Is Downsizing Right for You? What to Consider When Downsizing from a House to an Apartment

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One fateful day in October 2010 my wife and I had a discussion about home ownership.  We were taking an evening bike ride, and it gave us an opportunity to have a conversation.  That one simple conversation sent us on a life changing journey.

I had been reading blogs on minimalism, while at the same time thinking about how much I was feeling trapped by our house.  I started the conversation by talking about how I wasn’t feeling good about our house anymore and how it felt like an anchor that was holding us back.  I shared with my wife that I was thinking about selling the house and going back to renting an apartment.

To my complete surprise, she was feeling the same way.  She had always dreamed of owning a home, and although there were a few things she disliked about hour house, it was a pretty great house.  That she was feeling it wasn’t living up to her dreams and that she would consider going back to renting really did surprise me.

After some more conversation we started working on a plan to downsize.

Show Me the Money

The first thing I did was to run the numbers.  I suspected we would save some money by renting, but I wanted to lay out all the expenses so that I could know for sure.

To do this, I started a simple spreadsheet in Excel.  In one column was house expenses and in another column was apartment expenses.

Here is a snapshot of our monthly house vs. apartment expenses.

House vs. Apartment Budget Comparison

House vs. Apartment Budget Comparison

Note that this isn’t a full budget, it only includes the expenses related to home ownership and apartment renting to aid in the decision to downsize.

With the numbers laid out, it’s easy to see that renting is the cheaper alternative (for us, your milage may vary).  Even if you add in the potential for rent to increase and put away some money each month to account for the loss of the house-as-an-investment principle, it’s still comes out to be cheaper.

That won’t always be the case, as mortgages and rent vary widely across the country and around the world, so it’s important for you to run the numbers for yourself.

The numbers we used for utilities were based on what I could find on the internet for our area.  Our real number ended up being less than the estimate, so even more savings.

The house-as-an-investment principle is commonly used by those in real estate and financial circles to convince people to buy a home.    This is a bit of a red herring as a better investment would be to put some extra money aside in a mutual fund.

I want to ease your mind over the loss of investment, so consider this:

If you take $200 per month and invest it in a mutual fund that averages 8% APR, at the end of 30 years you will have $293,630.08.  In our case, this was more than the current value of our house.  It’s hard to speculate on future housing values, but if you are concerned that won’t be enough, then consider investing a little more.  You can even add that into your own vs. rent spreadsheet to see how the numbers work out.  In our case, we had enough savings to plan for some extra investing.

Downsizing – Can You Fit Into a Smaller Home?

With our minds at ease over the financial data we moved on to the can we fit all our stuff into an apartment phase.

The answer was pretty obvious – not in our current state of clutter.  We knew we needed to declutter and get rid of a large amount of stuff if we had any hope of fitting into a smaller place.

As I was thinking of this, I thought back to our last move – the one from our last apartment to our new house.  We moved so much stuff during that move.  We had a huge U-Haul truck and we had to make a couple trips. I didn’t want a repeat of that.  I knew we needed to downsize our belongings before we downsized our home.

We decided to downsize in our current space.  That meant simulating a 2 bedroom apartment in our 4 bedroom house.  Essentially, closing off two bedrooms, eliminating the extra storage of the attic and garage, eliminating one of our two walk-in closets, and using fewer cabinets in the kitchen.

To get there, we went through our Big Purge.  You can read through our posts on that if you want the details, but to summarize, we spent the next couple of months ruthlessly decluttering our home.

Our goto question was, “Have we used it in the last 6 months?”  If the answer was no, it was tossed, sold, donated, or recycled.  

After two months of decluttering we got to a point where we realized it might actually be possible for us to downsize to a 2 bedroom apartment.  We still had some stuff required for home ownership that would be sold before we moved, but it was finally clear that we could downsize.

Talk, Talk, and Talk Some More

If you live alone, without roommates, without a spouse or significant other, and without kids, then you are clear to move forward.  If you have any of those people in your life, then you need to talk to them throughout the process.  I mentioned the initial talk that we had, but we also continued to discuss our plans throughout the process.

We both needed to make sure we were still on the same page.  We talked often throughout the decluttering and continued to talk afterwards.

Address the Fears and Consider the Alternatives

It took us a full year between the decluttering and the decision to list the house for sale.

That period was our fear period.  Were we making the right decision?  Could we really go back to renting?  What will people think?  What if we hate renting?

Some of the questions were driven by the fact that our newly decluttered home was much more enjoyable.  Our bills weren’t lowered, but the feel of the house was much improved.

We also considered alternatives.  Could we trade our car (even swap) for something that got better gas mileage?  Could we rent out a room?  Could we generate another income stream?

Be Realistic with the Differences between Owning a Home and Renting an Apartment

It’s easy to get dreamy as you ponder your new life as a renter.  You need to be realistic about what it means to rent.  There are many reasons why renting is better than owning but there are some downsides as well.

