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downsizing

Downsizing: Is It Worth the Cost?

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Recently Money Beagle ran a guest post whose author suggested that moving to smaller digs may not be the best choice for all of us as we fade into our dotage. It touches on a thought I’ve been ruminating on: the question of whether I should downsize now, while a) I can afford the costs and b) I still have the health and physical strength to engineer moving to another house. Actually, the question is whether downsizing is a good idea at all.

My house has four bedrooms. It sits on a large lot, almost a quarter of an acre. It has a large pool and a forest of trees. How much does one little old lady need to air-condition, heat, clean, water, trim, and maintain? Wouldn’t it be cheaper to move to, say, an apartment in Scottsdale? Or one of those trendy lofts downtown? Or a nice single-story patio home with no yard to take care of?

Or maybe at my age, with about 15 years of tolerable life remaining — at the outside — maybe it’s time to move into a life-care community?

Well. I wonder. Let’s consider the costs.

First, to sell this house:

6% off the top to the Realtor (the better ones in these parts get 8%): $16,500, on my $275,000 shack
Recording fees: $150
Escrow fees & title insurance: $2,500
Prorated tax: up to $2,500
Termite inspection: $300
Home inspection: $300

That doesn’t include a home warranty for the buyer or any blandishments you offer, such as a flooring allowance or a home warranty. Nor does it count the costs of repairs and upgrades at the new digs — how many of us have had to replace a water heater or a garage door within six months of a move? And do you really want to live with that harvest gold Formica countertop for the rest of your life?

If you’re at the age where downsizing makes sense, you’re past the time of life when you can pack up all your possessions and bribe your friends with beer to help you stuff your furniture and boxes into a U-Haul and then drag the stuff into a new house. That means you’ll need to hire a professional moving company, an expensive transaction: $2,000 for a local move; cross-country, $8,000. You could, of course, hire an estate sale company to yard-sale all your earthly possessions and then buy new furniture when you get to wherever you’re going: it costs about $10,000 to furnish an entire house. Probably less if you buy Ikea junque, but again: at “downsizing” age, who wants to live with Ikea’s kid-engineered throw-away gear?

Let’s see what we have here… Total cost of selling and moving: $22,250 (a conservative estimate). That’s 9% of the property’s likely sale value.

My house is paid for. To avoid a mortgage, I’d have to use the net on the house sale to buy the new place. But that place will have to cost about $25,000 less than I can get for this one. Let’s imagine that for $250,000 I could find something I’d want to live in, located in a safe, middle-class area that is NOT a retirement tract like Sun City. I’ve but begun to pay…

Buyer’s closing costs and moving cost for a house purchased in cash go like this:

Close of escrow: $250
Title insurance: $1350
House inspection fees: $200 to $400
Recording fees for deed: $50
Title company closing fee: $400
Property transfer tax: up to $1,000
Attorney fee: $500
HOA transfer fee: $300 to $400 (n/a in my part of town, thank goodness)
Moving fee: $2,000

Total cost of buying the smaller house: $3,550.

Most places I’d want to live in cost upwards of $300,000 these days. That would require me to take out a mortgage. So to the ~$3550 in buyer’s closing costs, we can add the exorbitant cost of taking out a mortgage. To get into a $300,000 patio home I’d have to come up with at least $50,000, assuming I put down everything I net from my home’s sale. It’s unlikely that I could get a mortgage for a sum that small, but let’s pretend…

Lender discount points, about 1%: $500
Loan application fee: $500
Credit report fee: $85
Loan processing fee: $75 to $400
Document preparation fee: $50 to $250
Property appraisal: $400
Prepaid loan interest: Heaven only knows!
Insurance escrow: about $150
Tax escrow: about $1500

I’m not including flood insurance or a flood certification fee because you couldn’t pay me to buy in a flood zone. So the upfront cost of taking out a small mortgage would come to $3,785 — and that doesn’t count the cost of 15 to 30 years of interest payments. So… Cost of buying a smaller house in a more desirable part of the Valley, with loan: $3,550 + $3,785 = $7,335.

Cost of selling present home + moving van and workmen + buying a lesser house in cash: $27,800 – 28,150.
Cost of selling present home + moving van and workmen + buying a smaller house in a safer part of town: $35135 – 35,485.

Y’know… You could pay for a lot of lawn service and cleaning-lady visits for $35,485.

So let’s say you hire a cleaning lady because you’re feeling too frail to scrub, scour, vacuum, mop, and dust — I believe La Maya pays her housecleaner about $80 to $100 per visit (though her house is a thousand square feet bigger than mine). Xeric landscaping costs just $85 or $100 for monthly clean-up & grooming. Cleaning lady comes in a couple of times a month; that makes her cost $160 to $200. So routine maintenance of the existing manse would come to $300/month. The $35,485 it would cost you to downsize from a midsize tract house into a cottage would cover 118 months of routine house and yard maintenance, during which you would never have to raise a finger to clean or do yardwork. That’s almost ten years!

From one point of view, then, it would take around ten years to recover the cost of downsizing from a four-bedroom house on a quarter-acre lot with no neighbors sitting on top of me to a two- or three-bedroom apartment or townhouse in a rabbit warren, complete with HOA fees and politics.

