Moving? Rent first, ask questions later

This is a guest-post from Tim Ellis, author of Seattle Bubble, a blog and forum dedicated to discussing real estate market conditions in the Seattle area. Tim is a long-time GRS reader. During my last trip to Europe, he shared a controversial article on renting vs. buying.

Given the fact that each year around sixteen million Americans move to a new county, it's likely that at some point in your life you'll find yourself moving to an unfamiliar area.

Starting a new chapter of your life in a fresh locale can be an exciting and memorable time, but it can also be rough on your personal finances. Many of the expenses associated with a major move are unavoidable, but there's one major mistake that is easy to avoid: buying a home immediately upon arriving.

Maybe you're tired of renting and homes are a lot cheaper where you're going, or maybe you own a home in your old city and feel like it would be a financial defeat to go back to renting.

In reality, starting by renting when you move to a new city is anything but defeat. It's actually the smartest decision you can make, both for your sanity and your bank account.

A Real World Example

In early 2007, a new employee (we'll call him Ben) was hired to my team at work. Fresh from the midwest, Ben and his wife had owned a home in their old city, and were anxious to buy as soon as they moved to Seattle. I urged Ben to hold off, rent for a while, and get to know the area before making that level of commitment, but they decided to buy a home in a quiet suburban neighborhood north of Seattle.

Fast-forward to 2010: Ben and his wife have realized that the quiet suburban life isn't their style. They would rather live closer to the city. Unfortunately, their home has depreciated so much that their entire 20% down payment is gone, and they would likely have to come to the closing table with a check for tens of thousands of dollars to sell their home.

Ben and his wife would like to move to a neighborhood that better suits their lifestyle, but now they're stuck in a neighborhood they don't really like until the housing market recovers.

Avoid the Lure of the New-Car Smell

Everyone understands and accepts that when you buy a new car, it loses twenty percent of its value the moment you drive it off the lot. Buying a home (used or new) is similar. Even if home prices begin to appreciate regularly again, agent fees, excise taxes, staging, seller concessions, and other random costs add up quickly when you try to sell your home, sucking away about ten percent of the sale price.

There really is no way to know what neighborhood will work best for you until you've spent a good amount of time actually living in the area. Consider all the variables at play:

  • What's the commute like to your work?
  • How convenient is shopping?
  • Is there enough entertainment nearby?
  • Does the neighborhood feel safe?
  • Do you like the neighborhood vibe?
  • Are there sources of noise at odd hours?

Wouldn't you prefer to rent for a while and learn the area rather than buy right away only to learn after a few months that you'd rather live across town, but you're stuck for at least a few years (or worse, like Ben) until the value of your home rises enough to offset the selling costs?

Give Yourself Time to Find Out What Works For You

Don't be tempted to take shortcuts when it comes to a decision as important as where you will live. You might think that you can do sufficient research online or get advice from people who do live in an area so you can make an informed decision from afar. Think again.


View this map in its own window

Above is a little map I made based on a recent forum thread on LinkedIn started by a simple question:

I have some friends who are relocating to the Seattle area. They will be working in downtown Seattle, have kids and about a $650K housing budget. Looking for thoughts on best cities to live in the Seattle area for education, school districts, quality of life, etc. Any ideas would be appreciated!

Each pin on the map represents an answer to this question that was offered by one of the commenters. Believe it or not, the Seattle area is somewhere under that mass of purple. Good luck making any sort of informed decision based on that mess!

The only person that can really know if you'll like living in a given neighborhood is you. Buying a home is a major financial commitment, and rushing into a purchase before you've had time to get to know the area is a recipe for disaster. If you find yourself planning a major move, find a nice rental and take your time learning the ups and downs of your new hometown before you buy a new home. You'll be glad you did.

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ditchtheboss
ditchtheboss
9 years ago

I really like this post. The advice is not new but the reinforcement and the example are always a good lesson.

We moved to a new location about 2 years ago and even though we like it we should have rented first. We find the location a little far away from the places we need to go. It is not a deal breaker nor it is too much of a pain but if we knew it before we probably we have thought twice before buying the property.

