Author Topic: Job Relocation: Rent or Buy?  (Read 4048 times)

Frugal_NYC

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Job Relocation: Rent or Buy?
« on: June 16, 2014, 08:21:28 AM »
Hi everyone.  I am asking this question on behalf of my father...

Background

- Father has been with a company around 30 years, they are closing down his office so he is forced to relocate from NY to MD (specific area is called Lusby near the Patuxent River).  He is turning 58 later this year and does not want to retire for about another 7 years or so
- My grandpa also passed away last year and my father received a substantial amount from him so he also has new $ to invest

- There are 3 options my Dad is considering:
1) Buy a condo for around $200K cash
2) Rent an apartment (cheap one around $1200/mo) and invest $200K
3) Buy Condo with 20% down and invest the other $160K

My father will continue to own his home on Long Island throughout this period and commute back and forth every other weekend or so.

My View

I believe renting is the least desirable choice because at the end of this process he will have spent around $15-16K average per year for an apartment and have nothing to show for that when he leaves.  I think he should buy the condo because it will give him some portfolio diversification as he currently has everything investment in an age-appropriate stock/bond allocation through a work 401(K).  He has been pre-approved for a 4% mortgage.

My dad has no intention of keeping this property after he retires, he will sell it or leave it and buy a retirement home somewhere else and probably still keep his NY home.  Given the information provide what advice could you offer?  Are there any other factors that should be considered?

thanks in advance! 
« Last Edit: June 16, 2014, 08:24:20 AM by Frugal_NYC »

Another Reader

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Re: Job Relocation: Rent or Buy?
« Reply #1 on: June 16, 2014, 08:37:36 AM »
At 58, your father is in the age group most at risk of being "downsized" out of a job.  The closing of this office shows there is instability in the company, a good excuse for reducing older, more expensive employees.

Under no circumstances would I buy in this situation.  I would rent as cheaply as I could, maybe renting a room in a house Sunday through Thursday, and save and invest every dime of the inherited money.  I would also play defense, paying off as much debt as I could and increasing cash and short term savings instruments to cover expenses in the event of a layoff.  Finally, I would network all my contacts locally to see if I could find something locally in the event things go south.

lagniappe

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Re: Job Relocation: Rent or Buy?
« Reply #2 on: June 16, 2014, 08:44:32 AM »
Having taken a job 9 months ago in a new city, I would strongly advise your father to rent, at least for the first year.  You may view the rent money as wasted, but imagine the waste if he dislikes the job or the area, but is stuck with a property that could be hard to sell in a rising rate environment.  That could cost a lot more than a rental.  I don't really like my new job, but feel tied to it and the new city because of the home purchase.

I also don't think you are comparing apples to apples - spending $15K a year on rent is not wasting money in my opinion, if the $200K he would have spent is earning a decent return in the market (opportunity cost of $200K is 10-18K per year), the two options actually "cost" about the same. 




Frugal_NYC

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Re: Job Relocation: Rent or Buy?
« Reply #3 on: June 16, 2014, 10:03:04 AM »
At 58, your father is in the age group most at risk of being "downsized" out of a job.  The closing of this office shows there is instability in the company, a good excuse for reducing older, more expensive employees.

Under no circumstances would I buy in this situation.  I would rent as cheaply as I could, maybe renting a room in a house Sunday through Thursday, and save and invest every dime of the inherited money.  I would also play defense, paying off as much debt as I could and increasing cash and short term savings instruments to cover expenses in the event of a layoff.  Finally, I would network all my contacts locally to see if I could find something locally in the event things go south.

I should have explained the situation better I guess.  My father works for a massive multi-billion dollar company.  They are only closing his office because it's a relic of the early years, no production is completed there any more and my father has been traveling working in other offices for years due to this.  Surely, the company knew this move would result in savings due to employees taking early retirements/quitting etc but my father's position is firm and he has no real threat of losing his job since he has agreed to move.

He also would never leave because he has a great pension and a salary that he could not find at any other company.  He is valued for his experience there within this small industry, his education would not translate well to other companies and he would be forced to take a massive pay-cut if he left.



Having taken a job 9 months ago in a new city, I would strongly advise your father to rent, at least for the first year.  You may view the rent money as wasted, but imagine the waste if he dislikes the job or the area, but is stuck with a property that could be hard to sell in a rising rate environment.  That could cost a lot more than a rental.  I don't really like my new job, but feel tied to it and the new city because of the home purchase.

I also don't think you are comparing apples to apples - spending $15K a year on rent is not wasting money in my opinion, if the $200K he would have spent is earning a decent return in the market (opportunity cost of $200K is 10-18K per year), the two options actually "cost" about the same. 

