How Much Could You Save By Downsizing Your Home?

by Travis Pizel · 12 comments


When we built our home in 2004, we paid attention to the details we thought were important at the time. We found a floor plan we liked with the right number of bedrooms and an ample sized kitchen on a lot adjacent to a park. Unfortunately, we didn’t think a lot about how our needs would change over time. A lower level basement that had been the kids’ toy room when we first moved in now sits almost empty. That’s because the kid’s main source of entertainment is their computers (which reside in their rooms), or socializing with friends outside of the house.

Our lower level basement, which is 1/4th the total square footage of our home, is used for nothing more than storage and the home of our cats’ food and litter boxes. Every time I feed the cats, I look at the large empty room and wonder how much money we could save by downsizing our home. I did a little estimating, and the amount is staggering.

Mortgage Payment

Just as a rough estimate, I calculated how much our mortgage payment would be if we sold our current home for its most recent appraised value, then bought a home worth 25% less than the one we currently live in. After applying the equity we’ve built up as a down payment and taking into consideration current interest rates, we’d save about $400 a month on our mortgage payment alone.

Property Taxes

Our property taxes are about $6,100 per year currently, or about $508 a month. Again, just as a rough estimate, if our new imaginary home was worth 25% less, it’s logical to think that our taxes would decrease by a proportional amount, saving us another $127 each month.

Utilities

We currently budget $400 per month for natural gas and electricity. There are times during the year when it’s higher or lower, but it’s a fairly accurate average. If we again cut that bill by 25%, we’d save $100 a month.

Total Savings

If we total the three areas of savings listed, we would save an estimated $627 a month by reducing the size of our home by 25%. Since 25% of our home is completely unused, we likely wouldn’t even notice the difference in our day to day lives.

We have a significant portion of our home we don’t use, and hence the exercise, but there are other reasons why you may be in the market for a home downsize:

  • Unused Space: Like my situation, it could be just a change in the stage of your life. Kids grow older, and you’ll eventually need less space because they moved out. You could also have simply bought too big of a home when you made the purchase.
  • Big Yard: That acre sized lot and a huge back yard seemed like a good idea at the time, but now it’s just a pain to maintain. By reducing the size of your lot, and the value of your home, you can save some money and also the time it takes to take care of your yard.
  • Empty Garage: Having a big garage adds storage space to your home. But is that extra storage space necessary, or is it just an excuse for you not to organize your things as you treat that space as a glorified dumpster? You might now be realizing how much junk you can actually throw out since you will never find anything in that garage anyway.
  • Mindset Change:That huge island in the kitchen looked awesome when you toured the open house, but now you dread having to wipe the big counter every day.

It’s difficult to make the decision to pack up your belongings and move. It’s even harder to say goodbye to the house you’ve called your home for years. But calculating how much you could save in your monthly budget every month will definitely make that decision a little easier.

Hey, it’s David here.
By moving, Travis could save $627 each and every month for the rest of his life if he’s willing to move to a smaller place. I live in California, where home prices could be three times as high as the midwest where Travis lives. I thought it would be interesting to see how much a typical Californian could save if they downsize.

Here are the numbers:
I wouldn’t say the majority of residences here carry such a debt load, but it’s actually quite common for Californians to take out million-dollar mortgages. At 3% interest per year, that loan will require a monthly payment of $4,216. Cut 25% of that, and you are looking at $3,162. That’s a savings of $1,054.

Property taxes are another huge expense here. Newer homes could have property taxes as high as 2% of the property value. Assuming someone puts down a 20% downpayment when the home was purchased, then a $1.2 million dollar home would cost as much as $24,000 in property taxes per year. Cut 25% and that’s another $6,000 a year in savings, or $500 a month.

Utilities seem to be where we actually save a little versus the rest of America. A typical utility bill here is more like $200 a month for gas, water, and electricity. Still, a 25% savings is $50 a month.

Add these up and you are looking at $1,604. That’s $1,604 month after month after month. I also want to point out that some of these expenses are paid with after-tax dollars as well. For starters, only $750,000 of the mortgage is eligible for the interest tax deduction. And since most family’s state income tax is already higher than the $10,000 tax deduction limit, the entire property tax will be paid with after-tax dollars. If we estimate that a typical Californian pays a marginal tax rate of 35%, a $1,604 a month is like getting a $2,165 a month raise. That’s $25,980 a year!