Because I’m in the Salt River Project, my utility bills are low. Because I live in an old neighborhood, I have no HOA fees. Probably on average my total utility bills for electric, water, and gas run about $425 a month — less than that, really, because winter power and water bills are very low and in the summer, the cost of natural gas is nil. In a “better” neighborhood, I’d be in the Arizona Public Service district, where power bills are much higher. And many parts of Scottsdale and North Phoenix have no gas service, so the stove, water heater, and central heating run on expensive electricity. Utility bills in a smaller house could  easily exceed what I’m paying here.

The pool costs about $40/month to run and maintain (exclusive of repairs). The yard guy: $85/month.

In a patio home, yard and pool maintenance costs would disappear, only to be replaced by a monthly HOA fee. From what I’ve seen at places I’ve looked at, $125 a month is not an unusual HOA charge.  At Pebble Creek, for example, the HOA fee is $250 a month. For an apartment…uh, condo…about $100 to $125 is probably average. So costs to live in the smaller place would probably be about the same as I pay here. The only real advantage would be fewer rooms to clean and less outdoor space to have to maintain.

So, if there’s no advantage in utility and maintenance savings, why spend $28,000 to $35,500 to move?

• It would be worth it if your neighborhood were deteriorating.

The opposite is happening here: this neighborhood, like the entire central city, is gentrifying apace. My neighbor sold her house — only 340 square feet larger than mine, on the same size lot — for $285,000. It hadn’t had a serious upgrade since it was built in 1971. The kids who bought it have spent months in renovation.

And, we might add, every other young couple and every other fix-and-flipper flocking to the ‘hood have done the same.  If the slumlords to the west of Conduit of Blight get some help from the government, they could make a handy profit by condo-izing the deteriorating apartments that now front on the urbanite-friendly lightrail line, thereby getting rid of a major source of crime and rescuing the school that was overwhelmed and ruined when the city allowed the people warrens to go in. It’ll take some time before any such thing happens…but if it does, the property value increases we’re seeing now will look modest by comparison.

• It would be worth it if you wanted a zero-maintenance place where you can lock the door and take off for weeks and even months.

In Arizona, many ordinary houses meet that description. An intelligently designed xeriscape can look very nice and need almost no regular maintenance.

• It would be worth it if you lived in a place with a harsh climate.

Arizona’s summers are pretty fierce. On the other hand, for $40 a month plus occasional repairs, the pool makes the summer heat tolerable. Electric bills to power air-conditioning run about $230 a month, hardly enough to break you up in business. And again: at $40 + $230, the $35,485 would pay those bills for 10 years. How much are winter bills where it snows? Or where it’s foggy and chilly year-round?

• It would be worth it if your kids moved out of town and you wanted to live near them.

Maybe. Following the adult kids to some new locale can be a recipe for depression. Your grown children may not feel very invested in spending large amounts of time with you — except insofar as needed to obtain free babysitting services. Meanwhile, you’ve left behind friends who want to hang out with you, to say nothing of your favorite shopping, your church, your clubs, your cultural life, your beloved doctor, your competent dentist, the only hair stylist on the planet who can cut your hair the way you like it…

Overall, then, if your present home is in good repair and in a reasonably safe neighborhood with nearby shopping and lifestyle infrastructure, downsizing to a smaller place could represent not a savings in maintenance but a net loss, one that could extend over quite a few years…possibly to the end of your lifetime.

So: think twice before jumping into the downsizing pond.

Grass may be greener, but is it cheaper?

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Met my neighbor Sally in the alley this morning. She’d been slamming around trimming shrubs and cleaning up the yard. Drenched in sweat, she said she’d about had enough of the house maintenance care, and she’s fed up with the guy next door to her who’s letting his house, which he inherited from his parents, go to pot.

She said she’s thinking of putting her place on the market and downsizing. This brought to mind a remark I saw a little earlier this very morning by Duchesse, commenting on a post at Frugal Scholar, who asked, “Have you replaced a money-sucking product recently?” Said Duchesse:

But actually, it was downsizing our living space, so much less maintenance and far lower utilities bills.

Well, as you know off and on I think of moving someplace less workful and maybe less burdensome financially. Inspired by Sally’s thought that she would consider one of those loft-like apartments they’re still trying to unload downtown (now at outrageously reduced prices), I called my Realtor friend, who sent along a few listings.

Some friends moved into a two-bedroom at One East Lexington. It’s a nice shiny new(ish) high-rise, and some of the apartments have awesome views. I could imagine myself living there. Further downtown is a much prettier, midrise development on Portland. The apartment has a gas stove (infinitely preferred!), the property has green areas to walk the little dog, it’s right across the road from the lightrail, and it’s in the center of what alleges to be the arts district. It’s not the greatest part of town, but it would be reasonably safe to walk around down there in the daytime. That’s a place I definitely could picture myself and Cassie living in.