Renting an apartment or condo puts you in close contact with you neighbors.  You may share one more more walls with neighbors and you may have neighbors above and below you.  Are you prepared to deal with that?  Are you tolerant of others or do you get frustrated or angry when their noise encroaches on your tranquil space?  It’s something you’ll need to consider.

I’ve also noticed that neighbors in apartments are less neighborly than those in a house, although I’ve heard the opposite from others.  Your experience may vary on this, but consider what type of neighbors you want to have.

In many cases renters are lower income than home owners.  This isn’t always the case, but should be considered, and you can draw whatever conclusions you feel appropriate from that fact.

Pros and Cons

As we were considering the differences, I found it helpful to list them out on a sheet of paper.  I divided the paper into 4 parts by drawing a giant plus sign through the middle.

At the top I wrote House on one side and Apartment on the other.  Under that I wrote Pluses, and then further down the page I wrote Minuses.  After that I filled in the chart with everything I could think of.

Pros and Cons of Home Ownership and Apartment Renting

Pros and Cons of Home Ownership and Apartment Renting

Get everything listed out so you can see all the pros and cons in one place.  This helps in the decision making process.  It can also aid your discussions with the members of your family.

Have a Plan B

Have a backup plan ready.  What if things don’t work out like you expected?  What if you find out you hate renting?  Have a plan.

Our plan involved alternative apartment rentals as well as the option to buy another house.  If you make some profit from the sale of your house, you should set that aside to fund your backup plan.  That might include early termination of your lease so you can move to a different apartment or using it for a down payment on another house.

Plan on the type of Apartment

The way I see it, there are three choices.  Rent for less, more, or the same as the mortgage on your house.  Another way of seeing those choices are to rent equal in quality, lower quality, or higher quality.

We found that rent equal to our mortgage (we used our first mortgage for this comparison even though we also had a second mortgage) would put us in an apartment of slightly lower quality that that of our house.  This put us in a  good neighborhood with good schools, and in an apartment that was nice and well managed.  We lived here for a year after selling our house.

Spend less and the quality dipped to a level we weren’t comfortable with.  That might mean a neighborhood not as nice, a lower quality school district, or apartments or management that were below our standards.  There is nothing inherently wrong with this route, it all depends on your tolerance for these differences.  We just figured we’re at a point in life where we don’t want to move to far down in our quality of living.

Spend more and that put us in a really nice apartment that was on par with our house in terms of quality and appointments.  We moved here after the first year of renting.  The rent here is slightly more than our first and second mortgage combined, but still nets us an overall savings compared to home ownership.

If you’ve been in a house for a while, I recommend seeking an apartment that is close to your current level in terms of quality.  For us that meant something with a nice kitchen, quality appliances, and a nice pool.

Also, consider the management.  We looked at condos that were individually owned and rented out.  We found them to be cheaper, but they were often in various states of disrepair.  With apartments we found that management did a better job of keeping things looking nice and in good repair.

Consider maintenance.  The apartments we looked at had maintenance on staff, and the reviews indicated they were responsive to issues.  Renting a condo or house from an individual may leave you more responsible for minor repairs and issues.

Management and maintenance can vary regionally, so search for reviews online to assist in this area.  It’s important to take online reviews with a grain of salt.  Consider that people that have bad experiences are more likely to leave a review.  People that have good experiences don’t often think to leave a review online.  Because of this, I found most reviews skewed lower than if you were to take a balanced survey of all residents.

With all that in mind, think about what requirements you have for a location.  We wanted something within 10 miles of work, in a good, active, middle income community, and in an “A” rated school zone.  Houses in this area would have been over our budget, but apartments were right in our desired price range.

What Will People Think?

That last factor that comes into play is the “What will my friends/family/neighbors/coworkers think?”

We managed this by leaving the final result open-ended.  That is, we said we were going to rent for “a while”.  That let many think that it was temporary and they withheld any negative judgment.

With family and some friends, we share varying degrees of the whole picture.  But even here, it was often said that we would rent for a while and might buy again someday.

That’s because most people don’t get it.  I don’t want to be too harsh here, but most people don’t actively consider whether home ownership is the best route.  It’s a given that it is, and nobody challenges that idea.

Your decision to rent can also spark fear in others.  Most of your friends and neighbors are likely living up to or above their means, and when you do something to change that, it forces them to consider their own situation.  They might be afraid that their train wreck is just around the corner and they might “have” to downsize also.  As if downsizing is something forced upon you and nobody would willingly choose it.

The bottom line here is to leave the future open ended when talking to others, share that you are making some changes, share some of the benefits, and then decide that it really doesn’t matter what any of them think.

Is It the Right Move for You?

This is what it all comes down to.  After you’ve run through all the activities listed here, you will need to decide if downsizing is right for you and for your family.  It was scary at first, but I know it was the right decision for us.  Your situation may be similar or it could be completely different from ours.  Every person and every family will have different situations, nuances, fears, and goals.  With some open discussion and planning you can make a well educated decision on what is right for you and your family.

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