The debate is basically do we think some sort of buying a condo would net more gain that investing in the market over the next 6-8 years.  The situation sucks, but my father has committed to it.  I certainly do agree that buying is riskier in that sense not to mention fees that will be incurred when selling

Numbers Man

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Re: Job Relocation: Rent or Buy?
« Reply #4 on: June 16, 2014, 10:15:29 AM »
At 58, your father is in the age group most at risk of being "downsized" out of a job.  The closing of this office shows there is instability in the company, a good excuse for reducing older, more expensive employees.

Under no circumstances would I buy in this situation.  I would rent as cheaply as I could, maybe renting a room in a house Sunday through Thursday, and save and invest every dime of the inherited money.  I would also play defense, paying off as much debt as I could and increasing cash and short term savings instruments to cover expenses in the event of a layoff.  Finally, I would network all my contacts locally to see if I could find something locally in the event things go south.

^ Ditto

OzzieandHarriet

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Re: Job Relocation: Rent or Buy?
« Reply #5 on: June 16, 2014, 10:37:42 AM »
Lusby isn't exactly a desirable location for most (from what I know). It might be hard to sell or rent the condo when he needs to do so, and the value might drop. That along with the transaction costs of buying and selling could be problematic. It's easier to buy than to sell, most of the time.

4alpacas

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Re: Job Relocation: Rent or Buy?
« Reply #6 on: June 16, 2014, 11:25:10 AM »
When buying a condo, one of the most important factors is the HOA.  What are the fees (I realize there will be a range)?  Will there be large amounts demanded of the owners (upgrades, etc.)? 

I don't want to be anti-condo (I used to own one that was fantastic for me), but there are a lot of questions that need to be answered in order to start scratching the surface of your question.

frugaliknowit

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Re: Job Relocation: Rent or Buy?
« Reply #7 on: June 16, 2014, 11:51:22 AM »
If your father is committed to the company and the move, why does he want to keep his house on LI?  If he does not want to rent, why not ditch the house and buy a condo?  Will anyone be living in the house besides him?  No matter how you slice it, maintaining 2 residences is expensive and risky.

rmendpara

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Re: Job Relocation: Rent or Buy?
« Reply #8 on: June 16, 2014, 12:27:06 PM »
Hi everyone.  I am asking this question on behalf of my father...

Background

- Father has been with a company around 30 years, they are closing down his office so he is forced to relocate from NY to MD (specific area is called Lusby near the Patuxent River).  He is turning 58 later this year and does not want to retire for about another 7 years or so
- My grandpa also passed away last year and my father received a substantial amount from him so he also has new $ to invest

- There are 3 options my Dad is considering:
1) Buy a condo for around $200K cash
2) Rent an apartment (cheap one around $1200/mo) and invest $200K
3) Buy Condo with 20% down and invest the other $160K

My father will continue to own his home on Long Island throughout this period and commute back and forth every other weekend or so.

My View

I believe renting is the least desirable choice because at the end of this process he will have spent around $15-16K average per year for an apartment and have nothing to show for that when he leaves.  I think he should buy the condo because it will give him some portfolio diversification as he currently has everything investment in an age-appropriate stock/bond allocation through a work 401(K).  He has been pre-approved for a 4% mortgage.

My dad has no intention of keeping this property after he retires, he will sell it or leave it and buy a retirement home somewhere else and probably still keep his NY home.  Given the information provide what advice could you offer?  Are there any other factors that should be considered?

thanks in advance!

Mathematically, 1, 2, and 3, will have a similar (not exactly the same) effect on his NW on a 5+ yr horizon (assuming neither his property significantly appreciates/depreciates and the market doesn't have a huge run).

#1 - If he puts cash down, he'll have low payments for HOA/utilities/taxes, and the excess cash flow from income - expenses will be invested, right?
#2 - I'm not sure how the $1.2k rent compares to a mortgage interest+HOA+tax+insurance (the principal is just an asset exchange), but if the total of housing expenses is under $900, it may be worthwhile to consider buying, especially over a 5+ yr time frame.
#3 - Since Dad plans on leaving once he retires, this is just going to be lost interest for the next few years

Compute total purchasing expenses + mortgage origination fees + mortgage interest + expected selling fees/commissions... if this total is considerably less than the rent he would have to pay, it may be worth considering a purchase.

I don't know about that area specifically, so I can't really comment on how likely the property is to maintain value, or risk of depreciating, so you'll have to judge that. Do the calculation assuming he gets the exact same $200k in 5 years (zero appreciation).

There are a lot of details that go into it, but big picture:

- Is the property rentable if he can't sell to recoup his cost (even though he intends to)? If yes, and he can stay cash flow positive by renting, then this lowers the risk of buying. If no, then it increases the risk of buying.
- Considering his age, I doubt the majority of his investments are expected to return the stock returns, so buying with cash and avoiding 4% interest may be worthwhile