Doing a financial plan is essentially a game of sums. Crunch the data, and estimations of time and returns, and you get a suggested path for achieving your desired outcome. However, the answers produced may not be those that you really want to hear.
Anyone expecting a child, for instance, may not wish to learn that it will take another few years to qualify for a home loan, based on current market prices and rates of taxation and saving. The same disappointment can be seen for aspiring retirees, when told they would need to delay retirement plans to achieve the income they will need to finally retire.
Californians face special challenges in achieving life hurdles, because of the higher cost of real estate and taxation here than in many other states. Meanwhile, in many adjacent states, young couples can purchase an entry level condo or home in a desirable area for as little as $190,000, and pay a fraction of the property taxes they might pay for a real estate purchase in California. Aspiring real estate investors can pick up such property outside California’s borders and go net positive on their income streams, potentially, in a shorter period of time.
Retirees have fewer job constraints than young working couples, so often can find even better deals in real estate, should they opt to relocate out of state. To really know what decision is best for you, you will need to carefully compare the cost of living in your current versus desired community, as well as income levels, if your career is a consideration.
Retirees will also want to consider the cost and availability of health care comparing the communities on their target list to their current costs in Marin County. Some of this data may be readily available; other data will require your sleuthing and research.
Here are quick tips for people considering relocation for any reason, to create a financial scenario that actually maps how to make the decision, whether to move. The cost to move is not insignificant, so your groundwork is important, to minimize these costs.
- Choose your top three reasons for moving, as these will be your criteria for comparing which community may offer you more of what you want, within your time horizon.
- Whatever the criteria, at least two of the three should factor in a tangible economic benefit.
- Do some online research to narrow down choices of communities to consider before planning a visit to evaluate.
- Plan a trip. You will need your feet on the ground to test your assumptions and to minimize your costs for actually making a move.
- Do the hard math, compare your options, and make a decision. Figure out the go/no go threshold for yourself. Perhaps it is a savings of 20 percent or more over current living costs; perhaps it is a change of pace in daily life. Consider all aspects, such as differences in property taxes, utility bills, cost of living, and salary levels. Young families will also want to consider the quality of schools available for the children.
In working with clients over the last few months I have discovered remarkable comparisons, which I will present here. For instance, living costs in San Rafael are rated at 167 to 244 as compared to the national median for the cost of living. That is, average daily costs are 67 to 124 percent higher here than the average for all other states. (See footnote). Lower cost communities out of state often compare much more favorably for the cost of housing, but average household incomes tend to be lower as well. Communities I considered for this analysis included Sparks and Las Vegas, Nevada; Tempe, Arizona, Boise, Idaho, Medford, Oregon; and Fort Collins, Colorado.
In this group of towns, the lowest cost for real estate was for homes and townhouses in Las Vegas , Nevada, where the cost of living index is 97.5 out of 100, and the median home price is less than $200,000. (see city-data.com, and zillow.com, for this information). The lowest cost of living for towns in this group turned out to be found in Boise, Idaho, rated 92.5 on a scale of 100. When looking at personal finance ratios, housing costs should occupy no more than 28 percent of a healthy household budget. Housing costs include mortgage payments and interest, property taxes and insurance. (See: https://www.personalcapital.com/blog/investing-markets/piti-and-28-percent-rule/)
There are many factors that can be considered in a financial planning analysis of which housing costs are just one. However, for many Americans, the desire to own their own housing and to reap the tax advantages for doing so is paramount to building family wealth. Housing costs should be an important consideration when restaging your life anywhere. Real estate investors of course choosing property out of state would also need to examine costs for professional property management.
This article is meant to inform and education, not to provide prescriptive personal advice.
Please consult with the appropriate professional about your own situation before acting upon any ideas presented here.