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During our first season with the Houston Astros we rented a townhome close to the ballpark. We frequently heard and lamented how much money we were “wasting” on rent—money that would be better spent accruing equity in a home we owned. Like many other athletes on our team, we bought a home in the suburbs. It was beautiful, and our money was then spent on mortgage, taxes, and typical homeowner expenses rather than rent. And… we were traded after the following baseball season. Did we make the right decision?
The answer is not a clear yes or no. Transaction costs in real estate deals are high and depending on the market, resale may take a long time. Even if you sell your home for the same price that you purchased it, you will pay realtors’ fees, property taxes and expenses for the time the property is vacant, and your moving expenses. Limiting the number of times you change homes will save you a great deal of money and stress. These are some of the factors you should consider as you make your decision to buy or rent:
- How much will you use a house in the area? What kind of contract do you have? Long or short term? Do you have a no trade clause? Where do you train during the off-season? Is there someone who can take care of the home when you are traveling? Would you like to live in the area even if you were no longer playing there? What is the resale market like in the area (What is the average time on the market? What are the average sale prices?)
- Are there security issues? What is the surrounding area like? How comfortable do you feel with the neighborhood? Is the area gated or monitored by a patrol? Home addresses do not stay secret for long. How comfortable are you with your home address being listed in the public records—should you consider buying your home through a trust?
- What are the additional expenses? The down payment and mortgage are not the only things you need to budget for. Yearly expenses: What are the taxes like in the area? For example, Texas has no state income taxes, but the property taxes are high to make up for this. Are there homeowner’s association fees? What is the cost of a good homeowner’s insurance policy? Monthly expenses: What are the average utility costs in the area? How big is the yard? Large yards require lots of water and landscaping costs. Your realtor can provide this information. Miscellaneous expenses: How old is the home? Are there warranties on the structure and appliances? Will it require a lot of upkeep? Will you employ a housekeeper or cleaning service? If you will be gone frequently, will you need someone to oversee the upkeep of the home in your absence?
- Do you have or plan to have children? What are the schools like in the area? Would you need, and can you afford, private school if the public schools in the area are not a good fit for your family? Also, how far is the home from your family? If the athlete spouse travels frequently, easy access to family is a tremendous benefit once children enter the equation.
- How much should you spend? One rule of thumb for non-athletes is to never mortgage more than two years’ salary. This is to prevent homeowners from carrying too much debt. This does not apply to athletes who often have feast or famine income streams and shorter careers than most other professions. Keep in mind that your mortgage, taxes, and other expenses will outlive your career. Do not add the stress of making your mortgage payment to the existing stress of staying on a roster.
- How should you finance the home? You have several options, and like all things, mortgage rates fluctuate. Shop around for loans—competition between lenders is to your benefit. Also try to avoid penalties for paying off your loan ahead of schedule. Remember the short nature of athlete careers and pay down/off your mortgage as quickly as possible.
- Should you consider leasing? Despite currently high leasing rates, if you have a short-term contract with your team, this may be a good option for you. Pros: You do not have to worry about property tax, home maintenance or security when you are out of town, insurance policies are optional, and you can always call the property owner for maintenance issues. Finally, if you are traded to another team you will not have to worry about selling your home and many teams will pick up the remainder of your lease.
- If you decide leasing is right for you…avoid some leasing pitfalls. Some apartment leasing offices charge athletes more than other tenants. They may also use the athlete’s presence as a sales gimmick for other potential tenants. Look into a couple of properties and check the prices listed on the property website before you contact them personally. When you do speak to someone at the office, ask the right questions. Say, “I am interested in leasing and comparing several properties. Are you currently running any leasing specials?” If possible, add a clause to your lease contract that says “For the sake of my privacy and security, if you (leasing company) disclose my presence here to other tenants, potential tenants, or anyone else other than on a need-to-know basis, I am free to immediately terminate this lease without consequence, and you (leasing company) will bear my moving expenses and any other consequential damages.” Make sure the landlord or leasing agent initials or signs next to this addendum.
The truth is that there is no right or wrong decision. The important thing is to not rush into anything, and make an informed decision that you are comfortable with. Consult someone you know and trust–this is a situation where a good financial advisor is priceless. Remember that the people that you interact with often have their own incentives, and take their opinions with a grain of salt. Although your realtor is working for you, their commission is percentage-based (it increases with the amount that you spend). They want you to buy or lease the most expensive property—not necessarily the one that is best for you. Similarly, leasing offices and property sellers are interested in making a sale. None of them are concerned with things such as the quality of schools, security, or tax rates that you will deal with long term.
Happy hunting and good luck! If you have questions for Jennifer, feel free to comment below.