All the best.

http://www.ditchtheboss.blogspot.com

Jacq @ Single Mom Rich Mom
Jacq @ Single Mom Rich Mom
9 years ago

When we last did a major move 4000 miles away, we rented as well. I also thought about buying as the housing was so cheap there at the time but were lucky that we didn’t because we decided to move home after just another year. I could do that with a month’s notice, but if I’d owned a house it would have been different. Had I bought close to work, it wouldn’t have turned out well anyway since the company moved their offices just six months after I joined them. I have a friend whose family has been transferred quite… Read more »

NoTrustFund
NoTrustFund
9 years ago

This is a great post. When I moved to my current city I was lured into buying because ‘everyone was doing it’ and real estate was so much cheaper in my new city compared to the last city I had lived in.

While I love where I live I wish I had just waited and I even knew my city well when I was moving here. I do not regret my location, only being so locked into a home that does not meet my changing needs. I think homeownership in general has become completely overrated.

leslie
leslie
9 years ago

I have actually thought about this quite a bit and while I completely agree with renting first I have had one hang up with this. That is, what do you do if you have kids? I know it is possible to still rent with kids but the idea of moving and putting them in a new school where you are renting and then probably putting them in a new school a year later when you decide where you really want to be is the only hang up I have. I know, I know…kids are resilient and all that but that… Read more »

Page Huyette
Page Huyette
5 years ago
Reply to  leslie

I would interview several agents in the new city to determine which one as a feel for individual neighborhoods. Then you can try to rent in the neighborhood you believe might be the best place to purchase down the road.

You are not looking for the agents individual bias, rather their ability to steer you towards resources that fit your style of learning.

Janette
Janette
9 years ago

Leslie- we moved quite a bit. We often rented in the best school district without the outrageous price of a house to match. We did not buy until we stayed put.
We then had enough to purchase the house with so much cash – the mortgage was more like a car payment. Sixteen years of renting was worth every penny!

leslie
leslie
9 years ago

Janette – I totally agree that if you are in a career where you are moving a lot that renting makes complete sense and buying would be crazy. In my situation, we have lived in our house for 13 years. We could potentially be moving to another city about 2 1/2 hours away which is where the corporate headquarters for my husbands company is. I know that no job is completely secure and you never know what is going to happen at any given time. However, it is unlikely that if we moved to this other city that we would… Read more »

Nicole
Nicole
9 years ago

If we had done this, we would probably have a smaller house in a better school district. (We’d been planning on private school, but their quality has gone down hill since we moved here, so public may be the better option.) Renting is actually more expensive than buying with a 20% down 30 year mortgage in our town so maybe we’ll be ok. We’ll see when our preschooler is ready for first grade. Houses don’t lose their value in the same way that cars do. It isn’t the costs of selling a car that’s the problem. http://nicoleandmaggie.wordpress.com/2010/09/27/how-the-used-car-market-is-like-health-insurance/ for an explanation… Read more »

Dink
Dink
9 years ago

I make major moves so often (it seems like every 3-4 years I’m moving to another state), which is something I really enjoy doing; it never makes sense to me to buy. I was almost lured into it a couple times, or at least seriously entertained the thought, but since the housing crash there is no way I would buy. I don’t really own any stuff, I don’t want kids, jobs are just jobs to me, and I value mobility. The only house I could see buying would be some secluded cabin out in the woods somewhere by Lake Michigan.… Read more »

Lisa
Lisa
9 years ago

Thank you for this advice. I am planning to move to a new city next year, and have debated about whether to rent or to buy. I’ve been a homeowner for ten years now and anticipate eventually buying again in my new city. However, I think your advice to start by renting is wise in that I’ll be able to figure out the best location for me before I make the long-term commitment. Plus, it will be nice to have a break from yardwork and home maintenance for a while!

Steven Williams
Steven Williams
9 years ago

Because of the current economic climate a lot of families are making the rent vs buy decision. I think that what’s important is if a family can afford to buy a home and also understanding their financial outlook in the future. These tips in the article are also important too: * What’s the commute like to your work? This will save time and money. * How convenient is shopping? this very important too. I use to live in the country and the closest store was 15 miles away and after 8 years of living that way we moved back to… Read more »

Everyday Tips
Everyday Tips
9 years ago

I have never moved more than 15 miles or so, so I have not faced such a decision. However, I am sure some people choose to buy because of relocation packages and they may have a ton of stuff that won’t fit into a rental.

