same house, you might be paying taxes on a home worth $400,000 when it could sell for $900,000.

When you sell and buy a new place, you’ll pay property taxes at the full price of your new home — which is often more than what you paid on your old one. This can make moving to Florida seem like a bad idea even if you’re downsizing into a smaller house.

The fix? Ask for portability, which lets you carry over the tax savings from your old home into your new one (up to $500,000 worth). But only if you claim homestead on the new place by January 1 of the third year after leaving your old home. If the new house is worth less than the old one, you’ll get a proportional share.

You do this with a form that you file with your county property appraiser (the office that decides what your home’s value is for tax purposes). The savings can be more than $6,000 per year. While you’re at the property appraiser’s office, if you’re 65 or older and your household income is under about $38,700, ask about the senior exemption — which will reduce your taxes in most counties.

A simple example	Without portability	With portability
Old house, what it sells for	$900,000	$900,000
Old house, what you were taxed on	$400,000	$400,000
New condo, what you paid	$600,000	$600,000
New condo, what you’re taxed on	$600,000	$266,667
Yearly tax at a 2% rate, for the example	$12,000	$5,333

And if you’re moving to Florida from another state, there is no portability option. So plan on paying the full price for your new home.

If it’s a condo

Every condo building has an association that runs the place and collects monthly fees from its residents. I always tell buyers that they need to know everything about their new property — especially the condo association.

In Florida, this is more important than ever after the Surfside building collapse in 2021: buildings three stories and up must pass a structural inspection at age 30 (or 25, if the local building department requires it because the building sits near salt water), and the association has to prove that it’s putting away enough money for repairs like roofs, plumbing and waterproofing. Buildings that have put it off for years are finally catching up with special assessments — one-time fees every owner has to pay when the condo association runs short.

These can be huge: $20,000 or more per unit. The buyer who didn’t ask is paying for these repairs.

Before you submit your offer on a Florida condo, make sure you read all of this information. And if it’s not readily available, ask for it.

Start with the closets

Take out everything you want to keep — from your cupboards and closets to your clothes — then decide whether you need help moving everything. Your budget will determine whether you want to hire movers or pay for full-service pack and unpack. If you’re doing this on your own, lay your clothes flat on hangers as you pack them and hang them up when you get home.

Then run the calculator with your own numbers, book an appointment with your county property appraiser and file for portability if you’re staying in Florida. The smaller home may be a good choice — but it’s better when you know what it costs before you make it.

If you’re thinking about selling your big house in South Florida or moving here from another state, get in touch with me and I’ll help you figure out the numbers.