We often associate downsizing with age. The older you get, the more difficult it may become to keep your home in an orderly state. According to the most recent Canadian census study, 18.5% of the Ontario population is 65 years or older. With an aging Ontario population, downsizing has become a hot topic and a serious consideration for many Ontario seniors.
With age comes limitations. If you are living in a large, 2,000+ SqFt home with an expansive lawn, multiple sets of stairs throughout the house, multiple bathrooms and overall large rooms, keeping the house clean and decluttered will start to become overwhelming and too much to manage.
Usually, the first family demographic to start downsizing are empty-nesters who once had children but are no longer living at home. The children have either gone off to university or are now living by themselves or with a partner. Families start downsizing by selling or getting rid of items they no longer need. For example, if they had children who no longer live at home, they may sell their beds, old clothing dressers, extra television sets, etc. But, once all the items are sold, you are still left with the space and rooms they once occupied. You will be left with empty or nearly empty rooms; parts of the house you no longer visit or use and at the end of the day, if not used, this space is wasted space.
If this sounds like you or you have considered downsizing for other reasons such as deteriorating health, downsizing after retirement, or a divorce, be a savvy investor and consider downsizing without selling. In today’s article, I’ll share with you 4 options and downsizing tips to allow you to live a clutter-free lifestyle while still generating additional income and wealth when downsizing in your retirement years.
Let’s begin.
Why You Would Want To Downsize Without Selling
For starters, you may wonder why you would want to downsize without selling. If you are selling to downsize, it is likely for the following reasons:
- Your current home is too difficult to maintain
- You want to access money for retirement
- You want to relocate for retirement
- You have no need for the space anymore
While all these are valid reasons why you should downsize, I strongly believe they are not valid reasons why you should sell to downsize. I believe you can still get the same desired results without the need to sell.
Generate Additional Income
A tip you will constantly hear when it comes to investing and building wealth is to invest in real estate. Since you’re in a position of owning real estate, you should try and hold on to it for as long as possible. Rather than selling your home, consider renting it out to generate additional income.
This is especially important if you are retiring and won’t have an income. By holding onto real estate, you are able to generate additional cash and a source of income.
Leverage The Equity While Still Owning The Property
Your home is likely your biggest asset. If you owned your home for multiple years while paying down your mortgage, you are likely in a position with a house fully paid off or a home with a lot of available equity.
It becomes increasingly more difficult to apply for new personal credit at an older age. Instead of relying on the major banks or credit unions for money, become your own personal bank by tapping into your home’s equity. You can either refinance your home to access a lump sum amount of cash or you can get a line of credit.
Can Still Be Close To Family & Friends
I understand how sentimental homes may be. They are the place you grew up in and have spent the majority of your life growing a family and making friends in these neighbourhoods. Just because time has continued to pass and things have changed, does not mean you need to leave.
Having a home still gives you a reason to visit the neighbourhood you grew up in and see familiar faces of friends and family. Having been in real estate for nearly 10 years, a story I commonly hear is an older couple selling their home to downsize, leaving the neighbourhood they once knew and moving hours away never to return. It might be bittersweet but if you find it hard to let go of a sentimental home, then you luckily have options to not sell while still downsizing.
Backup Storage Space
If you plan on living a more active lifestyle in your retirement years, then keeping your home will provide you with some great additional storage space. Downsizing to a condo is great, but you are very limited on storage space. If anything, you’ll be lucky to get a storage locker in the parking garage of your condo building. If you want more space, you will have to rent a storage locker in a storage lot.
Instead of paying someone else for storage, leverage the space you have at your current home. Whether it’s as simple as a small gardening shed in the backyard for seasonal items or using the garage to store vintage cars, boats, and sea-doos, you’ll luckily have storage space at your disposal.
If you’re convinced downsizing your home without selling is the right move for you, here are some options to make that a reality.
Option 1 - Rent Your Basement
We have talked a lot about moving as a result of downsizing but you don’t actually need to move to downsize. You can still stay in your home without moving. One of the ways to do this is by renting out your basement or a portion of your home.
