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My wife and I are very happy with our neighborhood – we like where we live, we like our neighbors, and the schools are good.
But I recently had a thought… the only thing holding me back from reaching FI (financial independence) is the dollars owed on my mortgage. Granted, I’ll reach FI before the mortgage is completely paid off, but for my plan to work, those extra payments for a couple of years will make things a little tight. So, here was my thought…
What if I downsize my home?
Look, a lot of the average Joes out there would look at me in absolute horror for even thinking such a thing. They would probably say “you’re too young to consider downsizing!”
But guess what? We’re not average Joes – we’re on a mission to quit working much earlier than the average Joe! I’m sick of working, so why not consider all angles to see if there are some options to help me leave my job sooner rather than later?
I’ve had the downsize thought before, but like I said, we’re very happy with where we’re at so I usually just dismiss the idea. Today though, I had a new twist on the idea pop into my head…
What if we were to downsize to another home in our development?
We live in a big development – over 1,000 homes!! Most of the homes are pretty similar as they were built by the same builder within a few years of each other. It’s not unusual for a neighbor to stop by and say “hey, our house is the same as yours, just with the opposite layout.”
In other words, we could find a house not too unusually different from ours in the same development, with the exception of looking for one slightly smaller.
Right now, we have a mortgage balance on our residence of about $157,000. Excluding taxes and insurance, I pay a little extra on our payment – $1,500/mo. (just for principal and interest) – and Quicken is telling me that it will be paid off in January of 2027… that seems like an eternity!!
So let’s do a little bit of “what if”…
Based on Zillow‘s estimate (even though that’s usually off by a little), our house is worth around $271,000. That leaves us with about $114,000 in equity to play with. For simplicity’s sake, let’s factor in Zillow being off a little and the cost of an agent and just say we’d have around $100,00 if we sold the house right now. Might not be spot on, but you can’t get much more of a round number to work with than that! 🙂
Now, let’s say that we were to downsize from our 4-bedroom house to a 3-bedroom house in our neighborhood. I just did a quick search and found one a stone’s throw away going for $195,000. I like simple, so let’s pretend we low-ball them or find a cheaper one that we like – with the fees and what not, what are the chances that our imaginary number became exactly $200,000?!! Boy, I sure like simple math!
That means we need a $100,000 loan. At 3% for a 15-year loan, our payment would be $690.58 (stupid non-round number!).
Onto the important part of the equation. If we continued to make our $1,500/mo. payment, we would pay it off in just over 6 years. In other words, we would have it paid off in 2022… 5 years sooner!!
I still want to buy a couple more rental properties so I’ll need my W2 income to get the loans for those, but regardless…
I could probably quit my job 3 years sooner!
You might be thinking that a few years isn’t that much of a difference, but when you dread going to work every day and all you think about is how to get out sooner, that’s over 1,000 days less I could quit my job!
That sounds amazing to me, but is three years worth the downsize? There are obviously some good and bad reasons to even consider doing this.
Let’s dig in a little bit…
Cons to a Downsize
This really is both a pro and a con, but let’s play devil’s advocate here and talk about the downside to it. Right now, my daughter is 6 years old. She doesn’t need a lot of room and, to be perfectly honest, she’s happy to be right by our side most of the time – which I’m Ok with!! 🙂 But the time will come when more space could be beneficial… such as when she needs a little bit of space to hang out with her friends.
More space is also better when guests stay with us (like when my brother and sister-in-law come visit us from Texas). Obviously we could always make do with a smaller house, but it might feel a little cramped after a couple of days with company.
The example house I mentioned earlier is literally around the corner – I could probably hit it with a golf ball (except that I suck at golf and probably couldn’t really even get close to it!). But even being so close, that moves us away from our next door neighbors who we’ve become good friends with. Yes, we won’t be far, but that convenience of running into them when we’re coming or going disappears.
