There may be a degree of panic going on right now where the Australian property market is concerned, but every homeowner’s situation is unique and where some see misfortune, others see opportunity. Although the market is declining and the majority of forecasts are predicting the worst, there could be a chance for you to make some fresh decisions; ones that take your financial journey in a different direction than you’d originally planned. If it looks like your property could be declining in value, re-focus your attention on the essentials and start to decide what form your alternatives might take.
In this case the essentials refer to investment capital and the needs of your family. If you’re in a position to no longer need the kind of space offered in the current property you live in, then you could sell, retain some capital and make new choices about moving forward. Downsizing is a useful strategy in a number of situations. It’s not just for empty nesters and retirees – there are many reasons a homeowner may choose to downsize. Maybe you’ve been planning to downsize anyway and the market downturn is giving you that extra motivation to make the decision. You might want to take advantage of financial incentives to downsizing your property, announced last year. Or maybe your property is rapidly losing value, so selling as quickly as possible will allow you to get out without losing too much capital.
Whatever the reason, the first step is to request an appraisal of your property from an experienced agent. It’s important they have had some years in the industry to be able to advise you accurately on the current market – against previous years – given the nature of what’s currently happening. An appraisal allows you to get a good sense of the current value of your property, what (if anything) you could do to increase its value and most importantly, how realistic it is to think you’ll be able to sell it right now. It’s important to review your financial outlay so far and consider what you would lose or gain, when choosing to sell now rather than later. Auction clearance rates are softening it’s true, however, first home buyers are rubbing their hands together with glee right now, so a sale is not impossible.
Once you have a clear understanding of your financial position and have decided to sell, you can start to explore what your downsized life might look like. You may start looking immediately for a replacement property that is smaller, low maintenance and more importantly, cheaper. Downsizing not only means a smaller home, it reduces your outgoings and time spent on cleaning, maintenance and gardening. Transitioning from a large family home to a smaller house or apartment also puts you in somewhat of a lower risk category in the market, which is not a bad idea in the current economic climate. As always though, get good advice.
A market downturn could also be an opportunity to take a break and reassess your financial plans. Selling in a declining market may not have been your intention, and if you are now in that position, it can shake your confidence. Downsizing doesn’t have to just refer to property – this could be your chance to downsize your life and recharge. Selling up gets you out of the current market and renting for a while buys you the chance to cut back on outgoings, maybe reinvest your capital somewhere else to recover from what you might have lost on your investment and re-enter the market at a later stage. Taking some time out of the property market until it corrects itself or at least settles down, can be restorative both mentally and financially. Downsizing doesn’t just mean a smaller home, it means making everything about your current life smaller in the future – reducing your expenses, reducing your expectations, reducing your plans and just waiting until the timing feels right again for you. The Australian property market tends to be relatively stable and, in time, will correct itself, but waiting for that to happen as an outside observer is far less stressful than when you’re invested in it.
Try to make informed and responsible decisions that secure your long-term future, rather than focusing on what’s happening in the immediate future. This time will pass and taking the opportunity to downsize in some way and maybe even have some spare cash afterwards is just another version of smart investing. Downsizing can be a hard decision to make and the life stage you are in can largely dictate whether it’s an option for you or not. Although selling and getting out of the current market now and unscathed may not feel like a desirable decision, it could be the best decision for you.