The tiny house movement is sweeping the nation. While, according to Wikipedia, the average size of a new house grew from 1,780 square feet in 1978 to 2,662 in 2013, some people are focusing on “tiny houses,” which are less than 1,000 square feet. So what gives? Are these people finally realizing that experiences make people happier than “stuff”?
Perhaps people are consciously prioritizing what they most value in their lives and choosing to live more simply in order to have it. A tiny home, however, would be unrealistic as a primary residence for most people I know. For those of you who are approaching your glory decade (60s), maybe there’s a middle path that will allow you to stop working sooner or travel more. Don’t think tiny, just smaller.
Smaller Home, Bigger Cash Flow
I recently wrote about the extra cash flows that can arise when a homeowner becomes a renter. For those who don’t like that path, there’s another way to maximize cash flow—downsizing. If you sell your home and buy a smaller one, some of the previous home’s equity (cash proceeds) can be folded into your nest egg.
Using my 5% withdrawal rule, adding just $200K of house proceeds to your portfolio could be worth about $10,000 of additional annual spending in your retirement years. And let’s not forget the housing-related expenses that may drop as a result—insurance, utilities, maintenance and perhaps property taxes.
If you downsize to a small place in a tourist-friendly location (e.g., near downtown, near water) and you don’t mind the idea of strangers being in your home, consider “home swapping” or offering your house on Airbnb when you take those long trips. This will have the effect of increasing your cash flow since you won’t have the hotel expense.
Perfect Timing to Go Small
How much space do we really need for cabinets and shelves to hold our old music, files, movies and photos? That’s right—none. You could probably convert a room’s worth of stuff into a digital format in a matter of hours (trust me, your heirs will appreciate it too). Explore the latest in space-saving furniture, where coffee tables become dining tables, couches become bunk beds, and stairs double as storage bins.
Crunch some numbers with your advisor—see how much more you could spend on the experiences you most want just by letting go of the square footage you don’t use and the stuff you don’t need.