Couple having a break from packing their home

Sometimes a move can spur lifestyle changes. It could mean longer commutes or dining out more frequently, both of which can be hidden costs to downsizing. (Getty Images)

There are many personal and financial benefits of moving into a smaller home. By downsizing, you can minimize household chores, transition into a more functional space and even reduce your carbon footprint.

However, saving money may not be reason enough to make a move, says David Mele, president of Homes.com, a real estate marketplace. While conventional wisdom says a smaller home should cost less than a bigger home, "There are times when it could have the opposite effect," Mele says. The reality is increased taxes, moving expenses and a new lifestyle could all make trading down more expensive.

With that in mind, here's a closer look at nine reasons moving to a smaller space could translate to bigger bills.

[See: 10 Tips for Finding a Great Place to Retire.]

Your home might need updates to sell. It's a seller's market in much of the country, particularly in communities like San Antonio and Tempe, Arizona, but that doesn't mean homeowners won't have to make improvements to sell their property at the desired price. Older homes may have dated decor or deferred maintenance that can be costly to update prior to selling. The home website Remodeling, published by construction firm Hanley Wood, estimates the 2018 national average for a midrange bathroom remodel will cost $19,134, while a midrange kitchen remodel will set homeowners back $63,829.

Long-time homeowners may pay capital gains tax. Those who have lived in their homes for decades may have more to worry about than remodeling costs. That's particularly true for those who bought homes 30 to 40 years ago outside of urban areas such as the District of Columbia and San Francisco. "They may have bought their house for $50,000 and now [it] could be worth $1 million," says Melanie Halstenberg, co-founder of the advisory firm Arch Financial Services in Fayetteville, West Virginia.

For 2018, the IRS will exclude up to $250,000 of a property's profit from capital gains tax for a single taxpayer and $500,000 for a married couple filing jointly. However, that still could leave a significant tax bill. The long-term capital gains tax is as much as 20 percent, depending on the amount of the gain.



Moving is expensive. Once your house is sold, you'll need to cover moving costs. "Packing and transporting can run into the thousands," Mele says. HomeAdvisor, a home services digital marketplace, estimates the cost of a local move to be $800 to $2,000 for a four-bedroom house. A long-distance move may run up to $1,000 a room. Plus, there could be extra costs for packing supplies and the transport of expensive or bulky items. If you're looking to trim moving costs, consider decluttering your home prior to the move, which can lessen transport and reduce overall expenses.

You may have to pay for storage. When you move from a large house to a smaller residence, all your possessions may not fit. Some families may sell the excess items prior to a move, but others may want to keep seasonal or sentimental items even if they don't have a place to keep them at their new house. The self-storage company Life Storage estimates that average costs for a storage unit can range from around $75 to $200 a month. And keep in mind that prices can vary by location, and climate-controlled units can cost more.

A smaller house could be pricey. Just because a house is smaller doesn't necessarily mean it's inexpensive. "I have frequently had people sell huge, beautiful houses in bucolic suburbs near the city and pay more for their new two-bedroom apartment," says Sheila Trichter, an agent with Warburg Realty in New York City.

Plus, newer homes may have updated decor and energy-efficient features that command a higher price even if they come with less square footage. And those moving from rural to urban areas may also find that smaller homes come with higher prices.

[See: The Best Places to Retire in 2018.]

You may have new lifestyle costs. Sometimes a move can spur lifestyle changes. It could mean longer commutes or dining out more frequently, both of which can be hidden costs to downsizing. What's more, parents need to think about whether a move will change how their children will get their education.

Vincent Averaimo, a partner with Milford Law LLC in Milford, Connecticut, suggests asking yourself: "If you are downsizing with school-aged children, will they be attending public school or… will private school be more appropriate?" If it's the latter, tuition and transportation costs can add to the price of downsizing.