I do agree with the premise though. It is kind of like how you have to live in a house awhile before you decide what color to paint it and such. You gotta get to know your surroundings before you make a long-term commitment.

Jenn
Jenn
9 years ago

Agh, wish I had read this 4 years ago. We bought right away (had been renting an apartment and were so tired of that – but there is a decent number of home rentals available here we could have tried). We now realize our house is too big, our yard is not used as much as we thought (and thus too big), our neighborhood is full of family-size houses but occupied by people whose children are now in college so not many kids our son’s age, I don’t want to stay in the job we moved for, and making a… Read more »

Christine T.
Christine T.
9 years ago

I also wish I had read this 4 years ago. I moved to the DC area after coming off sea duty in the Navy and I thought it was the perfect time for me to buy. I didn’t realize the commitment I was making because home prices always go up anyway, right? I got a lot of things right (love the neighborhood, good commute) but alot of things wrong too (layout of the condo doesn’t allow enough natural light, prefer a smaller city like Charleston or Norfolk). Luckily DC did not take as much of a hit home value wise… Read more »

Adrian
Adrian
9 years ago

I agree whole-heartedly with this concept, but I also feel it can be further utilized to figure out a great, suitable place to rent. I’ve heard a fair amount of “horror stories” about those who did not perform their due-diligence in regards to thoroughly examining the area/ building/ location/ neighborhood of their future rental abode, and were quite dismayed once they they were settled. (Infact, several friends went to the length of subsequently breaking their leases early and took sizeable losses in order to relocate to a more suitable area to preserve their lifestyle and peace-of-mind.) I feel that when… Read more »

Kacie
Kacie
9 years ago

We will be facing this decision in a few months. I don’t know how you can move a few states away and NOT rent for at least a few months. It takes awhile to find a house, and to get the inspections, and closing and all that. You’ve gotta live somewhere during that time! The biggest question for us will be: Are we going to seek a month-to-month arrangement (and most likely be in an apartment) or will we go for a year’s lease (and find a house to rent?). I want to have flexibility of my move-out date so… Read more »

Dan53
Dan53
9 years ago

If you ran this post in early 2007 when Ben first moved, people would have thought you were crazy. You’d have seen responses like “but they can move again in a year and bank the appreciation” or “renting is like throwing money down the toilet”

It’s easy to use hindsight to point out what a blunder Ben made, but if he had bailed from his current home just before the bubble burst, we’d all think he was super savvy.

The only thing he can do now is to make his decisions based on today’s situation.

Joless
Joless
9 years ago

18 months ago we moved 200 miles cross country (this is the UK, so that’s a fair distance here!) and we rented first and kept our old house and rented that out. Not only did the old house earn 2x the rental on the new one, but we had the chance to get to know the city and look at houses without a rush. It was bad enough trying to find somewhere to rent without living nearby. We ended up buying the house we rented which meant: 1) we saved the agents fees since we approached the landlords directly 2)… Read more »

Erika
Erika
9 years ago

@Dan53 – I completely agree. My brother and sister are two prime examples of people who did the opposite thing. My brother got married and moved to Seattle for a job. They bought a house right away. He unfortunately got divorced soon after, and ended up buying out her portion of the house because the house had depreciated so much that selling it would have put him into debt. With his high mortgage, he is really tied to this house and is always looking for roommates. My sister, husband and child live in the SF area and never bought. They’ve… Read more »

Andi B.
Andi B.
9 years ago

When my husband and I moved to a new state last year I got on forrent.com and craigslist and searched for apartments that were as cheap as possible, would accept a 60 pound dog, and was in a reasonable neighborhood. We secured the minimum 6 month loan as we decided we could always move if the place didn’t work. Fast forward to now, and we still live there pretty happily. Rents are going up in our neighborhood to the point where a mortgage would be cheaper when our lease is up. I completely agree with this article but believe it… Read more »

Benjamin J. Miller
Benjamin J. Miller
9 years ago

Its interesting to note how people who are buying a house to live in spend an exorbitant amount for their home, in comparison to an investor who plans to rent out the home they purchase.

