The real cost of relocating
Lifting roots can be a great way to get ahead in your career, but it can also be hazardous to your personal finances. Just ask Greg and Laurie Allan.
NEW YORK (Money Magazine) -- Greg Allan, 38, an officer in the Marines, and his wife Laurie, 39, a marketing director, are used to uprooting themselves for his job. Married in 2001, they bounced from Honolulu to Yucca Valley, Calif. before landing in Yuma, Ariz. in 2003.
Greg's promotion to major last spring forced them to relocate a year earlier than expected - and again face the financial upheaval that can accompany a big move.
There's good reason that relocating ranks alongside divorce as one of life's most stressful events: It's expensive. Even if you're moving for a higher-paying position, your spouse may have to quit a job and look for a new one, which could pummel your household income.
You might be forced to sell into a frighteningly declining real estate market. With mortgage rates on the rise, monthly payments for your new place are likely to be higher. Then there are all the expenses of settling in, from buying furniture to putting in an updated kitchen.
The Allans were lucky: They sold their two-bedroom fixer-upper in Yuma for a profit before the housing market stalled, and the cost of their house-hunting trips and move to a larger home was covered by Uncle Sam.
But even they suffered some sticker shock settling into O'Fallon, Ill., a suburb 30 miles east of St. Louis. They found that the cost of everything from gas to food to lawn care is higher. "We pay $400 a month for property tax, twice as much as before," Greg says. "It's really adding up."
Think you might relocate too? Here's how to keep your finances on track.
Do the math on housing and mortgage rates
Now that real estate values are tanking in many areas of the country (and mortgage rates are rising everywhere), it's more important than ever to run the numbers before you agree to move to a new city. If you'd be selling into a weak real estate market, your new salary had better be pretty darn sweet - or your new employer had better be willing to help you out.
Will the boss make you whole if you sell your current house at a loss? Will he give you any help with your mortgage rate? What about paying the closing costs and real estate commission for selling your old place and buying a new one (which can run $18,000 or more)?
Make those costs part of your pay-package negotiations; you'll have more leverage before you accept the job. And if you suspect it will take a while to sell your old home, consider bridge financing.
Try to get other big expenses covered too
The average cost of shipping your goods, making house-hunting trips and renting temporary digs totals a punishing $17,060, says a 2007 survey by Worldwide ERC, an industry group that tracks relocation trends.
Most small companies don't routinely cover these costs, and nearly a third of medium-size and large companies don't either. So negotiate. At a minimum, try to get reimbursed for shipping your stuff to your new home, which costs more than $10,000 on average.
If the company already offers a generous relocation package, ask for extras like job-hunting help for your spouse. And if you're a black-belt negotiator, you'll get your boss to pay the tax on these perks (they're considered income).
Do homework on your new city immediately
You'll never have enough time to thoroughly check out a new region yourself. So as soon as you accept the job, ask your employer to put you in touch with a few future co-workers who have families like yours. Call them and ask for the lowdown on the best neighborhoods, how expensive they are, what commutes are like and where the good schools are.
Once you've narrowed your search to a few neighborhoods, include at least one weekday in your house-hunting visit so you can gauge the traffic situation and, if you have children, see school in session.
Consider renting rather than buying
It usually doesn't make sense to buy a home if you won't be in it for at least three years - especially good advice today. Any less and the transaction costs of buying and selling will probably be higher than the rise in the home's value - if the value rises at all.
There may also be tax issues: If you live in the home for less than two years and the value does increase, you'll owe capital-gains tax when you sell. (If you move for a job, you may be able to exclude part of that gain.) Depending on the real estate market in your new city, the monthly cost of renting can also be significantly lower than that of owning. Go to homefair.com for a helpful rent-vs.-buy calculator.
Use these money-saving tricks
Relocating is sort of like buying a plane ticket to Paris: The price varies depending on when you go. May through September is peak season, so if you can depart earlier or later, many movers will charge you 5 percent to 10 percent less. The same is true if you're willing to move in the middle of the month rather than at the beginning or end, when most moves are scheduled.
Ask the moving company for a flat fee in advance; at the very least, get a written, binding estimate of the cost of your move. Also find out whether extras like cartons and packing tape are included.
Keep your professional network buzzing
If your spouse transfers often, you need to network like mad, keeping in touch with old bosses and attending conferences. Laurie did this masterfully. She had to quit her job in Yuma, but in May a former boss offered her a marketing director job - and he's letting her telecommute. "Leaving a job I loved was hard," Laurie says, "but everything worked out."
Moving toward their goals
Here's how the Allans can swing their ideal retirement despite the costs of relocating, says Michael Kickham, a certified financial planner in the St. Louis area:
Rent, don't buy. Sure, the Allans' house in Yuma appreciated a lot. But they can't count on a big jump today. They've already bought a house in St. Louis; too late to change that. But Kickham recommends that they rent when they move to their next posting in 2010. The costs of buying and selling will likely outweigh any price gains.
Save more. Because they don't have children (and don't plan to), it shouldn't be hard for Greg and Laurie to boost their retirement savings from $2,000 a month to $3,000. At a conservative rate of return, that could increase their nest egg to about $1.6 million by 2023 letting them retire comfortably at their goal age of 55.
Don't overreach. The couple want to retire to a dream house (with a home theater and swimming pool) on the shores of a lake somewhere in the Midwest. Kickham advises them to dial down the luxury level a notch, aiming for a house that costs no more than $600,000; otherwise they may jeopardize their standard of living.
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