Property taxes may be higher. A smaller home that is worth more may come with higher property taxes. Even if a new house has the same value as the old house, taxes could increase after a sale. In Michigan, for instance, the taxable value of a home is capped at the rate of inflation. Once a property sells, the cap is lifted and the taxable value is adjusted to equal the assessed value. Meanwhile, in South Carolina, property is only reassessed every five years, and increases in value are capped at 15 percent; however, homeowners are only taxed on 4 percent of the assessed value of their primary residence.

"Property taxes are different in every state," Halstenberg says. Homeowners need to do their research to ensure they understand how their property will be taxed and whether they will be able to comfortably afford the amount due.

Insurance could cost more for your new home. It may seem as though insurance premiums for a smaller house would be lower, but they could be higher, depending on the location. Moving to a coastal area where flood insurance is necessary, for instance, is one example of how downsizing can increase household bills. States such as Florida, Texas and Louisiana that are prone to natural disasters like hurricanes also tend to be home to higher insurance premiums.

Association fees can be pricey. Condos are a popular option for downsizing, but owners typically have to pay a monthly association fee. Those moving into a co-op or planned development may also pay these fees. Averaimo says associations often charge $300 to $400 per month. That money may go toward maintaining common areas as well as providing some exterior maintenance services to property owners.

Before downsizing to a condominium, Averaimo suggests asking yourself: "Do you already spend a total of approximately $3,600 per year in landscaping and snow removal?"

"If you remove the snow yourself and mow your own lawn, the answer is probably no," he says. In that case, consider whether you want to pay extra for these services through the association or if you'd rather buy a property that is not part of an association.

Even if it makes sense to pay a fee initially, Halstenberg cautions that these costs can change. For example, Halstenberg recalls one relative's experience of having association fees rise from $300 to $700 per month over a five-year period.

[See: 10 Places to Retire on a Social Security Budget.]

Downsizing can make sense for many reasons, but it doesn't always lower household expenses. If you're looking to save money with your move, make sure unexpected costs don't catch you by surprise.


7 Tips for Updating Your House in an Up-and-Coming Neighborhood

Don't let your house fall behind.

A perfect neighbourhood. Houses in suburb at Spring in the north America.

(Getty Images)

Every homeowner knows that maintaining a house is hard work, and few have the time, money or willpower to keep their home looking perfect at all times. When it’s the peak of home selling season, it may seem like half the houses on your block are in pristine, market-ready condition, or they’re under construction and will look fresh and new in no time. How can you keep your house from becoming the worst-looking house on the block, or letting it fall behind on updates? It may seem like an impossible task, but it's one all homes face eventually.

Take stock of your aging home.

Take stock of your aging home.

(Getty Images)

Even if it seems like every house in your neighborhood is getting a fresh interior, exterior or is newly built, the typical house has at least a few decades under its belt. “U.S. housing stock is aging, and especially in city centers and areas of urban density,” says Holly Tachovsky, CEO of construction information company BuildFax. So don't feel so bad about your chipping paint and dated entrance, but know that maintenance and renovations are key factors in ensuring your home will hold value and last for generations. Read on for tips on keeping your house updated as your neighborhood changes.

Attend neighborhood open houses.

Attend neighborhood open houses.

Latins gardening

(Getty Images)

For your house to increase in value along with other houses being built or renovated in the neighborhood, it needs to be on par with the updates. An easy way to know what you need to do to keep up with the Joneses is to attend open houses when a nearby property goes on the market. Listing agents expect curious neighbors to pop in, and it’s a great opportunity to see what the interiors look like and compare them to your home. If houses selling for top dollar in your neighborhood have new kitchens and master suites, you may want to put kitchen and bathroom renovations on your to-do list.

Get a green thumb.

Get a green thumb.

Man working in a garden.

(Getty Images)

Don't let your house get a reputation as the worst on the block by neglecting its curb appeal. Keep the siding clean and consider repainting, and maintain the grass and landscape to keep the house looking fresh from the road. Kris Kiser, president and CEO of the Outdoor Power Equipment Institute, says relandscaping your yard also gives you the opportunity to select flora that work best for the climate, your property and the amount of time you have to maintain it. “Put the kinds of plantings in place that will hold your dirt in place, that will grab and capture and filter rainwater, and put in flowering plants,” he says.