If more people looked at a home purchase as the major financial decision it is, they would look at many more properties and employ more flexibility in other options provided they get their home at the right price. That is a price that allows the house to be rented later and cover the bills.

Just something to consider.

Shane
Shane
9 years ago

I bought a house in the same county that I grew up in because I enjoy it here. I lived in a small city for a while that was a little bit further commute to work, and decided I still wanted the commute as to not live in the big city where my job is located. I did want to live closer though, and my house is a happy medium.

Ely
Ely
9 years ago

This is kind of a “duh”. Why WOULDN’T you rent first? How can you know the area well enough to buy??? You need to live in the new place a while, learn its neighborhoods and features, before making such a commitment. DON’T WORRY ABOUT YOUR KIDS. If you like the neighborhood where you’re renting, if they like the school and friends, you can buy there. IF NOT you’re not stuck. Moving is a pain, but so is living in an area that doesn’t work for you. Of course that’s not what my parents did, most of the time. They must… Read more »

Brigitte
Brigitte
9 years ago

Some other things to consider: * You can rent a house. It doesn’t have to be an apartment. * You can even rent a house that you want to buy! Especially in this market, more and more sellers are willing to lease-to-own. A 2-year lease, with an option to buy at the end. That gives them 2 years for the market to recover a bit, and you get to test out the house before you buy it. * For the parents who are concerned about moving kids again who just made new friends: First off, you’re likely not going to… Read more »

Rosa
Rosa
9 years ago

For me this isn’t about the current market – my parents moved a lot, always bought, and at one point were caught out in a recession owning three homes in two states. People’s jobs tend to get volatile at the same time the housing market gets bad for sellers, because the two are linked in obvious ways. I rented 2 different places in this same neighborhood when I first moved here; the house we have owned for nearly a decade is two blocks from the place we rented and moved out of. When we sell, we’ll rent – there’s a… Read more »

Carrie
Carrie
9 years ago

Excellent advice. I’ve never understood the concept that renting is “throwing away money.” It buys you flexibility, which is exactly what you need when moving to a new and unfamiliar area.

After 10 years of renting, my family is planning to move into a condo this December because we’re at a point when we need more stability than flexibility. But this is within the same city, and we’d definitely rent if we needed to move elsewhere!

Chris
Chris
9 years ago

Renting is definitely not “throwing money away.” Your reward might not be very great, and it’s a terrible investment. However, renting has a lot less risk to it. If you move into an apartment and it starts to fall apart, it’s not your problem. If you move into a new house and the foundation caves in on you, you have yourself a mess.

Rent first… research the area for the best deal… then make an informed decision. Paying a little rent in order to make an informed decision is definitely not throwing money way.

Brent
Brent
9 years ago

Is the advice the same if you are selling your previous home? At what point does this advice include the taxes on the gains? I’m unfamiliar with this end of real estate. If you switch from owning a home to renting, where should the money be kept so that you can buy again when you have found the right place?

Michael
Michael
9 years ago

Your arguments make sense, but we’re very happy that we bought. When we reached this city we did have about a month living with my family which let us understand which neighborhoods were more or less crime prone, but even if we had rented, 1 month would have been sufficient. One reason? We wanted to put down roots of both metaphorical and apple-tree varieties. There’s not much point planting trees that takes 3 years to really start producing if you’re renting, even if your landlord is OK with having fruit trees in his yard. In our renting experience, renters are… Read more »

Rosa
Rosa
9 years ago

Brent, for most people the capital gains tax is a non-issue because of the $250K capital gains tax exemption on a primary residence. That’s different for people in some big cities or on the coast, but even there I bet it hits a minority – people who bought in the ’70s and sold in the recent bubble in a large city probably hit that $250K gain, but people who sell within a decade or so of buying probably won’t. The previous owner of our house made a huge capital gain – sold the house for three times what they paid… Read more »

Rob Ward
Rob Ward
9 years ago

I couldn’t agree more with this post. My wife and I have thought about moving out of state within the next few years. We agreed that if we do, we will be renting for at least the first year so we can get to know the area.