There are other expenses that could be added to this total too. Most families here are dual-income families so it’s very common to just have someone come take care of their cleaning and yard needs. We are talking about paying $50 for a gardener, $150 for someone to clean the house every two weeks, and maybe another $100 for a pool guy.

At some point, you have to wonder if it’s better for some families to just downsize and have one of the spouses stay at home forever. Sure, that person will have to start cleaning and taking care of the yard. But we are talking about freeing 40 hours a week plus commute time here. You also get to escape the stress of full-time work.

And as an aside, it’s no wonder how the rest of America wonder why we pay so much to live here!

Does this tempt you to downsize? Have you estimated how much you could save by doing so?

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{ read the comments below or add one }

  • Papa Foxtrot says:

    I have seen houses with utilities bills 9 times higher than houses half the size. These houses tend to be 2 floor houses with high ceilings on the first floor. Completely worth it (extreme sarcasm notice).

    • David@MoneyNing.com says:

      Heh sarcasm noted. It’s true though about utility bills. Some houses have multiple furnaces and air conditioning units just to heat the same number of rooms. And plus, utilities are in a tiered system. Once you use up a certain amount, you pay more and more for each unit of energy.

  • Alexandra @ Real Simple Finances says:

    This is a tough one, because I’m considering up sizing my home, yet moving to a much cheaper part of the country. However, your points are really good and are making me pause — it’s fine for me to want a huge property, but do I want to *care* for it? There really are some benefits to looking for smaller homes and land!

    • Travis @enemyofdebt says:

      Hey it’s absolutely fine if you want to “upsize.” If you’re comfortable with the payment, and that’s how you want to spend your money – go for it! The illustration is simply to show that if someone is looking to save money, downsizing your home is one thing to look at. Thanks for sharing your thoughts, Alexandra!

  • Bart says:

    With our oldest going off to college this year, we decided to do exactly what Travis suggests. Another factor for us was to buy a fixer upper in an older neighborhood downtown where land prices are escalating – much faster than our previous neighborhood which was doing OK, but wasn’t going to double in value within the next 5-10 years like the smaller place might.

    So far, we are very happy with the change. Only thing is, it has definitely been an adjustment to living in smaller quarters and shedding much accumulated stuff from past years to fit into the new home.

  • Gwen says:

    I’ve considered downsizing and I balk at the transaction cost and other expenses of selling a house. 6% real estate commission and fees, concessions you might make to the buyer, moving and cleaning, and possibly unplanned expenses related to repairs needed before closing needed to be taken into account. How do you frame those expenses when considering downsizing?

    • Travis @enemyofdebt.com says:

      Great points, Gwen, and things that one would certainly have to think about when contemplating downsizing. You’d want to add up what the cost of selling and moving would be, and compare it to any proceeds you might get from equity you have built up in your existing home. If downsizing actually costs you money out of pocket, you have to decide how many months it would take to recoup those out of pocket expenses, and then determine if it’s worth it. In my situation, I have quite a bit of equity built up in my home, so I’m guaranteed that downsizing wouldn’t cost me a cent out of pocket. but I should still do the analysis. 🙂

  • Rick Mayhew says:

    My parents bought a house without even looking at it (a friend looked at it for them). They ended up living there 49 years. What I learned was this: If possible, plan your house purchase so that if you end up living somewhere for 49 years, it will still be workable for you. It’s not always possible to do that, but it doesn’t hurt to add it to your home buying analysis.

    • Travis @enemyofdebt says:

      It depends upon whether you want your home to be your “forever home.” We honestly thought this would be our forever home. It could be…..it certainly has everything we need AND want. The problem is, it has MORE than what we need. 🙂

  • lana says:

    I’ve thought about it also. Prices have risen in our area so that if we downsize, it will result in a home price only about $60K less than our current home.

    With commission, moving costs, and saving a few dollars on taxes and utilities we won’t be saving much.

    Our home is already geared for senior living, but has enough space for three families. I feel that in order to be able to accommodate children, grand-children etc this size home will make everyone comfortable.

    I don’t think it makes sense for us.

    • Travis @enemyofdebt.com says:

      Sounds like you’ve run the numbers, and come up with the best decision for your unique situation, Lana – good for you! Thanks for sharing!

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