Buck and Starla Harrison didn’t plan to downsize from their suburban Seattle home of 32 years until they fell in love with the picturesque community of Edmonds, on the water north of Seattle. They looked at a few homes in Edmonds and realized they couldn’t afford to buy there. After running what-if scenarios with their financial planner, they decided to rent.
The Harrisons sold their three-bedroom home in five days with one full-price offer of $600,000. After expenses, they walked away with $550,000. They created a reserve account with $24,000—about a year’s worth of expenses—and invested the rest. The couple pays $2,850 in rent, $100 for utilities and $100 for renters insurance monthly for a two-bedroom, two-bathroom apartment with a water view.
In today’s seller’s market, buyers, like the Harrisons, who want to downsize face quite a hurdle. Home prices are high, and inventory is tight. In August, the national median home price hit $310,600, up 11.4% from a year ago, according to the National Association of Realtors. Currently, there’s only about a three-month supply of existing homes for sale (four to six months is considered balanced between sellers and buyers). “The inventory of homes right now is like toilet tissue was this past spring,” says Cindy Marsh-Tichy, a real estate agent in Punta Gorda, Fla.
Bidding wars are common and it’s easy to overpay, especially if you have cash from the sale of your previous home burning a hole in your pocket. You’ll preserve more of your equity by following these tips.
Consider All Expenses
After looking at a few homes, ask yourself, “What would I find acceptable to live in for the price I’m willing to pay?” says Colleen Ketcham, a senior real estate specialist in St. Paul, Minn.
Don’t overlook the cost to sell your current home, including updating, repairing and staging, as well as a real estate agent’s commission, typically 5% to 6% of the sale price. Even if you pay cash for your next home, you will still need to cover property taxes, hazard insurance and homeowners association fees. The cost to move belongings from a three-bedroom house locally (within 100 miles), excluding packing service, ranges from $480 to $800, according to Homeadvisor.com. The cost to move out of state ranges from $2,200 to $5,700, depending on the distance and weight.
Sell First, Then Buy
Without a home to sell, you can make a noncontingent offer, which sellers prefer. You also won’t be tempted to settle for less than you would otherwise get for your former home or need to take a bridge loan to close on the new one, says Marsh-Tichy. A bridge loan is pricey and can be hard to get.
Stick to Your Plan
If you buy a fixer-upper for less, set a limit for how much you’ll spend on improvements. Lyle Benson, a financial planner in Towson, Md., recalls clients who made selling a large, expensive home a key part of their financial plan. But instead of adding hundreds of thousands of dollars to their retirement savings, they spent it all redoing their new home, imperiling their plan.
Account for Capital Gains
Up to $500,000 in gains from the sale of your home are excluded from taxes if you’re married filing jointly (up to $250,000 if you’re single), as long as you’ve lived in the house for at least two of the past five years. For example, if you are married and bought a house a decade ago for $300,000 and sell it for $600,000, your $300,000 profit is tax-free.
Don’t Underestimate the Cost of Your New Lifestyle
When the Harrisons moved, their tax accountant, who lives nearby, told them they would love their new home, but they’d better get used to the “seven-page credit-card bills” that result from proximity to plenty of great restaurants.
You Still Have Time to Score These Holiday Deals
Several deals from various retailers are sticking around after Black Friday and Cyber Monday. You still have time to score these holiday deals.
By Erin Bendig Published
Shein IPO Is In the Works: What You Need to Know
Fast-fashion retailer Shein is reportedly preparing to go public, but its IPO is facing several hurdles.
By Karee Venema Published
Best Foreclosure Sites for Finding Properties
Making Your Money Last Wondering how to find foreclosed homes for sale for your next residence or to flip for a profit? These websites will guide you to foreclosures and real estate-owned properties to buy.
By Bob Niedt Published
Luxury Home Prices Rise as the Rich Dodge High Mortgage Rates
Luxury home prices rose 9% to the highest third-quarter level on record, Redfin reports, growing nearly three times faster than non-luxury prices.
By Kathryn Pomroy Published
Four Tips for Renting Out Your Home on Airbnb
real estate Here's what you should know before listing your home on Airbnb.
By Miriam Cross Published
Is a Medicare Advantage Plan Right for You?
Medicare Advantage plans can provide additional benefits beneficiaries can't get through original Medicare for no or a low monthly premium. But there are downsides to this insurance too.
By Jackie Stewart Published
What You Must Know About the Different Parts of Medicare
Medicare Medicare can be complicated but we've got you covered. Here is a quick guide to the different benefits provided through each part.
By Jackie Stewart Last updated
5 Ways to Shop for a Low Mortgage Rate
Becoming a Homeowner Rates are high this year, but you can still find an affordable loan.
By Daniel Bortz Published
Does It Make Sense to Rent in Retirement?
Making Your Money Last Renting isn't right for all retirees, but it does offer flexibility and it frees up cash.
By Sandra Block Published
10 Things You Need to Know About Retiring to Florida
Making Your Money Last If Florida is part of your retirement plan, we offer up a few tips to help you find your way.
By Bob Niedt Last updated