Megan
Megan
9 years ago

DH and I rented before we bought our home. We lived in a cute apartment in Chicago’s NW side, and it was nice – we got to try city living together without having a mortgage. We saw that it wasn’t for us, and so we bought our house in the ‘burbs.

AC
AC
9 years ago

One thing I would suggest about renting is to work with a private individual and not get an apartment in a complex. I always had to deal with noisy neighbors leaving trash outside their doors, bad policies and mismanagement, etc. It’s a bad way to measure the merits of the overall neighborhood.

Tara C
Tara C
9 years ago

This is sage advice and I totally agree with it. That said, I didn’t follow it on my last home purchase and got really lucky that it turned out as well as it did. I wanted to buy a vacation property where I would eventually retire, across the continent and in a different country. We flew in and looked at properties for 5 days, then on the day before we left, bought one. It was just so perfect – we had a checklist and it had everything we wanted on the list, so we felt secure buying it after only… Read more »

Edward - Entry Level Dilemma
Edward - Entry Level Dilemma
9 years ago

If Ben had already been a homeowner in his old area, one would have thought he would have already done the emotional toil of determining what kind of neighborhood he wanted to live in, regardless of city. Because I know myself well enough, I know I would never want to live in a city, but on the outskirts of a small town/suburb (until I finally get my farm, then I’m going country!). I grew up in an area where everything more basic than a grocery store was a 30+ minute drive away (and the nearby one was expensive, so we… Read more »

Lisa Morosky
Lisa Morosky
9 years ago

To me, renting in and of itself is just really attractive at the moment. Aside from the fact that my husband and I aren’t ready/prepared to buy a home, when we move from the midwest back home to to the east coast this April…we’ll be renting for a few years (at least).

There’s no rush to make that commitment. You can have just as much of a “home” in a rented space as well. 🙂

Leanne
Leanne
9 years ago

This is good advice, but I would add one thought–at least for those who are selling one home to move to a new location. Don’t you have to pay capital gains taxes on the “proceeds” from the sale of your original home if you don’t re-invest it in a new home within a certain amount of time? (I think it’s one year, isn’t it?) So renting in the new location is certainly a good idea… but so is looking for a shorter lease if possible, so you can make a decision before those capital gains taxes take a big ol’… Read more »

Kendra
Kendra
9 years ago

I do plan to move to a different country. Lincoln England, actually. They say it’s the most less expensive place to live. I believe that I will rent first because isn’t it that if renting you are earning back your credit? Well I don’t know if that would work in England. But I do know that I would probably change my mind to live in a better part of the town than rather stay where I was when I first move there. But having a bought home, you can actually consider it yours and do whatever changes you want with… Read more »

lisasfoods
lisasfoods
9 years ago

This is excellent advice.

There are far more risks in buying than renting, and it allows for flexibility and reflection later on.

A few years ago we chose to move to a new home, but stayed in our area. Though we debated whether to buy or rent, in the end we decided to rent because we weren’t certain about committing, and we didn’t want to deal with the hassle or selling down the road. It was the best decision for us at that time.

chacha1
chacha1
9 years ago

@Lisa – YES. I think the reason a lot of people are biased against renting is because during the 70s renting was psychologically downgraded to a temporary option. So even middle-class people didn’t take care of their property, because they were “just renting.” A couple of years after DH and I moved into our midcentury apartment, an old lady upstairs died. She had lived in the same apartment for 50 years. Her kids grew up there, her husband built his business from there, it was their HOME. And they treated it accordingly. Our apartment is our HOME. We have furnished… Read more »

"Ben"
"Ben"
9 years ago

“Ben” here. (Tim, do I really look like a Ben to you?) Ok, from the way the story’s told, I totally agree with you. I don’t agree with Ben’s decisions, either. However, my name is not Ben, and you don’t have the whole story. You didn’t take into account my individual situation, nor know why I made these decisions. We actually did rent (on the company’s dime) for 4 months until we found a house we liked. During those 4 months, nearly all I did was neighborhood research. You might think, though, that I did bad research, or didn’t rent… Read more »

