Trading Down : As Lives, Priorities Change, So Do Housing Needs

On paper, Helen and Saul Gealer look like a typical yuppie couple.

They live in a bright, airy Westside condominium that’s decorated with high-tech, black-and-white furniture.

When Helen isn’t busy with her duties as president of the complex’s homeowners association, you’ll catch her at the local gym or window-shopping along trendy Santa Monica Boulevard. Saul likes to dabble in antiques, especially classic cars and old golf clubs.

But the Gealers aren’t yuppies; they’re both in their 70s. They can afford their current lifestyle because they sold their longtime home for a huge profit a few years ago and “traded down” into one that’s smaller and easier to maintain.

“We haven’t regretted our decision for a minute,” Helen Gealer said. “Getting rid of our big old house and buying this condo was one of the best moves we ever made.”

Older people trade down to a smaller home for a variety of reasons. Some do it because they don’t need as much space as they used to, now that their children are gone or their spouse has died.

Others move because they no longer have the energy or desire to cut the lawn, clean several rooms and perform all the other chores that come with owning a large home.

Still others move because their longtime neighborhood has taken a turn for the worse since they originally moved in.

“We lived in our old home for 26 years, but a lot of things had changed,” Helen Gealer said. “Crime had gone up, traffic had gotten a lot worse and a lot of local stores had changed hands. And with all the kids gone, keeping a four-bedroom home just didn’t make sense anymore.”

Financial pressures can also play a role.

“Even if you bought your home a long time ago and your monthly mortgage is low, maintaining a big home can be an expensive proposition--especially if you’re on a fixed income,” said Morrie Reiff, a financial planner with Planned Asset Management in Encino.

“A lot of people prefer to sell their house, buy something cheaper, and live off their excess profits.”

Regardless of why you decide to trade down, you’ll have three basic choices: buying a smaller single-family house, purchasing a townhouse or condominium or renting an apartment.

The first option--selling your current home and purchasing a smaller house--can provide several benefits.

Smaller homes are typically easier to maintain than big houses, and you’ll be able to retain much more privacy. That’s something that wouldn’t be guaranteed if you moved into a condo or apartment complex, where you would share common walls and amenities with other people.

In addition, there’s a good chance that you’ll be able to take the proceeds from the sale of your current home and use the money to make a large down payment on your new house. That will keep your monthly payments low, an important point if cash will be short in your retirement years.

In fact, if you’re like many older sellers, you might even have enough money from the sale of your current home to pay all cash for your new house.

But Reiff cautions about doing that. “Paying all cash usually isn’t a great idea from a financial planning point of view, in part because you won’t be able to shelter any of your retirement income by taking mortgage-interest deductions,” he said.

“But the truth is, a lot of my clients who trade down pay all-cash anyway. It makes them feel more comfortable knowing that they won’t have to worry about making mortgage payments in their retirement years, and that feeling of security lets them sleep better at night.”

One potential drawback to buying a small single-family house is that you’ll still have to maintain the property. “That’s OK if you like gardening or doing simple home repairs,” said Leah Dobkin, a housing specialist with the American Assn. of Retired Persons.

“But you won’t be happy if you’d rather spend the time socializing, or if you become disabled and can’t do the work anymore by yourself.”

The thought of spending their Golden Years shackled to housework is one reason why so many older people move into a condominium instead of a single-family house.

“After 40 years of fixing broken pipes and spending Saturdays mowing the grass, I finally just said ‘the hell with it’ and moved into this condo,” said Steve Carter, a 65-year-old retired aerospace worker who owns a two-bedroom unit in the Mission Valley area of San Diego.

“Now, when the building needs painting, the homeowners association does it. When my air-conditioning unit broke, the association fixed it. And I haven’t touched a lawn mower since I moved in here two years ago.”

Dobkin, the housing specialist at AARP, said moving to a condo can provide other benefits as well.

“Most older people like to have a strong sense of security,” Dobkin said. “A lot of condos have elaborate security systems, which makes people feel safer and less vulnerable to crime.

“Also, with more older people traveling frequently, it’s a lot simpler to just lock up and go,” she said. “If they owned a house instead, they’d have to worry about break-ins, who’ll water the lawn, who’ll pick up the mail and a bunch of other stuff.

“Finally, some seniors like to socialize and be around people of all ages. Condo projects tend to make that kind of interaction a little easier.”

If you’re healthy and prefer that most of your neighbors are about your same age, you may want to consider buying a condo unit in an “active-adult” community. These developments are geared toward healthy older people and typically have at least one golf course, pool and recreation center.

Conversely, if you need frequent medical attention or extensive help with housekeeping chores, you might want to consider buying or renting a unit in a congregate-care facility. Many of these developments offer a variety of on-site medical services and also provide residents with meals, house cleaning services and the like.

“The important thing to remember when you’re buying a condo is to make sure that you don’t pay for a lot of amenities that you don’t need,” said Temmy Walker, president of the James R. Gary East real estate office in Studio City.

“Having a tennis court or pool is great, and it can make your home more sellable if you eventually plan on moving again,” Walker said. “But there’s no reason to pay extra for all those amenities if you’re never going to use them.”

As you look at various developments, pay close attention to the maintenance of the common areas. Neatly trimmed bushes and fresh paint are signs that the homeowners association is doing a good job of running the complex: Burned-out light bulbs and a dirty pool indicate that homeowners don’t care much about their living environment.

Look over the association’s bylaws that govern the complex to make sure you can live with its rules, and request a copy of its latest financial statements to assure that there are adequate reserves to pay for future maintenance and repairs.

“Also try to attend at least one meeting of the homeowners association,” Walker said. “You’ll get a good idea of the types of people who live in the complex, and whether or not they get along with each other.”

Issues discussed at the meeting can also provide valuable clues about the complex itself. For example, if residents at the meeting discuss a recent rash of break-ins or the need to make expensive repairs, you might be better off looking somewhere else.

If you’re simply tired of the duties involved in owning a home--or if finances will be tight in your retirement years--you might simply decide to move into a rental apartment.

Your monthly cash outlays will likely be lower than if you bought a condo or house, and proceeds from the sale of your current home could be used to make investments that will supplement your retirement income.

Regardless of what type of home you choose--a single-family house, condo or apartment--you’ll be faced with some important financial questions.

Perhaps the biggest question is whether you should use the once-in-a-lifetime tax break that allows homeowners over age 55 to keep up to $125,000 of their profits tax-free.

“If you think that this is the last move you’ll ever make, or if you’re going to make the full $125,000 from the sale, you’ll probably want to take the exclusion now,” said Karen Block, a partner in the Encino-based accounting firm of Block, Klein, Levin & Co.

On the other hand, Block said, you might want to postpone using the exclusion if you plan on eventually moving again and profits from the sale of your current home will be less than $125,000.

For example, let’s say that you’ll net $70,000 from the sale of your current home. If you exercise the exclusion now, you’ll only get to pocket $70,000 tax-free.

On the other hand, if you don’t exercise the exclusion now and eventually sell your next home for a $125,000 profit, you’ll get to keep the entire $125,000 tax-free instead of just $70,000.

Since trading down to a smaller home has such important tax implications, it’s a good idea to visit an accountant before you make your move. It’s also wise to visit a financial planner to discuss various issues, such as whether you should finance your new home or pay all cash.

Although leaving your longtime home and moving to someplace new can be a scary proposition, condo owner Helen Gealer and her husband advise older people to keep an open mind and study all their alternatives.

“I was scared to death at the thought of leaving my old house,” she said. “But my life is so much happier and care-free now that we’re in this condo.

“My only regret is that we didn’t move sooner.”