Another possibility is an aging enclave with a dozen freestanding homes not far from here, in a more solidly middle- to upper-class part of North Central. It has an HOA that covers the (lush!) landscaping, the pool, the water, and the garbage, so you don’t have to deal with the yardwork and pool care. Though it’s right up the road from my ex’s $650,000 rancher, the price is much closer to right. But you do have to cope with the usual house maintenance stuff: roof, paint, and the like.

Would it really be cheaper to live in a smaller but newer unit in a rabbit warren? One that while it has no pool also would have no beloved orange, lime, and lemon trees and no real place to sit outside and take the morning air? And how would this place compare with the nearby house in an HOA, which would relieve me of yard and pool work but still have the things I really enjoy about my home?

Well, interestingly, smaller is definitely not cheaper, at least not in Phoenix if you want to stay in your present socioeconomic class. Check it out:

How amazing is that? As much as it seems to me that this four-bedroom house on a quarter-acre of land with a big, deep pool and a forest of trees is costing, apparently it costs a lot less than a two-bedroom fake “loft” in a renovated high-rise or a new building in a sketchy neighborhood.

Two things are pushing the One Lexington and the more desirable Portland Place condos so high: taxes and HOA fees.

Now, the HOA fee does cover the roof: repairs and replacement. And it covers the water and garbage pickup and exterior maintenance.

Since reroofing this house costs about $8,000, that’s not inconsiderable. Thanks to last year’s act of God, though, it shouldn’t have to be done for another 20 years, by which time I’ll be in the old-folkerie. Another big cost that will come due in the next ten or fifteen years is replastering the pool: about $10,000. If I started saving for that now, you could add about $83 a month to my monthly costs. That still would be several hundred dollars cheaper than living in a stylish two-bedroom apartment.

The enclave on Third Place has a much, much lower HOA bill. Taxes are lower, too. So from month to month it probably would cost about $100 a month less to live there, give or take some. But it has a flat roof, which requires expensive maintenance every four or five years; it’s aging; it may have black iron plumbing; and the exterior paint and plaster have to be maintained.

Given the hassle and expense entailed in moving, is it really worth the grief to decamp to a comparable house in a roughly similar neighborhood just to get 19 blocks from the blight to the west of me? Does one really want to go from a roomy house with  shade trees, a pool, three exterior sitting areas, and lots of elbow space to a hutch in a people warren? Hm. One wonders.

For the $300 or so in added expenses, I could stay in my present home and hire a pool service.

Stop the presses…literally

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Word on the street has it that The Arizona Republic, the only daily metro newspaper serving the fifth-largest city in the nation, is laying off most of its photographers and much of its editing staff. A few unseasoned reporters will be retained. In the fall, we’re told, the Republic is slated to morph into a tabloid. Those who will staff this downsized entity, the ghost of our right-to-work state’s flagship newspaper, will have no health insurance and a pension plan that will be, shall we say, commensurately downsized. Thus saith the paper’s present owner, the Gannett Corporation.

The Republic, having abandoned journalism years ago, no longer has much of a readership. It’s losing readers even as the population of the Valley grows. There’s a reason for that: it doesn’t publish news.

This is no exaggeration. One year a mayoral campaign came and went with almost no mention of the candidates. Yesterday (we’ll give it this much), its print edition mentioned that unless Our Esteemed Legislators approve a budget within the next two weeks, the state budget will expire and state employees will not be paid on July 3. Having heard this from La Maya and having a vested interest in getting paid on July 3, I went to the Republic‘s online edition and found not…one…word about the possibility that Arizona’s largest employer may fail to pay its workers and that state government is, as we speak, preparing to shut down all nonessential services. The lead online story concerned the recent opening of a new ice cream store.

Turning this formerly major metropolitan newspaper into a throw-away tabloid will put it head-to-head with New Times, which succeeds because it has verve, sass, only the thinnest veneer of journalistic ethics, and lots of advertising. Lots and lots of advertising. New Times is entertaining but devoid of credibility. On the other hand, it does attempt to follow local politics. You can’t believe a word it publishes about local government, but at least it has some words!

Newspapers that abandon their mission to deliver the truth to the public and forget the importance of that mission have nothing to sell. For a long time the Republic has staggered along with dwindling advertising, but as readers lost interest in the paper’s content, advertisers lost interest in its ballooning space rates. Who reads the local newspaper’s classifieds when you can go to Craig’s List? What’s the point of pawing through page after page of irrelevant retail adds to clip a few coupons when you can download what you want from the Web? And why pay to advertise in a newspaper that nobody reads?

I canceled the Sunday Republic when I realized that the only things I was reading were the front page (part of it) and the funny strips; it felt ugly and irresponsible to throw away three or four pounds of advertising to read a half-dozen pages of ephemera. Just the thought of how many trees were pulped only to be tossed directly into the trash disgusted me, and I decided to stop abetting that kind of criminality. Not long after, I realized I’d rather pay to have The New York Times delivered to my house and so canceled the Republic altogether.

It’s a sad development. There’s a reason journalism is called the Fourth Estate. It’s an important part of the polity of a democratic republic. When we cannot get information about what’s going on down at City Hall or over at the State House, we as voters are in the dark. And our path through the darkness, as we have already seen over the past decade, is inexorably leading us toward tyranny.