New parents Sarah and Ricky Guerra were spending about $600 per month commuting from Stamford, Connecticut, to their New York City jobs in 2019. That was on top of the $2,600 they paid for rent. "Our lease was almost up, and we were looking for apartments in Brooklyn or Manhattan to be closer to work," says Sarah, 37. Even with a budget of $3,000 per month, she says, "We could barely find anything."
What they did have was cash saved for first and last month's rent and a security deposit. "Ricky joked about it being a down payment, and we were like, 'Wow, we could buy a house for what we're throwing away on renting a New York apartment.'" Cue: lightbulb moment.
"We wanted to move somewhere without a winter," says Sarah, who then looked at bases where her airline employer could transfer her. One was Tampa, Florida. Ricky got permission to work remotely, so they flew down in late January and put an offer on a $170,000 foreclosure in nearby St. Petersburg within a week. They used their savings plus a bit of unexpected inheritance for a down payment and $30,000 in renovations. "We were lucky," Sarah admits. Typical homes in the area were costing upwards of $225,000 back then, and foreclosures were hard to find and needed more work. "We were careful about materials and found deals where we could," Sarah adds.
Just 2 years (and another kid) later, their metro area had become one of the fastest-growing spots in the country, and the housing market boomed. The Guerras sold their house for $326,000. That profit, plus Ricky switching to a better-paying job, allowed them to buy new construction in the area for $565,000. Their current mortgage: $2,600, the same as their rent back in Connecticut.
From renting to buying
For the Guerras, it was a no-brainer to buy in a cheaper area instead of rent in one of the most expensive ones. But it's not always easy to answer the question: Should I move? That's why Shailendra Kumar, a director for Fidelity's Financial Solutions team, recommends Fidelity's rent vs. buy calculator. Enter your annual household income, how much you currently pay in rent, how much you'd be willing to spend on buying a home, and how much cash you have saved. The tool takes that information into account, plus basic estimates for other buying and selling costs.
Not sure how much house you can afford in the first place? In general, aim for 3 to 5 times your household's annual income, depending on your debt. To get an estimate, head to the How much house can I afford calculator, enter your annual household income, how much you have saved for a down payment, current monthly debt, and whether you'd pay private mortgage insurance, which a lender might require if you can't pay a 20% down payment. Once you have that amount, "then you can compare whether it makes more sense to rent or buy, not just from a short-term cash flow standpoint but also from a long-term wealth perspective," says Kumar.
As for unknowns, such as property tax increases and home maintenance costs, Fidelity tools bake those in: a median rate of 1.15% per year for the former and 0.5% annually of the house price for the latter. Would-be owners also need to factor in additional costs, such as utilities as well as landscaping.
From selling one home to buying another
John and Maryna Pham went from owning a house in the Boston suburb of North Andover, Massachusetts, to buying a brand-new condo in East Boston in October 2020. "The COVID-19 pandemic caused a massive surge in suburban home prices as people fled the city for more space," says John, 36. "I calculated the money we'd make from selling our suburban home as well as the lower prices we could negotiate in Boston—and made the opposite move of what others were doing at the time. We knew that the city was not going to disappear long term, and later, people will miss what makes the city attractive and come back."
Kumar acknowledges, "External factors can have huge implications on when to move." But with market variables that may or may not work in your favor, consider working with a real estate advisor before deciding to sell.
The Phams wound up selling their house for 15% over the list price and bought their dream condo in the city for 10% less than the asking price. "Now with people flocking back to the city, our property is worth 11% more than what we paid," John says.
Still, John isn't looking to flip the condo. If the Phams have kids, they might look for a bigger place and rent out the condo.
Overall, selling to buy again might pay if you're going from a desirable location to a less desirable one. But it's crucial that your real estate agents' fees, moving costs, and closing costs on both homes are less than the amount you'll save on mortgage, taxes, maintenance, and potential profit—from selling again or renting out your place—if the undesirable area becomes desirable.
From one rental to another
Gary Grewal, 33, had been living in Denver when he got a new job that allowed him to work remotely. He had always wanted to experience the South but had other qualifications for a perfect spot. "I wanted a low cost of living, no state income tax, and access to larger metropolitan areas as well as rivers and mountains," says the certified financial planner. Chattanooga, Tennessee, fit the bill. And in 2020, he went from paying $1,150 a month to share a 2-bedroom apartment with a roommate in Denver to having his own studio with wrap-around windows in downtown Chattanooga for $1,055 a month.
Grewal was careful not to spend a lot on the move itself. "I sold my furniture and bike in Denver and bought a used bed frame and desk from a neighbor in Tennessee," he says. "All of my clothes, work equipment, dishes, kitchenware, and other belongings fit into my car when I moved."
The savings extended beyond rent in Chattanooga. "Water and electricity were at least 30% cheaper, and internet was included with my apartment," he says. He saved $600 a month by not paying income tax too. Even gas was as much as $1.50 cheaper a gallon. In 7 months, Grewal estimates he saved almost $6,500. "The move definitely paid off."
No matter why you're questioning, "Should I move?"—you no longer want to rent, your family has outgrown its current space, or you want to experience somewhere new—take a close look at your income, debt, and the new costs you'd incur before making a big change. Consider, too, how you might be able to save more for retirement and potentially benefit from compounding—when the returns on your investments make money, themselves—by cutting living costs.
If you do move, build a buffer for unexpected expenses. Sarah Guerra admits, "Living in Florida is expensive when you factor in high property taxes, flood insurance, and high homeowners insurance for hurricanes. We budgeted for exactly zero of those costs."