Whenever you move into a new house, there’s going to be changes that you need to do to make it feel like home. We’re not big re-modelers so I’m not talking about anything too major, but we would still need to make adjustments and repairs to fit our lifestyle. I don’t think it would be that involved, but it’s still something we need to be aware of that would cost money and time.
It’s still a move
Sure, it wouldn’t be a far move, but it’s still a move. That would mean we would still need a truck to move everything and go through the whole pain-in-the-$% process of moving. And, as we’re getting a little older, it’s getting a little harder to con friends and family into helping for the fine reward of pizza and beer.
A move also means that we would have to update everything that has our old address. Is that hard to do? No, but it’s still very time-consuming.
Pros to a Downsize
Trims the fat
Do we really need this big house we’re in? Probably not. It’s probably a little too big for us as a family of three. And, if you follow the Mustachian way – what’s the point of a big house… to keep up with the Joneses? I think a lot of us were taught to buy as much house as you could afford because your house is your biggest asset.
Well, I actually happen to agree with Robert Kiyosaki who wrote Rich Dad Poor Dad and said that your house is not an asset because it doesn’t put money in your pocket. And yes, we can get into the argument that you could sell it later for a profit, blah, blah, blah, but let’s save that for another day.
Lucky for me, we didn’t buy as much house as we could afford. We were looking at houses and this one was more than we needed at a good price, so we went with it. But just because we got a good price on it, doesn’t mean we need it.
Less to clean
We have a lot of room at our house – 4 bedrooms, 2½ baths. It’s nice, but it’s a lot of space for just the three of us. We’re not a materialistic family either so it’s not like we have a ton of garbage filling it all either. Yes, a 3-bedroom house would be less space, but less square footage also means less to clean and keep up with.
Lower property taxes and insurance
The lower mortgage payment is obviously a gimme, but with the smaller house comes less owed in property taxes. That example house I looked at was about $1,700 less in property taxes per year than our current house. Hoofa! I like that!
I would assume (I didn’t dig into it) that the cost of insurance would also go down a fair amount as well.
That just means that all that extra savings could also go toward paving the way to financial independence even sooner.
The biggest pro of them all – I could quit my job sooner. Looking at the money we’d save on some of the other things (like the lower property taxes and insurance) we could put toward paying off the house even sooner or just investing it elsewhere.
That means I could likely quit my job even sooner than the few years I stated at the beginning of this.
I’ll be honest, that little counter that you see on the sidebar of my site bugs me. It irritates the hell out of me that I have YEARS to go instead of months. I keep it on there as a motivator just for me more than anything else.
Boy, I sure would love to up the end date on that counter by a number of years!
Other random thoughts on the idea
Will it be harder to resell a smaller house in the future if we want to? I actually don’t think so – a 3-bedroom house is generally the sweet spot for families, so I think we should be Ok with this.
Maybe we don’t necessarily look at downsizing at all. Maybe we keep an eye on foreclosures and get a house very similar to ours and still lower our mortgage tremendously.
Maybe we go a whole different route and look at grabbing a foreclosure and flipping it. We could then just use the money from that to pay down our current mortgage instead of even considering moving. That scares the crap out of me though. I really love the whole avenue of buy and hold with rental properties, but flipping involves timing the market just right and it looks like we’re close to the top of the real estate cycle right now. So this would definitely have the potential to backfire.
The most important thing if we wanted to do this would be to make sure my wife and even my daughter (to certain degree) were on the same page. The last thing I need is for Mrs. R2R to be miserable with a different or smaller house. The good news is that I ran it by her and she actually thought it was worth looking into as well. She was at the zoo with my daughter the other day and said that it hit her that I was stuck at work instead of being with her and my daughter and knows that I’m envious of that freedom and being with them.
So, a downsize may or may not be the path we go down, but we’re definitely going to consider it and take a look at what’s out there. Why not?! It doesn’t cost anything to look and maybe it’ll give us an opportunity to reach the world of financial independence sooner rather than later.
Have you ever done a home downsize? If so, was cost the reason, too big of a house, or something else?
Thanks for reading!!