Looking to Downsize? Forgo Guest Rooms

NEW YORK (MainStreet) -- The minute a homeowner starts thinking about downsizing, the questions rush in. Among the most important: Just how far down should you go? From four bedrooms to one – or maybe from four to two, allowing an extra room for guests?

Many empty nesters feel it’s vital to have room for kids and grandkids, but a spare room can be very costly, so the issue is worth some serious thought.

The real estate site Trulia breaks down average sales prices by community according to the number of bedrooms. To check prices yourself, just key in the community name, click the “Local Info” tab, then select “(community name) Market Trends” from the pull-down menu.

A search around the country shows that an extra bedroom can easily cost $50,000 to $100,000, or even more. In Yardley, Pa.,  a Philadelphia suburb, the average three-bedroom home costs $342,500, compared to $225,500 for a two-bedroom, a difference of $117,000. That’s a lot to pay for a bedroom that a retired couple might put to use only a few times a year.

The difference is significant even in relatively inexpensive communities. In Myrtle Beach, S.C., for instance, the average two-bedroom home costs $97,550, versus $65,000 for a one-bedroom.

Of course, the more expensive place will be worth more when you sell or pass the property to heirs. And even if a one-bedroom is enough for your day-to-day living, you might get a two-bedroom and still pocket a lot of cash after selling your bigger home in a more expensive neighborhood.

Choosing to forgo spare rooms or to make do with just one extra room is personal decision, but the whole point of downsizing is to free up cash. Money tied up in a home is hard to get at, requiring a sale, refinancing or home-equity loan.

Also, money plowed into a home is generally an uncertain investment. In today’s volatile market, it’s possible to lose money on a home, as millions of homeowners have discovered. And even in normal times home-price gains barely beat inflation. Historically, stocks and mutual funds have proven more profitable, as well as more liquid.

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