Every now and then, people ask if they should move to take advantage of really cheap real estate prices out of state. In fact, some friends came over a few days ago who were agonizing over this very issue.
Sue has a small business that is in a slump. Jim, her husband, is unemployed. They live in a nice home but it’s expensive to keep up. They need a change.
Since the couple is in Los Angeles, prices are still relatively high. The house is worth about $675,000 and they have about $150,000 in equity.
They were thinking about moving to South Carolina, where real estate prices are lower and jobs are easier to come by – they hope. Rather than downsizing and buying a condo in their current neighborhood, they talked about buying a $600,000 home on the East Coast and getting a mansion.
What would you advise this couple? Here’s what I suggested:
While moving might be a brilliant move, it would really be a shame to do so for the wrong reasons. These folks are struggling. They need to reduce their expenses. Their problem is cash flow. They don’t need a larger home.
While moving to a market with lower real estate prices does provide really attractive opportunities to upgrade, they can’t afford to do so right now. They need to buy a similar house or even a smaller one at a much lower price to reduce their expenses. That, my friend, makes more sense.
Obviously, this couple should only seriously consider making this move once they find work in South Carolina. The fact that my friends were contemplating buying a larger home without first finding work worries me.
They are making decisions based on their feelings rather than what makes the most economic sense. Me no likey.
So when does it make sense to move to take advantage of cheaper real estate?
I can see doing this if you are retired and are downsizing. Or if you have work lined up and are in a strong financial situation. Or are looking for a different lifestyle. This move might make sense for my friends, but not the way they were contemplating it.
And making a move like this to get more home for the same money should never be done if your first priority is to get out of debt.
That is the case with these friends. They just don’t know it.
Have you been tempted to relocate to buy more real estate at lower prices? What decision did you come to? How?