Buy or Rent During Divorce?

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August 19, 2013

Should you buy or rent during divorce? Ideally, we would like to keep the matrimonial home and live there with the children. The last thing we want to do is let go of all of those memories we’ve made there. However, the cost of the household and your ex maintaining his own house is not feasible for many divorcing couples. The reality is most couples end up selling the matrimonial home and each downsizing to accommodate a maxed out budget. But it’s not as bad as it sounds. The question being, what is best for you? Is it buying a new home or renting? Renting has a stigma attached to it that says ‘ a person who rents is too poor to own’ and ‘you’re throwing away money every month that you could be putting toward a home’. Rarely do we hear about the upside of renting, whether it’s an apartment or a house or a basement suite. Also, rarely do we hear about the hidden costs of owning a home. Let’s flip that stereotype.

First to decide which scenario is best for you answer these 3 questions…

1) What is my current income? Will it decrease in the next few years, considering the financial burden of divorce?

2) Is my city’s real estate market inflated? If you live in a city that is notoriously the most expensive real estate in your country, then it is likely you live in a real estate bubble

Real Estate Bubble Defined (Wikipedia)-A real estate bubble or property bubble (or housing bubble for residential markets) is a type of economic bubble that occurs periodically in local or global real estate markets. It can be identified through rapid increases in valuations of real property such as housing until they reach unsustainable levels and then decline.

3) What will it cost me annually to own a home? Is it equal to or more than my annual income?

If you answer yes to any of these questions, you would be wise to rent for the time being. If your income is less than it will cost you to own a home then there is no sense in buying. You will be behind the eight ball financially and there is no guarantee your property will increase in value. If you live in a city with the most expensive real estate in the country the chances of your property increasing in value in the short term is unlikely. The market may be in a peak right now and the last thing you want to do is invest in the market at its peak.

Factor in the additional costs to own a home…It’s not just the mortgage…

1. Property taxes; these can be as much as $200/month and can increase without warning.

2. Home Insurance; usually close to $100/month

3. Maintenance costs; even for a home that has nothing wrong with it plan on spending $100/month for ongoing maintenance such as yard, small repairs, major cleaning (furnace & carpets), and exterior upkeep.

4. Interest on mortgage; the % you pay to borrow the money to buy the home -over a number of years this can add up to a significant figure

5. Condo fees; These can be s much as $300/month and you have no control in the amount

6. Unexpected costs; a new roof, replacing windows, a broken furnace all of these things can happen at anytime depending on the age of the home-$100/month for a contingency fund should help cover these costs

If your annual income is greater than the costs of the mortgage and extras, with enough left over for living expenses, then buying might be a logical option for you. If you live in a city where the buyer’s market is reasonable, your home purchase may prove to be a solid investment reaping returns within 5-10 years. However, if you cannot afford to own a home you will not be doing yourself any favors by going into debt with a large mortgage with absolutely no guarantee you will be able to sell the home for more than you bought it for. You may not be able to recoup your costs and worst case scenario, you may not be able to pay off your mortgage. Weighing all of these factors will help you in your decision.

The upside of renting…

When you rent an apartment, you know what your monthly costs are up front. There are no additional fees. You do not have the added costs of maintenance, property taxes or condo fees. You don’t have the responsibility of maintenance and upkeep. If your rent is half the amount it costs you to own for example, you can save money. If you can save money every month, you may have an opportunity to buy back in to the housing market when the real estate bubble pops and home prices decrease. Also, renting offers a sense of security for a single woman. Your neighbors are close by, your apartment is secure (always rent on the third floor or higher) and you are not vulnerable to burglaries. As much as we want to provide a home for our children, remember that they’re gone half the time in a co-parenting arrangement. A home that seems just right or spacious when the kids are there can seem like a monstrosity in their absence.

Letting go of our home we raised our children in can be traumatic. Looking for a new home can be discouraging. Often rentals and homes we can now afford are much smaller or older. Try not to let that get to you. Viewing apartments can be depressing, I’m not going to lie but there are some gems to be found if you look hard enough. A smaller space can be a blessing. It costs less to decorate and you can make it super cozy like this…

source; pinterest

A little paint can make a big difference…Martha Stewart’s choices

The question is, should you rent or buy? It is a personal decision and should be based primarily on your income and the current real estate market in your hometown. Remember, renting is not a terrible option for a temporary arrangement. It does not mean anyone is a ‘loser’ or ‘poor’. Rather it means you are wise and make smart financial decisions that make sense not just for today but for your future. As in all big decisions, remember to listen to your instincts. The cliche is true, no matter where it is or how big it is “Home is where the heart is.”

Did you have to downsize as a result of divorce? Do you have some tips for us?

10 Comments

Ethan Hansen
February 19, 2019 at 10:08 am
I found it interesting how you mentioned how you should factor in your annual income and the cost of renting when deciding if you should rent when going through a divorce. A friend of mine is going through a divorce and she was worried if she had enough money to rent after the process is done. I will be sure to pass this information on to her so she can find an apartment for rent that works with her budget!
Rebecca
October 2, 2015 at 8:32 am
I am in my early 50’s and have not worked in awhile, and need to separate. I am trying to find out how feasible is it that someone would rent to me based solely on my husband’s income? I would have at least one of my children with me and he has special needs.
- lisa
  October 2, 2015 at 9:15 pm
  Hi Rebecca, it’s hard for me to say since there are so many variables. For example, are you receiving monetary support? Maybe start by talking to friends and family and trying to locate an apartment where you can use them as a reference. It is hard to get accepted as a renter without any income at all. If you have support though that counts as ability to pay rent. Wishing you a smooth transition.
ben
August 24, 2013 at 9:04 am
Nice Post. It’s really a excellent article. My partner and i noticed your entire important points. Thanks
Michelle
August 20, 2013 at 5:14 am
Plus there’s the added benefit of ‘trying on’ a neighbourhood when you rent vs buy. I’ve decided that when we sell the house (or I’m bought out) I would prefer to rent for a year or two, see if I really like the neighbourhood closer to my kids’ school, or if I’d like to move elsewhere. The money from the sale of the home can be invested wisely and grow a little interest while I contemplate my next move for just me.
- lisa
  August 20, 2013 at 9:07 am
  That sounds like a good plan, Michelle. If you don’t like…you move elsewhere. In the meantime you’re making your money work for you! Hey, you could have written this 🙂 Thanks for sharing.
D. A. Wolf
August 19, 2013 at 6:31 pm
A lot of great considerations in this article. Of course, moving can be very tricky with kids – changing logistics – but time and careful handling can help that. And there are many advantages to renting, especially when trapped by the real estate market!
- lisa
  August 19, 2013 at 8:30 pm
  Absolutely right, DA. Thanks for weighing in!
Beverly Diehl
August 19, 2013 at 2:53 pm
I live in a bubble market (Los Angeles) and another upside to renting is that you don’t feel as tied down. You feel freer to pick up and move, again, as needed, and if you do have kids in a transitional stage – 15, say, and ready to leave for college in a few years, you can rent someplace that works for where you are right NOW, and revisit it in a few years.

I have to say, although living in an apartment may not be the optimal environment for young children, when I lived in one with my son it worked just fine – we were out of the place for baseball and birthday parties and what-have-you so much anyway, we didn’t miss having a yard nearly as much as I thought we would.
- lisa
  August 19, 2013 at 4:54 pm
  Yes, you make great points, Beverly. Being able to take off when you want is much easier without the responsibility of a home. It’s surprising to find out the benefits of renting. Also, you make a great point about the RIGHT mow, often following divorce is a transitional period and it is best to avoid a huge financial commitment.