This past week while meeting with a new client, I was delighted to see a broad, smiling face at the opening of the meeting. Shamus McBurke (not his real name- I just liked the way it sounded!) was looking at life from a different prospective- the way he saw it, this recession, drop in his 401(k), and diminished return on his investments sparked a completely new way to look at life for the first time in his 64 years…it was time for a change! And so, I asked this joyful person to explain to me the epiphany he was experiencing.
“We’ve got to be out of our minds to live in this area” he started with. “High property taxes, congestion, cost of living, gas and just about everything makes it so hard to live in this part of the country”. Both his brother and sister live in Georgia, and he had done a comparison of the cost of living and difference in lifestyle that he would be faced with. Let’s look at this case together…
The property taxes on his primary residence were approximately $11,000. While his primary mortgage was relatively small, he had taken equity out of the home via a home equity line to do improvements and help fund college costs for his grandson with a current monthly payment for mortgages and taxes at approximately $3600 per month. While rather high, his current income is sufficient to cover this amount- but due to the adjustment in the balance in his 401(k) and upcoming retirement, this monthly payment would be a stretch. Additionally, he estimated an additional $500 had to be added for amortized monthly upkeep- grass cutting, snow plowing, etc for a total of $4100 per month. He estimated that even in today’s lower real estate market, the equity in his home was about $300,000.
After a visit down South and some due diligence on residential developments, he determined that he could buy a brand new home relative to the size of his home here in New York for about $225,000 (yes Toto, we’re not in Kansas anymore). The taxes on the home were based on appraised value at 1.1%, so the tax bill would be about $2500 per year, and there were common charges of $90 per month which covered lawn maintenance, snow plowing (last snowfall was 10 years ago), a pool, tennis courts, walking track, and a host of other amenities which by now have you laughing and shaking your head. The point? He will be reducing his monthly overhead from $4100 per month to roughly $300 per month by selling the NY home and utilizing the equity to buy the Georgia home for cash. He will be no longer responsible for the upkeep on the outside of the home, and will have reduced his overall “nut” expenses by 70% or so. Who’s laughing now?