Make minor updates.

Make minor updates.

Couple painting on a house wall

(Getty Images)

Keeping up with other houses in the neighborhood doesn’t mean every project has to be a big one. Small updates to keep your home looking well-cared-for, like fresh paint in each room or new doors on cabinets, can make a big difference. Dan Tarantin, president and CEO of Harris Research Inc., the parent company of N-Hance Wood Refinishing and Chem-Dry, notes that refinishing hardwood surfaces can achieve a new look at a far more affordable price than replacing materials throughout the house every time you want to update. “That is a way to allow people to be able to do all the projects at once, because of the cost and the convenience,” he says.

Maintain, maintain, maintain.

Maintain, maintain, maintain.

A man works on a roof of a roof while standing on a ladder.

(Getty Images)

The key to keeping your house from being a teardown candidate when you decide to sell is to maintain the basic systems, care for the property and ensure it runs properly. Tachovsky says regular maintenance is necessary to keep houses from falling apart: “They constantly need that upgrade, and if they’re maintained well over the life of a structure, the structure can be useful for a long time.” From the roof to siding, electric and plumbing, keep an eye on the age of systems and have them serviced regularly. Otherwise, she says, your home is “going to show its age pretty profoundly.”

Get the most out of what you have.

Get the most out of what you have.

Kitchen in New Luxury Home with Open Floorplan

(Getty Images)

With proper care and maintenance, you should be able to get the full life out of major appliances and systems, such as your HVAC, and the same goes for floors, cabinets, outdoor walkways and furniture. Have your carpets cleaned, consider placing a rug over hardwood floors that get the most foot traffic, pull weeds around the driveway and sidewalk and clean your furniture regularly so the natural oils from people and pets don’t set in and cause long-term damage. Even if you’re sick of your kitchen's appearance, you don’t have to demo the entire thing. Consider quartz countertops to replace laminate, or put a new finish on existing cabinets to can make them look new. With a little work, “we’ve seen people fall in love all over again with their kitchens,” Tarantin says.

Don't be afraid to freshen what you've updated.

Don't be afraid to freshen what you've updated.

Landscaped front yard of a house with flowers and green lawn

(Getty Images)

Especially if you’re planning to remain in your home for 10 years or more, even the most on-trend master bathroom or living room can look completely dated when you sell. Investing in a bathroom update now will likely give you years of use, but don’t be afraid to update again as your needs change or the space’s age starts to show. Kiser points out that making changes over and over again is particularly easy with landscaping. “You can move this and move that” until you achieve the look and functionality you’re hoping for, he says.

Improve for more than ROI.

Improve for more than ROI.

Furnished living Room in Luxury Home

(Getty Images)

Don’t spend all your savings trying to match new builds or flipped houses if you can’t enjoy the updates. Plenty of homebuyers are planning to make changes to a house they buy anyway. From 2010 to the start of 2017, post-sale home remodels increased by 54 percent compared to the previous seven-year period from 2002 to 2009, according to BuildFax. Tarantin says hardwood floors, for example, are often a preference among homebuyers, but they're only worth the money if you’ll enjoy the look as well. “If you’re thinking about selling your home in the near future, and you’re thinking of installing hardwood floors because of saleability, our customers tell us it’s not worth it,” he says.

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Tags: moving, housing, retirement, personal finance, home prices, housing market


Maryalene LaPonsie has been writing for U.S. News & World Report since 2015 and covers topics including retirement, personal finance and Social Security. Ms. LaPonsie is also a regular contributor to Money Talks News and co-founder of Lowell’s First Look, a micro-news site for her local community.

With more than a decade of reporting experience, Ms. LaPonsie’s work has been featured on MSN, CBS MoneyWatch, Yahoo Finance, NerdWallet and numerous other sites on the web. She has been a guest of Consumer Talk with Michael Finney and The Steve Pomeranz Show.

A native of Michigan, Ms. LaPonsie received her bachelor’s degree from Western Michigan University. You can follow her on Twitter or connect with her on LinkedIn.

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