WILL DOWNSIZING RELIEVE THE FINANCIAL PRESSURE?
When it comes to financial stress, downsizing sometimes makes the most sense to keep up with the rising costs of living. As tough as it might be, you stand a much better chance of recouping your losses and bolstering your financial position if you sell before you start falling behind on your bond repayments.
Below are some of the pros and cons to downsizing:
Con: Hidden Costs
Be prepared for the unexpected costs involved in a sale before you make this decision. You need to remember to subtract capital gains tax*, commission fees, bond registration and cancellation fees, as well as advanced payments of municipal accounts from your selling price to calculate a realistic view on what you stand to get out of the sale of your current property. Doing this calculation can help you determine whether the profit from the sale will be enough to cover as many of your other debts as you initially hoped it would.
*Capital Gains Tax: if you have lived in the home for some time and sold for a profit that exceeds R2 million, you will be liable to pay this. If the profit does not exceed R2 million and the home is your primary residence, then you will not have to worry about this.
Pro: Lower Monthly Instalments
The true saving in downsizing is not necessarily the profit from the sale, but what you stand to save on your monthly home loan repayments. You might not get as much out of the sale, but you will have more disposable income in your budget each month to help you pay off or avoid getting into other debt.
Pro & Con: Less Space
Another important factor is the space you stand to lose when downsizing. Apart from the adjustment you will need to make when living in a smaller space, you might also need to factor in purchasing new furniture that will fit into the tighter living quarters – bearing in mind that you can sell your existing furniture to recoup some of these costs. However, having a smaller space also means that your electricity and water bills are likely to be much lower. If you had a large garden, you will also save on the costs of garden maintenance.
If you are facing financial pressure, it is always better to take a proactive approach than to sit back and hope that the situation will improve by itself over time. If you need help deciding whether downsizing is right for you, speak to your financial advisor and contact a real estate advisor from your nearest RE/MAX Office who can give you an accurate market valuation of your home.