Most homes in Toronto and the Greater Toronto Area were built around the time of the war. You’ll often see these homes being referred to as war-time bungalows. If you live in one of these homes, you probably already have a kitchenette in the basement. What many families have done is renovate the basement into its own separate unit with a separate entrance allowing the basement to be rented out as an apartment.
This allows you to still live in the upper portion of the house. You’ll have a smaller living space but still be in the same home without the need for moving.
If you have a home you don’t want to sell and are considering renting, you should strongly consider hiring a real estate agent to rent out your home to ensure you find qualified tenants.
Option 2 - Purchase A New Property Using Your Home's Equity
If you owned your home for many years, you either have a completely paid-off home or a very small mortgage with lots of available equity. If this is the case, you can leverage the equity in your home to use as a down payment towards another, smaller purchase.
Most people think they have to sell in order to afford a new home. While this may be the case for some, if you have equity available, it’s definitely an option you should consider.
However, now you might be thinking, “Now that I borrowed against the equity of my home, how am I going to afford those payments – especially if I’m retired?”
This is where you would rent out your entire home to cover the costs. You could either rent out the entire house to one family or depending on the style, you could convert your house into a two-unit dwelling like a duplex and rent each one out individually. The rent you generate should cover the payments needed for the money you borrowed against the equity. In an ideal scenario, it may even generate a profitable income!
Just be mindful that if you do buy a new home, you should account for other expenses such as closing costs, additional monthly mortgage payments, and other maintenance costs like condo maintenance fees.
Option 3 - Rent A New Place While You Rent Out Your Entire Home
If you are unable to borrow against the equity of your house in Option 2, you still have a backup option to consider. What you may want to consider is renting out your home while you rent out a smaller place in retirement.
Let’s do the math to help visualize this scenario.
If you have a 5,000-square-foot home, you could probably rent it for nearly $5,000 a month in the Greater Toronto Area. To rent a modern condo which may be around 1,000 square feet, you will likely need to pay close to $3,000 a month. This will allow you to pocket $2,000 (if you do not have any additional expenses to cover on your home)
This will allow you to rent your current home while you still manage to downsize into a smaller apartment and not only save money but generate money!
Option 4 - Build A Second Dwelling Like A Laneway House
In the city of Toronto, homeowners are starting to be encouraged to build laneway homes to fight the low inventory of houses available. Laneways homes were once a small storage unit converted into residential living spaces such as a loft. This trend is starting to be seen in other surrounding cities like Hamilton, 45 minutes west of Toronto.
In this scenario, you build a small laneway house with approximately 1,000 square feet of living space. The great thing is, is you do not even need to live in it right away. This option is great if you’re thinking long-term. Take for example this Toronto couple who built a laneway house for retirement. Although they are not retired yet, they have the laneway house built and rented for $3,200 a month! When the time comes, they will be able to downsize after retirement and live in the laneway house while they then rent their original, larger home.
This option allows you to stay in your community, mitigate the need to leverage funds against the equity of your home, and still downsize into a cute, beautiful home.
Final Thoughts On How To Downsize Without Selling
If you’re looking to downsize your home, you might be in luck and not need to sell your home. There are options available to you which allow you to maintain ownership of your large home while transitioning into a more minimalist lifestyle. Why would you want to do such a thing? Well, downsizing without selling allows you to:
- Generate additional income
- Leverage the equity in your home
- Can still be close to family and friends
- Have access to storage space
- Avoid capital gains tax
This can be achieved with the following options:
- Rent your basement or a portion of your house
- Purchase a new property using your home’s equity
- Rent a new place while you rent your own property
- Build a second dwelling on your property like a laneway home
If you want to learn more about downsizing and discuss your options, consider speaking with an experienced Mississauga real estate agent like Marco Pedri, Broker with Shoreline Realty Corp., Brokerage.
Marco Pedri has experience working with Canadian seniors who are looking to downsize or need help managing their real estate portfolio. If you’re a Canadian senior looking to maintain a strong real estate portfolio while setting yourself up for a successful and enjoyable retirement, consider contacting Marco Pedri today.
