January 24th, 2012 10:52 AM by Eileen Denhard
Freud was famously (and incorrectly) quoted as having said “sometimes a cigar is just a cigar.” But with real estate, the exact opposite is true. Buying, selling, even staying in or moving from your home is rarely just about picking a place to hang your hat. Rather, real estate decisions are whole-life decisions, because they impact and are impacted by nearly every other area of your life.
Most people are highly aware of the fact that their real estate decisions are related to their family matters and their money matters, but many don’t give nearly as much thought to the interconnectedness of whether, how and where you buy your home with your career: past, present and future.
Here are five ways your career and real estate decisions are linked, and some new ways to think about these topics together, to make decisions that better serve both these areas of your life.
Link #1: Location, location, location. At the top of the market, many areas saw an outflow of professionals from urban areas to the rows of McMansions that lined the gated cul-de-sacs and subdivisions of the suburbs. But as the prices of closer-in homes have declined, home values have melted down in many of these suburban areas and gas prices skyrocketed, many buyers have begun to prioritize urban areas to be closer to their jobs, some even ditching their cars and taking public transportation or walking to work.
Buying a home near work has obvious efficiencies and conveniences, including giving you back the hours you might otherwise have devoted to your commute. However, if your job is located far away from other companies, buying a home to be very nearby can cause issues – especially if your employer ever hits hard times or closes that location.
Link #2: Job choices and income can limit or enlarge your home options. As you’ve probably heard by now, mortgage guidelines have gotten very tight lately, with lenders forcing borrowers to stay well within their means, shrinking the amount of documented current monthly income that can be consumed by the new mortgage, property tax and home/mortgage insurance payments. Lenders also view your job history as relevant; large gaps of unemployed time and even major career moves from one industry to another can trigger a lender to require that you be in a stable work situation for at least two years before they agree to finance your home purchase.
While it might seem obvious that your income would have a direct effect of limiting how much you can afford to spend on a home, what is somewhat less obvious is that the way you make it can also have an impact. Borrowers who work on commission, earn cash tips and even are self-employed or small business owners may find themselves subjected to stricter guidelines than those who earn a salary, because of the greater burden of documentation lenders may impose. For example, if you’re self-employed, your “income” will likely be determined by your Adjusted Gross Income on your last two years’ federal tax returns, which many entrepreneurs work hard to bring down by making aggressive deductions.
Link #3: Home and mortgage obligations can limit your career decisions. While most home buyers are very aware of the extent to which their past job decisions and income impact their real estate moves, there are many ways our real estate commitments can impact our future career decisions. Smart agents advise their clients not to make any major job moves or go from, say, a salaried position to starting that business you’ve always wanted to in the weeks and months just prior to buying your home. But even after you’ve committed to make a mortgage payment in a market like today’s, where selling can take many months or longer, these obligations can actually limit your ability to work fewer hours, move to a lower-paying job in a field you want to break into, or quit your day job and become an entrepreneur without much more intensive planning and saving than you would have had to do otherwise.
Buying a home on today’s market is a long term commitment; most insiders recommend you not buy unless you are okay staying put at least 5 to 7 years (longer if you’re buying in a locale that has been hard hit by the foreclosure crisis; shorter if your market was relatively immune to the recession). At the same time, the length of time Americans work for one employer is getting shorter and shorter. Gone are the days when your 30-year mortgage matched right up with the 30 years you could expect to stay on a single job. Over the past few years, I’ve heard more than a few reports of unemployed homeowners who felt stuck in their homes, unable to accept job offers across the country because they were deeply underwater or other market forces made it impossible for them to sell their homes.
The upshot? It’s important to feel comfortable making a long-term geographic commitment to an area before you buy; if you expect you may need to move in the near-term for work, it might be best to rent unless you are able to negotiate for your compensation package to include relocation assistance from your employer.
Link #4: Health of your local job market impacts your home’s value. Many news stories have reported how the Silicon Valley real estate market has thrived of late, despite the home value doldrums still being experienced across the rest of the nation. In San Francisco and the South Bay Area, the tech boom means the local job market is booming and employees are being made millionaires by cashing in their stock options when tech companies go public. One of the first purchases many of these new millionaires make is a home.
On the other end of the spectrum, we’ve seen entire regional real estate markets fall into incurable recessions when the only major employer or two in town moves away or shuts down. Then, not only are you stuck with a home and no job prospects nearby, it becomes very difficult for you to find anyone else to buy it. When an area has a high unemployment rate or no new jobs are being created, not only does it increase the rate of foreclosures and make it difficult to find buyers, it also makes locals who do have jobs very nervous about their job security and hesitant to make the long-term financial and geographic commitment to buying a home.
My advice is to prioritize homes located near bustling job centers and areas with multiple industries that are thriving (and projected to continue doing so), areas in which the job market is not dependent on a single employer or even a single industry.
Link #5: Your home’s infrastructure can impact your ability to work there. Things like local internet speeds and networks available, lighting, room configuration - even the age of your home’s electrical system can have a major impact on how comfortably or effectively you are able to work at home – or whether you can work at home at all. And if you are looking to create an area in your home exclusively devoted to working or running a business, that may impact your ability to take extra tax deductions for a home office (a topic you should discuss with your tax professional).
This also highlights the holistic view you should take on how your choice of home impacts the entirety of your life. If you are able to work at home, your choice of home location vis-à-vis work location might be different than if you are not, which might impact what sort of work you do and which employers you prioritize, if you’re looking for a job.
It's like Freud didn't say, but could have - in real estate, nothing is just a cigar.
Agents: What are some ways you’ve seen homebuyers, -sellers and –owners make smart decisions or big mistakes in terms of how their career and real estate choices intersect?
Buyers/Sellers/Owners: What about you? Did you ever make a housing decision that intersected – in good, bad, or other ways – with your career life? I’d love to hear your stories.