My husband and I are empty nesters, living in a large home and paying high property taxes. We figure we will be able to save more for our retirement if we downsize now instead of waiting. I'm looking for advice on the advantages/disadvantages of condos, co-ops, active adult communities, especially relating to owners' rights, tax obligations, insurance requirements. Also, need help deciding how to downsize our furniture and belongs, I don't even know where to begin.
I moved into an active adult community for people 55 and over and it was the best decision I ever made. I save a lot on what I was paying on my mortgage, taxes and insurance. Plus, I now have access to a clubhouse, pool, gym and tennis courts without paying to be a member of a club. Also, I was paying a lot to have my grass cut, my driveway shoveled, my gutters cleaned and my pool maintained. I figure I have cut my costs in half by downsizing. On top of that I have a great new group of friends. We play bridge and tennis, take trips together and my social life is a lot better than when I lived alone. I even started dating one of the other members in my community.
Unless you live in NYC, or the northeast you probably won’t be looking at a co-op. Condominiums are much more prevalent in the rest of the country. Though the life style is similar, there are important differences. With a co-op you don’t actually own real estate, you own shares in a company as part of a cooperative housing corporation. The corporation owns the common areas. Property taxes are assessed to the whole property and are charged back to the tenants as part of the monthly maintenance fee.
In a condominium you own your individual unit plus an interest in the common areas, like the pool, lobby and parking lot. Property taxes are charged individually to each unit, as they would be if you owned a house. You still have a maintenance fee, but it is usually lower with a condo because it does not include the built-in property tax assessment.
A Co-op board has a lot more power than a condo board. They can deny the sale of shares (in other words, can keep someone from moving in) based on any number of factors, including perceived financial resources, criminal background, or even if they believe a celebrity resident will cause media interest that could disturb the peace. Condo boards can not exert that same level of control.
An active adult community is usually geared to people over 55, and it can be age restricted, requiring that at least one household resident is at least 55. Others are age-targeted, marketing to the 55+ crowd, but not explicitly excluding younger residents. The community can have simple amenities or extensive options including clubhouses, pools, arts and crafts, golf courses, computer labs, movie theaters, etc. A monthly homeowner’s association or condominium fee is assessed to handle the cost of outdoor and public area maintenance. When deciding on an active adult community keep in mind that the age of the development is a good reflection of the age of its residents. A community that opened 20 years ago is likely to have a much older population than one that is two or three years old. And find out how restrictive the board is before you decide to buy in to an adult community. Some are rule-crazy, others are much more laid back.
I was overwhelmed when my husband and I faced moving from our 3,000 square foot house to much smaller home in a retirement community. The best advice I got was to hire a senior move manager through the National Association of Senior Move Managers, www.nasmm.org. She helped us deal with how and what to sell. First, we asked our children if there were any items they wanted. It was easy to part with belongings knowing they would be kept in the family. We kept the small “convertible” pieces that would work in our new home. A small chest of drawers stores serving items that don’t fit in the kitchen. The sofa bed turned the den into a bedroom for guests. She also referred us to trustworthy estate sale agents to get the best price for selling items. Downsizing is not easy, but with the right help it’s a lot better than trying to face this arduous task on your own.
As the questioner already mentioned, there is the advantage of lower property taxes when you downsize. When you sell a primary residence that you owned and lived in for at least 2 years, you can exclude from income, up to $500,000 gain on the your home (if married filing jointly or up to $250,000 for all others). Remember to add to your basis any settlement fees when you bought your home as well as any improvement you have made to the property.
By downsizing your furniture as well, you can take an itemized deduction for the value of items donated to qualified charities. In general, you can donate up to 50% of your adjusted gross income for the year. This lowers your taxable income and thus your tax. Make sure you keep receipts of donations from the charities.
A final benefit of downsizing is that you can put more money into your retirement savings. If this is done with a tax-advantaged account such as a 401(k) or a deductible IRA, the money goes into your account pre-tax, which reduces your taxable income.
