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Sunday, November 23, 2014

Going Small?

Posted by Dave on April 22, 2014

Dave is also looking to retire no later than 45, but unlike Tim has no kids and doesn’t want any. Dave is from Ontario and is working towards his CGA certification.

My wife and I are what could be called “Unmotivated Homeowners”. When we bought our place 5 years ago, we did it because it seemed like a good idea. We bought a condominium, which allowed us to not have to either maintain or have responsibility for the exterior portion of the house. Our friends have commented over the lack of anything in the house that would make things look kind of lived in (pictures, decorations or otherwise) – it’s kind of a shell that we watch TV, eat and sleep in rather than something that I guess we would be proud of.

Now that the place is almost paid off, and we have paid several thousand dollars to financial institutions in interest over the 5-year term we are currently completing, we were kind of wistfully thinking about our previous life as apartment dwellers. We lived together in an apartment for three years together, and didn’t have any real complaints. All living expenses were covered, we never had to worry about fixing anything, and it was a more ideal size for the belongings we actually needed. The previous building we lived in had underground parking as well, which after the winter we just had would have come in very handy.

If we sold our house and invested the money into a “rent” fund, interest and principal would almost cover the monthly cost in the small-ish city we live in, as well as the approximate 1% allowable increase per year that landlords are able to raise the rent annually in the province of Ontario. This plan would also be in alignment with the current situation of home-value inflation, (written about by bloggers such as Nelson at Financial Uproar, who did an excellent job explaining his hypothesis last summer) exiting the “long” play I have by owning the asset.

The risk of the asset that took me 5 years to attain is (possibly) going to lose a significant amount of value over a short-term period if interest rates increase in the next few years isn’t an entirely pleasant thought.

The one reason I am a little hesitant in moving to a smaller space is probably also the reason why we like the idea of downsizing – less space. Less space to store things like hockey equipment, golf clubs, tools, and beer-making gear (all of which I like), but there is also less space to store “stuff” that we are constantly trying to rid ourselves of.

My wife and I were back and forth about our living situation for a week or two and have decided to stay where we’re at for now, mostly because we’re too lazy to move, but also because we would have to deal with more people, living in a rental situation.

What I like about my current situation is that I have flexibility in the decisions I can make for my living situation. My mortgage has acted as an enforced savings plan that I paid interest to take part in, which should cover most of my housing expenses for the rest of my life.

Would you downsize your house? What would stop you from doing that?

Comments

4 Responses to “Going Small?”
  1. Jane and I built a new home about 7 years ago. Since then, land values themselves have more than doubled in our area and the neighourhood we live in has regenerated which has increased the value of area homes. It was a good decision for us. When we built however – we kept the floor plan very small under 1000sq ft. That’s about half of the typical new build in our region. Keep it small and affordable, with a built in defense against lifestyle creep, that was our intention. We will definitely downsize later in life – but right now, I enjoy keeping a garden in the summer and growing our own food. I enjoying having the space in the back yard to entertain or to relax and read a book in the sun.

  2. jon_snow says:

    “Going small” has allowed us to pay off our smallish mortgage quickly (by our mid 30′s) and simultaneously save and invest for early retirement. For too many, there is early focus on paying off the (too large) mortgage at the expense of investing. If we had bought a bigger place we may very well be still paying our mortgage in our early 40′s (our age now) and we would have missed out on the amazing market gains between 2009 and today. Since 2009 we have probably been investing an average of 5k every month – that wouldn’t have been possible with a jumbo mortgage.

  3. Geoff says:

    In our neighbourhood in Toronto, there isn’t a strong correlation to size of house and price of house. We live in a 1300 sq.ft house at dvp/lawrence; if we moved to a smaller house but one further downtown, we’d pay more. So we stay because the cost of moving is too high.

  4. fritz says:

    last year we moved from our 7 bedroom house to a small 1200 3 bedroom. the kids love it! they like to hang with everyone in the living room.
    with less taxes/insurance/heating/electricity costs and
    at 1/4 of the purchase cost of the other house it looks like this will be the one to be in for a long time. we still own both mortgage free so now it just comes down to selling the bigger home.

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