Downsize Your House & Cut Your Costs In Half. We Did It!

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About 6 months ago, I wrote an article about how I was going to sell my home and downsize my life. Sound a little like Elon’s recent tweets? An excerpt from that article is below:

After my 3 kids moved out over the last 5 years, my wife and I have been left with a 3,800 square foot pool home and we only use the master bedroom, bath, the office, and the kitchen. I added up the monthly expenses and the home costs us about $6,000 a month. Some would say to hold onto real estate for the appreciation potential, but having owned many homes over the last 30 years, I’ve come to the conclusion that good money can be made in the business of selling and renting real estate, but owning homes to live in has many unexpected and recurring costs. I would be buying a smaller home if I knew it could meet my needs for many years, but with transaction costs in real estate very high, it doesn’t make sense to buy if you are only staying there a few years. It also allows you to move much closer to your work, since you don’t have to be as picky with a rental as you would be if you were buying a home.

So my plan is to downsize in 2 steps. First to move from my existing home to one that is half the size (about 2,000 square feet), then to downsize again in 3 to 5 years to one even smaller (about 1,400 square feet). To make the first move we must first sell, donate, or throw out half of our belongings which we think will take us about 6 months. This first move should save us about $2,000 a month and the second move another $1,000 a month! This will pay for a lot of vacations!

I’ve spent some time looking at apartments, townhouses, and rental homes. I’ve determined that I can only move to a townhouse or rental home, since apartments in northwest Tampa don’t have charging stations and there are no level 2 chargers by any of the places I spend time (work or gym). There are also no level 3 chargers without driving an hour out of my way. This is of course ridiculous, since a huge number of people will be buying EVs over the next few years. But employers, retailers, and apartments have no idea this major transformation is happening, so even when they build a new parking lot or build new apartments, they don’t even think of putting charging stations in. That will all change over the next 5 years and this will enable us to move to an apartment without a garage. It is also possible we won’t even have a car, but just use a Tesla robotaxi to meet our transportation needs. Why own a garage if you don’t own a car?

We had planned to just rent in Tampa, since we plan to move again in 5 years, but in order to find a place that both my wife and I were happy to move into and offered enough advantages to be worth the work of moving, we ended up buying.

This started off a great thing, but as COVID-19 started to close down the economy, it added a lot of stress to the process of selling the old home. We could have just backed out of the deal and started over next year, but I felt there is no assurance that we will be back to normal next year and I would be missing out on another year of savings. Since we negotiated the sale of the home at the peak of the panic over COVID-19, we probably received a few thousand dollars less than if we had sold the home earlier or later, but we were locked into a timeline since we had committed to the new home and would lose our $5,000 deposit if we walked away from that contract.

Below is a note I wrote to a friend about the double closing.

The old house is sold and has been through inspection so should close on April 28^th.  We also close on the townhouse on the same day. If the sale of our home falls through (you never know with C19), we have decided we won’t buy the townhouse since we don’t want to own 2 homes in this crazy economy. They will lose a $10,000 deposit and we will lose a $5,000 deposit. But it should all be fine. Christy is a great packer and I’m going through things and throwing a lot out. We have sold our dining room, patio and 2 bedrooms of furniture. Matthew took his bed and one of our 4 couches. Ashley took most of her room. So we have just the Master bedroom, the family room, the living room, a guest bedroom, the kitchen, the office, garage stuff, and are storing about 5 boxes for Matthew and about 10 boxes for Kaitlin. Our old house has 2 large storage closets and an attic, while the new home has none, so one of the bedrooms will have to be partially used for storage of things we had in those 2 closets (Halloween costumes, pictures, etc.) Probably more than you wanted to know, but I’ll write an article on how the move saves energy and money, so this helps organize my thoughts.

Amazingly, it all went down with only a little last-minute drama. 15 minutes before the sale of the home was to close, I received a call that the buyers found a toilet gushing water during their final walkthrough. They wanted a $400 credit to fix it. I drove over to the house and found it was a simple $30 part, but I wasn’t willing to fix it since I had to do a walkthrough and closing on the new home. My wife called a few plumbers and got a more reasonable quote for the repair. I paid them the reduced amount and let it go. For a moment, it seemed like the whole deal was going to fall apart over a $30 part that broke at the last minute!

The Savings!

The core part that makes this a CleanTechnica story is the reduced energy use (and resulting financial savings).

The big reduction when moving to a smaller home is the smaller mortgage payment. This difference is exaggerated because on the old house I had a 15 year mortgage that was partially paid down and a recent 30 year second mortgage. The new interest rate was also very low at 3% after I paid 2% of the amount of the loan to reduce the interest rate from 3.375%. If you are comparing apples to apples, the savings would be about $800 a month instead of $1,544.

Taxes are also artificially low on new construction (since you pay for the value of the homesite before the home was built). Taxes will go up about $350 or so next year.

The key bargain you make when you purchase a townhome is you pay a larger homeowner association fee, and for that fee, you have greatly reduced homeowner’s insurance (they insure most of the building), water, pest control, pool, lawn pest control and fertilization, mowing, trimming and edging of lawn, roofing costs, and painting costs. If the homeowner’s association doesn’t manage their reserves properly, you may get a $5,000 assessment for a new roof or a $1,000 assessment for painting or other repair in 10 or 20 years, but even if that happens, you can see I will be hundreds of thousands of dollars ahead.

Depending on market conditions, we may put this unit up for rental after 5 years instead of selling it, since my brother-in-law manages several properties in the area and would be able to take care of this one also.

Energy Costs

 

So, why are energy costs so much lower?

1. The first reason is the home is about 2,300 square feet with 9 foot ceilings instead of 3,800 square feet with 10 foot ceilings. Less space to cool (and heat, but we probably spend less than $50 a year on heating) is a big win.
2. Newer construction has both better insulation and other features to improve efficiency.
3. A townhome has only 2 or 3 exterior walls, since 1 or 2 of the walls is shared by a neighbor. Those common walls will be much cooler than an outside wall and greatly reduce your cooling costs. (It is important to still have good insulation on your walls with your neighbors, since they might not cool their homes as much as you do and also to reduce sounds going from home to home.)
4. My new home is all electric. In my old home, it seemed we had increasing gas costs even though gas costs are very low nationally. There seems to be some deal the builder makes with the propane company that means they have a monopoly over the homeowners and I never figured out how to get out of that.
5. My electric cost is about 10 cents a kWh and I will probably get solar in a year or two. (I don’t want to put up solar until the one-year home warranty is over since putting solar on will invalidate my new home roof warranty.)

Conclusion

A lot might change with the housing market due to the COVID-19 crisis. Some trends that were already gaining momentum before the crisis will advance quickly now. Many companies that were unsure if their workers could be productive working from home have been pleasantly surprised. This has two main effects on housing. If you were buying a home to be close to your work and your work is now mostly virtual (even after the crisis), you may choose to get less expensive housing farther from the city center. You also may be less likely to buy close to a mass transit line that you are less comfortable riding during this or future pandemics.

But on the other hand, do you need more space since you and your spouse might be working from home? Maybe, but I encourage using your bedrooms as multi-use rooms.  Have your offices in bedrooms, but also put a daybed or Murphy bed there, so you can use it as a guest room without the expense of paying for an extra room that you will only use occasionally.

Overall, I’m glad we downsized during the crisis. With 20/20 hindsight, it would have been better to make the move before the crisis, but although we could tell something was coming in January, it takes a little time to fix up your existing house for sale, especially if you have been ignoring home maintenance to follow all the news in the exciting electric car world, like I had been doing.