There can also be a few disadvantages. By downsizing, you probably will reduce or eliminate your mortgage. Although this is a great benefit to you with less monthly expense, you may reduce the mortgage interest paid to a point where you no longer can itemize your deductions. Also remember that condo or other neighborhood fees, which can be a significant monthly expense, are not deductible.
This is a common question (What to take?) I am asked as a Professional Organizer and Home Stager. First of all, start the purging process now. Whether you move or not, clearing the clutter and stuff you don't need will make you feel better. You can make a much better assessment of what to take once you know where you are going. That being said, if there are things that you have no need for or don't like now, let them go
When you do decide where you are going take a really good look at the space and choose your favorite pieces to fit. This is a great time to give things to your children if they have a desire.
The process can be daunting but there are many professionals out there to help you. Look into NAPO- National Association of Professional Organizers and speak to an Organizer. This is what we do for a living... help people your situation.
For the record, I downsized over a year ago. I am in a townhouse. Although I do miss some things (my gourmet kitchen!) it is great! I do not miss the hefty taxes, maintenance and the huge operating expenses. You can use that new found money for all the creature comforts you's like!
First of all, you and your husband are very wise for thinking ahead and being proactive regarding this important life transition/stage.
To answer your question about downsizing, you may want to work with a SMM (senior move manager) or some other type of estate sales/transitions personnel: you can search for these professionals via http://www.nasmm.com/findaMoveManager.cfm or http://www.caringtransitions.net/Locations/tabid/136/Default.aspx.
You might also find this article on AARP.org helpful as you’re wondering where to begin on the overwhelming process of downsizing: http://www.aarp.org/work/retirement-planning/info-08-2011/retirement-downsizing.html.
In terms of getting advice on advantages/disadvantages of condos, active adult communities, etc., I recommend the following sites/articles:
1. http://homebuying.about.com/od/buyingahome/qt/061507AdultComm.htm -- this article recommends following the same procedure for considering a home in an active adult community as you would for buying a single-family home. Hire a real estate agent who has experience with sales in these settings.
2. http://retirementliving.com/ -- this site is divided into a number of different categories, including taxes by state, great places to retire, an active adult community directory, and many other related resources.
3. http://www.topretirements.com/tips/Choosing_a_Community/Ten_Questions_to_Ask_Before_You_Buy_in_an_Active_Adult_Community.html -- this article offers guidance on knowing what to ask before deciding to move in to an active adult community.
4. http://www.lifewhile.com/money/17479054/detail.html -- A great article highlighting the pros/cons of home ownership vs. condo ownership.
One of the main reasons I began writing about downsizing in my blog, www.starttodownsize.com, was having had clean out my parent's home to prepare it for sale. I encourage ALL my downsizing clients to start the process WHILE IT'S STILL THEIR DECISION, not someone else's. The fact that you're getting started now is very wise!
Regarding your furniture, etc.
1. Decide on the size of your new, downsized place; i.e., number of bedrooms and baths, approximate square feet.
2. Get floor plans once you've narrowed the field of possibilities. Measure all your furniture.
3. Furniture needed for a 2 BR, 2 Bath home or condo:
LIVING ROOM requires a sofa (or sleeper sofa), 2 chairs, or loveseat and 1 chair, coffee table, 2 side tables, 2 table lamps, one floor lamp, entertainment center with TV and components.
DINING ROOM requires a table with 4-6 chairs, depending on space. If there's room, add a china cabinet, buffet or server.
MASTER BEDROOM requires a king or queen bed, depending on space, 2 nightstands/small dressers, large dresser, depending on space, 2 lamps, either wall-mounted or table lamps.
SECOND BEDROOM/OFFICE requires a daybed with/without trundle, desk or armoire for computer and office supplies.
KITCHEN: Depending on space, consider a small bistro table with 2-4 chairs. If additional storage is more important, bring in a buffet, baker's rack, china hutch, armoire, highboy, or dresser.
Need more help? Leave a comment on my blog and we'll walk through everything together!
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