Most people reach a point in their lives when the place they live just doesn’t work for them anymore.
When that happens, most people are a little unsure about what to do next. Do they start looking at houses until they see something they like? How do they know what they can afford? If they think they really want to make a change, to an entirely different state, how do they decide on the right place?
Because we’re at the beginning of the house-selling season, and the personal circumstances of many of our clients have changed, we’ve been helping quite a few people with housing decisions lately. For those of you we haven’t heard from yet, I thought I’d share some ideas and suggestions on how to approach this decision.
Getting Started or Trading Up
For growing families, the need for a move can be driven by space constraints, the reputation of the current school system, or a desire for a more family-friendly neighborhood. Before your search begins it’s important to have a price range set before you find yourself in love with a home that will put a strain on your finances.
Many people don’t keep a budget because they’re able to manage without one in their current situation, so when they’re about to make a major change in their lifestyle, they struggle with ‘What can I afford?’ We start with your tax return and use it to build a cash flow statement to get an estimate of what you’re spending now without the need to add up all your credit card charges and bills for an entire year. If there’s excess in your annual cash flow, we know there’s room for spending more on a home. But if there isn’t, we look for expenses to eliminate that are less important to you than owning a different home. Other financial considerations include costs to update a home that might be in your price range but needs significant work, and annual maintenance costs for a larger property.
Once you’ve set your budget, you need to set your priorities as a couple. This can be harder, since you may have different ideas about what’s most important to you, and some choices represent tradeoffs. Are you more concerned about the neighborhood you want to live in or the real estate taxes you must pay to live there? Do you want a highly-rated suburban school system or the ability to walk to restaurants and stores? Do you want a bigger home with rooms that may go unfurnished for a few years, or a smaller home perfectly decorated from the start? Talking these questions over and coming up with a prioritized list can make a stressful home search much easier, especially when houses are in a competitive bidding situation and you need to act quickly.
If you already own a home and you’re trading up, you also need decide when to put your existing home on the market. Again, getting an agreement between the two of you early in the process is important. If you both decide to buy before putting your existing home on the market, you may be under some financial strain waiting for your home to sell but at least your marriage won’t be!
It probably comes as no surprise since I’m a financial planner, but when my husband and I were faced with this question, not having two mortgage payments and two homes to maintain outweighed being inconvenienced if our home sold too soon. We sold our existing home before our home under construction was finished, which meant living in a furnished apartment with our kids and pets for a few weeks while our furniture sat in storage. For us it was small price to pay for the financial peace of mind.
Downsizing and Lifestyle Changes
If making a change has been in your plans for a few years, you may already know where you want to live. We’ve had clients find retirement happiness building a home in their college town, selling their home and traveling the U.S. in a motorhome, and dividing their time between warm-weather climates and Michigan, Idaho, New York and Canada. If you haven’t spent much time up to this point thinking about your next move, consider testing your ideas first.
Thousands of timeshares are sold to people who fall in love with an area when they’re on vacation; purchases they later live to regret. If you have an area in mind for your next chapter, consider visiting several times at different times of the year before you start looking to buy. A location that’s beautiful and quiet during your visit might be a tourist madhouse in other months, and warmer weather might be too warm for you in the summer. It’s far easier to rent multiple times to test your ability to live somewhere than it is to make another move after realizing it’s not a good fit.
This caution applies to people who have considered trading in their large, suburban homes for a condo in the city as well. In Cincinnati there’s been a building/buying boom in condominiums downtown and along the river due to their close proximity to sports, cultural events and restaurants. But sometimes we fall in love with an idea before we consider the trade-offs. If you’re used to living in a quiet neighborhood the sounds of the city might keep you awake at night, and a lack of personal space might be more of an adjustment than you anticipated. A radical change might be exactly what you want, but testing the experience before making it a permanent change can save you grief.
If you’re considering a change to downsize your expenses, be sure to take all potential costs into consideration. Because downsizing has become very popular with my fellow Boomers, the demand for new, smaller, maintenance-free homes has driven up prices. In our former neighborhood of West Chester, couples were selling 5-bedroom homes and rolling the entire sales proceeds into newly constructed patio homes that were one-third the size. These trade-offs can sometimes end up being equally expensive after taking ongoing homeowners association fees and real estate taxes into consideration.
If you’re upsizing or downsizing, spending time up-front to get a handle on your cash flow and develop a clearer picture of what you want can make the decision easier. And if you’re contemplating a major change, test it out first. Like many things in life, a little planning before goes a long way!