Jennifer
Jennifer
9 years ago

We moved from Los Angeles to New England 11 months ago. Despite being eager to buy since we could afford so much more than our 600 sq ft in LA & being pregnant with our 2nd child, we decided to rent. We’re just barely starting to get a feel for where we’d consider buying a house (not where we’re renting, property taxes are too high & schools to poor). We’ve decided to rent for an additional year to put us in a better position to buy or just find a new rental since we’ll likely be moving again in another… Read more »

Nelly
Nelly
9 years ago

This is absolutely the truth. I moved to an entirely new city – with a house I’d bought before I made the actual move waiting for me when I got there. It one of the biggest mistakes I ever made. Despite the fact that my neighbor became my best friend, I disliked the neighborhood overall. Many people were credit and mortgage over-extended and it showed in their unfriendly and pissed off attitudes. The freeway was too close and noisy. The schools were terrible. I would never ever buy a house in a strange city again. Much better to rent and… Read more »

The Tim
The Tim
9 years ago

Thanks for all the positive comments, everyone!

RE: “Ben” @ 40 –

As I mentioned in an email to “Ben,” the reason I stripped out all the personal details and changed the name is that the point wasn’t “this guy made a stupid decision” but rather “here’s an example of why you should be cautious.”

No personal disparagement was intended, and no judgment was being passed. Hindsight is always 20/20.

"Ben"
"Ben"
9 years ago

Sure, I understand what you were doing. I felt like a bit more perspective was needed given it was so obviously written about me. Things are rarely so black and white when you dig into the details. Despite the best research, you simply cannot plan for everything, and I feel people should understand that. Like I said, given the way you told the story, it strikes the point home. However, that “real world example”, is not my story.

chris
chris
9 years ago

DH and I bought our house in a new area without having spent much time there. Was it a disaster? In no way shape or form. Would I do it again? I don’t think so. Fast forward ten years and I don’t think I would pick my current house, but I think it mostly a function of how I have changed (and my family’s needs). DH and I need to move because we both work way too far away. DH has been laid off and found another job in the summer of 2010 which happens to be just a mile… Read more »

Rosa
Rosa
9 years ago

@Leanne #36 – no, there’s no requirement to use the capital gains on a home sale for another home anymore. A single person can make a $250,000 gain – for married people it’s $500,000 – completely tax exempt, if it is on a home that is their primary residence. Here it is straight from the IRS. http://www.irs.gov/publications/p523/ar02.html#en_US_publink1000200709 “You can exclude up to $250,000 of the gain on the sale of your main home if all of the following are true. *You meet the ownership test. *You meet the use test. *During the 2-year period ending on the date of the… Read more »

Matt_in_TX
Matt_in_TX
9 years ago

Good advice. Our move from the Dallas,TX area to Houston,TX in June 2008 went well. I could not convince my wife to rent first. Luckily, we were able to purchase a new house we like and then sell our old house quickly. NONE of which I advise – we had worked hard for over a year to get the old house in shape to sell, and were very very lucky and this was entirely the riskiest order to do things in. Fannie Mae, the Federal National Mortgage Association was just starting to topple over that summer and if our home… Read more »

Karim
Karim
9 years ago

In 2008 I took a job which I ended up hating in a location I didn’t especially like. My coworkers were unhelpful, the work was meaningless to my career, and I was having trouble meeting people in the new city. Fast forward 2 years to last month when I was offered my dream job less than an hour from where I grew up. I was able to break my lease for less than a months rent and turned in the keys 2 weeks after I accepted the job offer. Had I bought a home it’s likely I could have been… Read more »

Matt_in_TX
Matt_in_TX
9 years ago

Kacie said: “It takes awhile to find a house, and to get the inspections, and closing and all that. You’ve gotta live somewhere during that time!” Yes, but if your credit is adequate and you are making a reasonable down payment on a house you can truly afford you can do a real estate deal quickly. We closed in 10 days after first seeing the house and started moving in at the end of the three week period between leaving an old job and starting a new job. This was in June 2008, so not todays loan environment, but not… Read more »

David/moneycrashers
David/moneycrashers
9 years ago

Great advice

I love these types of posts that dispel certain myths that we all take for granted.

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