Question: I’m in the midst of a divorce and don’t know if it’s better to keep the house, sell it and buy another or rent. What are your thoughts?
Answer: The answer is the same as it is for most questions, and that is “it depends.” This is an important time to regroup emotionally and financially. Realistic analysis of the economics of your new lifestyle, with financial planning, gets beneath the raw numbers as you go through this transition. Cookie-cutter advice isn’t specific enough to rely on for decisions of this magnitude. A woman in her forties or fifties with children is in a much different place than someone who is retired and looking for a fresh start. Begin the analysis with the obvious pros and cons of each option, trying to quantify valuations of intangible and tangible realities.
Staying in your current home or purchasing another home may provide emotional stability and familiarity. If you stay in your home, you can remodel to change things, or if there are children at home, it may be important to stay in the same neighborhood to provide stability. Other factors, such as having a dog, a great location or staying close to friends and social conveniences will influence the decision.
More gritty financial matters include tax considerations, ability to pay any mortgages, taxes, and insurance, and how these expenses may affect your overall financial plan. Financing costs, cosmetic upkeep, utilities, maintenance and repairs are additional factors to deliberate. Home ownership may also reduce your mobility if you do decide to move in the future.
The nuances of renting vary depending on your mindset and experiences. For many, renting offers simplicity, choices and options that aren’t available to homeowners. For others, owning a home is an important factor in measuring stability. While determining what your new normal looks like, renting may be appealing or frightening. If you’re moving to a new area, renting gives you the option to see where you may feel most at home. When we moved to SW Florida in 1997, we rented for the first year until we knew that it was the right choice. At that point, we decided to build our home based on lifestyle, location, conveniences and finances.
On the practical side, renting may require less upfront cash flow, therefore allowing you to keep more capital accessible for whatever unexpected expenses you may experience while life is changing. The downside is that rent payments can increase, and the property owner can sell your home. Examine any lease to see what the terms are if the property is sold to determine if the new owner must honor the lease, and for how long. In addition, depending on the arrangement with the property owner, you may be responsible for utilities and some maintenance of the property. Renters insurance is your responsibility and covers your possessions.
Take inventory of your new economic normal conditions while deciding to own or rent. For instance, did your divorce influence your credit rating? What will you look like on paper as a single woman? Qualifying for a mortgage has changed since the housing crash, requiring income verification, debt ratio calculations and credit ratings. Are you paying alimony to your ex or will you receive maintenance or support, and for how long? All of these items will factor into qualifying for a mortgage if you’re refinancing your current home or buying another. If you stay in your current home, can you afford to take on the responsibility of all the expenses and cover everything comfortably or will you be overextended? Taking on more expenses than realistically possible may lead to disappointment and problems. Take time to run down the real costs of owning and renting, evaluating what is in your best interest. And, I’d be remiss if I didn’t mention the importance of funding your retirement and having an emergency fund for the “what ifs” that occur in life.
During times of transition, our emotional quotient (EQ) may be as important to consider as our IQ. Family and friends may mean well when giving advice, but be sure to pause and reflect on what’s most important to you. While it’s easy to focus on the dollars and cents, don’t overlook common sense. On some level, you likely know what the right choice is for you. Going through the exercise of calculating expenses is necessary, but don’t overlook the EQ factor as you turn the page and begin the next chapter of your life. When life and money overlap its useful to regroup as you chart your new journey. It is at these times when your financial plan takes a new direction that working with a Board CERTIFIED FINANCIAL PLANNER™ professional really can make a difference. Stay focused and plan accordingly.
The opinions expressed are those of the writer, but not necessarily those of Raymond James and Associates, and subject to change at any time. Information contained in this report was received from sources believed to be reliable, but accuracy is not guaranteed. “Certified Financial Planner Board of Standards Inc. owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER™, CFP® (with plaque design) and CFP® (with flame design) in the U.S., which it awards to individuals who successfully complete CFP Board’s initial and ongoing certification requirements.”
This article provided by Darcie Guerin, CFP®, Vice President, Investments & Branch Manager of Raymond James & Associates, Inc. Member New York Stock Exchange/SIPC 606 Bald Eagle Dr. Suite 401, Marco Island, FL 34145. She may be reached at 239-389-1041, email firstname.lastname@example.org, website: www.raymondjames.com/Darcie.