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?

One of the biggest misconceptions I run into is people don’t understand that they aren’t going to get the sales price of the house. All they are going to get is whatever is left after we pay off their mortgage and pay the expenses of selling. A lot of times they look at that sales price and they think that is what they are getting. I’ve had lots of clients in Florida who were surprised at how small the final check was. Of course the first people to get paid is the bank that has their mortgage and then you have agent’s commissions and closing costs and maybe repairs so the deductions can really surprise people and that is one of the reasons that I like to go over the numbers with my clients from the beginning so they understand how much money they are going to walk away with after selling their home. It isn’t the sales price, it’s the money they get.

Another topic we often discuss with clients is the cost to sell their home. I encourage people to get an idea of what this is likely to be (in writing) before comparing homes. It is just easier for everyone when expectations are set. How much you net from the sale of your home, and whether or not you can afford to downsize, will be a product of all the expenses associated with the sale. Start with the sales price of your home and then subtract any out of pocket expenses including (but not limited to) agent’s commissions (these are negotiable, once that’s done just look at what your agreement says), title and settlement charges, transfer taxes, repairs, credits, basically anything you think you’ll be paying. Fees and charges add up quickly so it pays to know what to expect.

For illustration, selling costs of 8% on a $750,000 sale would be $60,000. Your actual costs may be different, and any mortgage payoff also reduces the cash you receive.

2. How much will the new place cost?

And if it’s a condo, be sure and go over their fees, current budget and reserves, any current or proposed special assessments. Bottom line, before you sign anything, I like to compare apples-to-apples by determining the entire monthly cost of each property. Then add in the costs for condo/home unit insurance, taxes, utilities, maintenance costs, and of course the mortgage payment, if applicable. Then you really can compare the true costs of each property. Don’t assume a home is affordable based on the sales price alone. (Cheaper does NOT mean taxes are less.) Call the property appraiser’s office (in your county) and they’ll be happy to give you an estimate (factoring in any exemptions/portability etc.) Never assume the sellers property-tax bill is what you’ll receive, either. I’ve seen it happen. Buyers get excited about the smaller space, but sometimes forget to think about the numbers.

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

How long does it take to break-even? Add up all your one time expenses associated with selling your home, buying another home and moving, and then divide that number by the monthly savings you expect to experience. This will yield the number of months it would take to break-even on your move. So if moving will cost $60,000 and your home ownership expenses will decrease by $900/month, then it will take approximately 67 months (divide by 12) to break-even on the move. Or put another way it will take approximately 5.6 years for your move to pay for itself. Keep in mind if your home ownership expenses aren’t going to decrease then monthly savings will never result in a break-even. Compare the time to break-even with how long you think you’ll be in the home and with any other reasons why you’re considering a move.

Try it yourself

The presets below are illustrations, not estimates for your property. Replace them with your own quotes and estimates before making a decision.

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?

You may owe tax on a taxable gain from selling your home. Eligible sellers can generally exclude up to $250,000 of gain, or up to $500,000 for qualifying married couples filing jointly. Ownership, use, and other requirements apply; living in the home is not the only test. See IRS guidance on selling your home.

Your adjusted basis and selling expenses affect the gain calculation. Keep records of eligible improvements, such as a new roof or kitchen upgrade, and ask a tax professional to review your situation before the sale.

Florida: A smaller house with a bigger tax bill?

Florida’s Save Our Homes assessment limitation generally caps annual increases in an eligible homestead’s assessed value at the lower of 3% or the change in CPI. It does not cap the increase in the tax bill itself. See the Florida Department of Revenue’s explanation.

A move can change the assessment and exemptions. Ask the county property appraiser to estimate the new home’s taxes instead of relying on the purchase price or the seller’s tax bill alone.

Eligible Florida homestead owners may transfer up to $500,000 of their Save Our Homes assessment difference to a new homestead. A lower-value replacement generally receives a proportional benefit. Timing and application requirements apply; check the state portability guidance and your county’s filing instructions before moving.

Ask the county property appraiser which forms and deadlines apply to you. If you are 65 or older, also ask about locally available senior exemptions and the current income and residency requirements. Eligibility and savings vary; do not assume an exemption is automatic.

A simple example	Without portability	With portability
Old house, assumed just value	$900,000	$900,000
Old house, assessed value before exemptions	$400,000	$400,000
New condo, assumed just value	$600,000	$600,000
New condo, assessed value before exemptions	$600,000	$266,667
Illustrative 2% calculation before exemptions	$12,000	$5,333

Portability transfers an eligible Florida Save Our Homes benefit, not a benefit from another state. If you are moving from another state, ask about Florida homestead eligibility and get a new tax estimate.

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.

For a Florida condo, ask which milestone inspections and structural integrity reserve studies apply to the building, whether they are complete, and how identified work will be funded. Rules and deadlines depend on the building and circumstances. Review the Florida DBPR inspection and reserve-study guidance, then obtain the building’s actual reports and budget.

Special assessments can substantially increase your costs. Ask about approved and proposed assessments, funding plans, and who is responsible for payment under your purchase agreement.

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.

The move itself has a price

This is an area where we advise our clients to obtain quotes from movers and storage companies before deciding upon the price that they need to net from the sale of their home. There are many costs associated with making the transition from one home to another which may not always be part of the planning process. People tend to look at what they may be saving by owning one home or the other, however, there are often transition costs involved when downsizing that may not have been considered. For example: cost of the moving company, storage (in the event that closings do not match up, there could be a month or two gap which would require storage or maybe just a couple of nights at a hotel), supplies for packing, possibly a deposit to move into the condo (you might need to make arrangements to reserve the elevator, get clearance from condo management and neighbors and the condo may require that the movers provide a certificate of insurance naming the condo association before the movers are even allowed to cross the threshold.). New curtains and draperies, a smaller couch or coffee table or other smaller scale furnishings, a mailbox key, you get my point, there are lots of one-time expenses involved to make this happen which all get entered into the calculator mentioned above. Only by considering these items up front can you really make an informed decision as to how many months it will really take to break-even on the move. Once these items are considered it may or may not paint the rosy picture you were expecting when you began to dream up the savings associated with downsizing, at least you will avoid any nasty surprises.

Renting for a year before you buy the smaller place

Some of our clients, when they sell their (large) house choose to rent for a year before they buy a house. There is value in renting in a particular building or neighborhood for a while to determine if you like it. Especially for clients that have always lived in a big house, it may be good to rent a single story condo to see if they like that concept. Renting takes the pressure off of buying. Often times a couple sells one house and feels pressured to buy as soon as it is under contract or right when it closes. Decoupling the sale of one property and the purchase of another gives the buyers time to relax and find the perfect home.

Official rules won’t tell you if the neighbors leave their stereo on till midnight or the elevators don’t work on Tuesdays, but by living in the home you will know if you want to purchase it. It’s nice to be able to walk around the neighborhood at night, see how busy the lobby is and find out if there is enough light coming into the kitchen in the afternoon or if it would be too noisy to use the pool. I have seen this quite a bit in Florida. Of course there is always the gamble waiting a year to purchase a home. Interest rates may go down or up and so may home prices. However, for a lot of people it is better to spend a year in rent and go through an extra move just to make sure the home is right for you and fits your financial budget. No one wants to purchase a condo only to find out it isn’t right for them and this is a way around that problem.

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.