Does Downsizing in Los Angeles Actually Save You Money?

Sometimes it saves a lot, sometimes less than people expect, and sometimes money is not the main reason at all. It depends on why you are moving, what it costs to move, and where you move. This post walks through all three, using what I saw with my own mother.

If you have owned your home for twenty, thirty, or forty years, I would not let anyone tell you that downsizing is just about moving (it’s not) or that downsizing is just about finance (it is not), but the financial aspect is a part of it. It’s better to look at it before you decide than after.

More than most people add up, because the costs show up one at a time, all year, and nobody sends a single bill.

Here is the list I ask people to write down:

• Property taxes. Many longtime owners pay a low amount because of Proposition 13, so this line may be smaller than you think. It is still real money every year.
• Home insurance. In California this has been moving in only one direction.
• The gardener, the pool person, the pest and termite company. Small each month, large over a year.
• Repairs. The roof, the water heater, the sewer line, the electrical panel. A house that has stood for decades eventually asks for all of these.
• Utilities for more rooms than you use.
• Your own time, which is the one nobody puts on a spreadsheet.

My mom bought her home in 1978, so her property taxes were low, and she still added up her yearly costs after she sold it. Here is what she was spending each month:

That adds up to roughly $2,500 a month once you round for the months something extra comes up, or about $30,000 a year. The number was bigger than she realized when she started adding it all up, simply because the bills never arrived at once.

Please do not read my mom’s numbers as yours. Every house is different, and so is the way each person takes care of it. A smaller property, a different insurance policy, or a house you maintain yourself will land somewhere else. The point is to add up your own monthly expenses.

If you want to do this yourself, take a year of bank and credit card statements and look at all of the charges that exist simply to maintain your house. Add that up, and that is the number to use.

This is the other side of the page, and it is the part people forget until they are in escrow.

• Transfer taxes. If your home is in Culver City, the city tax is different from the City of Los Angeles, and above about $1.5 million the gap gets large. I put the actual rates and a comparison table in my post on selling a longtime Culver City home.
• Capital gains. After decades of appreciation, your gain can run past the home sale exclusion. Here is how it is calculated, and what to bring to your CPA.
• Getting the house ready. If you want to prepare the home before listing but do not want to pay for it out of pocket, Compass has a program called Market Ready Concierge that can front the cost of prep work. Nothing is due upfront. Interest and fees apply, and it is repaid at closing, when the listing ends, or after 12 months. I wrote about how it works for Culver City sellers.
• Sorting decades of belongings. I wrote a separate post on what to do with decades of belongings before you sell.
• Moving.
• Closing costs. These include your escrow costs and the realtor commissions.

None of this is tax advice. Definitely talk to a CPA before you decide to list. If you have owned your home for a long time, what you owe in capital gains taxes could be significant and a major factor in your decision.

My mom sold and decided to rent. She moved from a 3,000-square-foot house into a three-bedroom apartment, and she did not want another property to take care of. She also shares the apartment, which brought her monthly costs down further. The $30,000 a year she used to spend on the house is now money she can use for other things, like travel while she is healthy and able to enjoy it.

What matters to her just as much as the money is the relief. She no longer has to manage the gardener, the pest company, the security company, and the accounts for each of them, or think about replacing the windows, the plumbing, and the heating and air that she knew were coming. It is a weight that is simply gone. She also decided not to downsize into a condo because she did not want to be tied to an HOA. She wanted the proceeds from her sale to be liquid, so her answer was to rent.

She found the place she wanted to live before she put the house on the market, and she was excited about it, which made the transition much easier. She had help along the way (me and my sister), and that helped her make the final decision.

Your decision may be different. Some people buy something smaller here, and that is where Prop 19 comes into play. Some move in with family. Some leave Los Angeles. None of those decisions is the wrong answer. The right one is the one that fits why you are moving.

Here is how I would think about it:

1. Add up what the house costs you in a year. Real numbers, from your statements.
2. Add up what it costs to leave. Transfer taxes, capital gains, closing costs, preparation, moving.
3. Add up what your next home will cost. Renting, a smaller home here, or a different city.

If the first number is large, the second is manageable, and the third is lower than the first, the answer is often yes, and it can be a big yes. If you are leaving a low tax basis to buy a similar priced place, the answer can be no.

And sometimes the answer is that the money is about even and the real reason to move is that you do not want to spend your days taking care of a house. That is a good reason too. It is yours to decide, and we do not have to decide it today.

If you are weighing a move, the most useful first step is not listing. It is getting three numbers: what your house costs you each year, what it would cost to sell, and what the next place would cost. I am happy to walk through them with you, with no obligation. If you would like to talk it through, get in touch.

If I buy again, what happens to my property taxes?

This one deserves its own warning. If you are 55 or older, Proposition 19 may let you carry your low property tax basis to a replacement home in California. If you are under 55, your basis resets to the new purchase price. Renting, or moving out of state, takes that question off the table entirely. I explain the rules in my post on Prop 19.

Do I have to buy another home after I sell?

No. Some of my clients buy smaller, some rent, some move in with family, and some leave the state. Each option changes your costs and your taxes differently, which is why I like to look at them side by side before you list.

Should I talk to a CPA before I decide?

Yes, before you list, not during escrow. Bring your original purchase documents and any records of major work you did on the house. A good CPA can tell you what your sale would look like in an afternoon. I am not a tax professional, and this is not tax advice.