Downsizing House to Invest in Real Estate?

Question

I'm currently living
in a new house (~$400K) and am thinking about downsizing to a cheaper older
house (~$250K) nearby, still in a good neighborhood, to generate cash for
investing in several investment properties.

My mortgage on the
new house is paid off, so if I put down 20% down on older house I would free up
more than $300K in cash (realtor fees, transaction costs, etc.). This could
then be used as down payment on several investment properties.

I do have 3 young
kids so a bit worried about how we will transition as a bigger family to an
older, smaller home. But anyone else have similar experience doing this?

Alfie Park · Answer

@Steve I'll be downsizing from a 2000 sq foot house to maybe a 1500 sq ft older house with 3 bed 2 bath so not a huge cut. Just older house to free up cash.

@Kenneth thank you for mentioning other options. Something to consider

Kenneth McKeown · Answer

@Alfie Park you have a TON of options having a house that's paid off completely.

1. You could refinance out completely (take a loan out). This would allow you available cash to re-invest.

2. You could sell the house completely and downsize as you mentioned - this would free up plenty of cash. You would be making a down payment on the new house (anywhere from 3/5% up to full cash offer) - but you'd still be able to free up cash.

3. You could keep current house and take out a HELOC.

Plenty of options for you with your home being paid off. The question truly remains is what do you plan to do with the money? What do you plan to invest it in? Obviously clear answer is real estate but just how do you want to invest it in real estate? Plenty of options to consider.

Steve Smithy · Answer

I think it just depends on what things you got used to in your current house vs potential inconveniences in the new smaller one.

I used to live in a 6000sqft house and downsized to a 2000sqft house.  This new house has everything I wanted though, the old one was just ridiculous and I didn't need that massive place.  For example I didn't need the 20ft ceilings or 3car garage or water fountain in front.  I now live in a normal house that still meets my needs and I freed up quite a lot of money by doing so like you are describing.

But if this new house doesn't have a 2nd bathroom and you really need one due to your kids, you will hate that and be kicking yourself later.  Or maybe you really want an attached garage and the new one doesn't have it.  The list is entirely up to you but if the new place doesn't have the things you want you'll miss your current home later.  Also the feeling of security with no mortgage can be tough to let go of for some people.  Good luck!