Family Update
Well, the flu has officially hit the Kennon household. Dad and Alex took the brunt of it, but honestly, it feels like everyone everywhere is sick right now. Our doctor said it’s one of the worst flu seasons she’s seen in a long time.
Unfortunately, that means our household has been temporarily split. With radiation treatments underway, my wife can’t risk getting sick, so she’s been hiding out at a separate house. It’s not ideal, but it’s the right call for now. We’re hoping this flu wave burns itself out quickly so we can all be back under one roof again soon.
Sadly, I have some difficult news to report from the orchid show. My orchids did not win. I took this very personally. I am still processing the injustice. While I cannot prove anything, I do believe there may have been some behind-the-scenes shenanigans happening. I’m not saying judges were bribed, but I am saying I wouldn’t be shocked if a few envelopes quietly changed hands near the snack table.
In all seriousness, it was still a great show, and the competition was fierce. I’ll regroup, learn from this experience, and return next year stronger than ever.
Many Baby Boomers find that a large percentage of their net worth is tied up in their home. In conversations with me, I often hear something like, "Dave, a big part of our retirement plan is to downsize our house. That’ll give us a big financial boost."
Let’s slow down and think about that idea for a moment.
Let’s assume you own a single-family home in the area. You like living there. You’ve made it your home. Now you’re thinking about downsizing to free up cash and lower expenses in retirement.
Sounds reasonable. But now comes the real question: where are you going to move?
Most of the options look familiar. A smaller single-family home. A townhouse. A condo. Or possibly a manufactured home.
Manufactured homes often sound very affordable, and the home itself can be. The issue is everything around it. If you already own land, it can be a good solution. But many people end up with monthly lot rent, rising fees, and less control than expected. Like HOAs, these costs don’t show up in the headline price but matter a lot over time.
That’s not to say downsizing never makes sense. It does. But let’s look at a couple of examples.
Let’s say you own a $600,000 home with no mortgage. You move into a $400,000 townhouse. After commissions, moving costs, and closing expenses, you might walk away with about $120,000 in cash. That money can generate some income, but now you also have HOA fees and a home you may not like as much. When you step back, you’re not far from where you started.
Or consider the homeowner with a $600,000 house and a $200,000 mortgage. You sell, buy a condo, and eliminate the mortgage payment. That feels great until the HOA fees show up, the property taxes increase (significantly), and an unexpected assessment arrives in the mail. The savings aren’t as clean as they looked on paper.
One important side note: with mortgage rates where they are today, selling a home with a low-rate mortgage and taking on a new one often makes little financial sense. Going from 3% to 7% can nearly double your payment.
So when does downsizing make sense?
It can work when the house is simply too big, and you want a lower-maintenance lifestyle. It can work with a true, meaningful downsize. It can work when moving in with family. And in some cases, it’s necessary when there are few other retirement assets.
The bottom line is this: downsizing is often presented as an easy fix for retirement worries, but it rarely is. Do the math. Think about the lifestyle change. It is hard to beat a single-family home in an older neighborhood with no HOA.
Be Blessed,
Dave