Interstate Relocation - High Prices Low Taxes to Low Prices High Taxes - Worth It If Income Falls?

Disclaimer, I'm not intereted in moving, but I've had this conversation a few times now and I always feel like I'm ignorant to the specifics. 

My town of Flagstaff AZ has very high priced housing, in general, relatively low paying jobs for the region, but most jobs pay better than in the mid-west or east-coast regions. 

When interest rates were low, most middle-class folks could beat rental rates as long as they bought something sensible and had a good down payment. I have many friends who bought between 2016-2021 and nabbed those Sub-3% rates, and even paying way too much for a small house, secured monthly payment of less than $2000/month. 

One huge benefit is that our property taxes are CHEAP. My home, bought for $370k, now worth about $550k, has a tax bill of around $1600. 

All in all, our monthly payment is about $1650 a month with taxes and insurance escrowed. 

I've met some folks recently who have bought since 2021, and they are much less enthusiastic about their purchases. They paid much higher prices per square foot and of course got stuck with the higher rates too. I met a family who paid $550k for a home much smaller than mine, but their monthly mortgage is nearly twice what I pay. 

They are from the same area where I grew up, Ohio/Pennsylvania, and asked "have you ever considered moving back home in order to have a much larger house for less money?" Truthly, while some aspects of this are appealing, I'm a bit worried about the paycut I'd take to do so, and I'd lose my 5 weeks of vacation and pension too. This family was also nervous about the pay cut - he's a mechanic making the best money of his life and actually enjoying working for his employer, and he doesn't want to give that up just for a bigger/cheaper house. 

Then there is the difference in property taxes too. 

Cleveland, OH, for example, has much higher property taxes. A home selling for around $200k would have nearly a $6000 tax bill. Even if they could use their equity to halve the loan on such a house, they'd pay $500 a month in property taxes. Still cheaper, but certainly not free. 

I'm curious on how this works out for most people, especially those who one or both income earner took pay cuts to chase cheaper housing? 

It was really hard to keep reading past "lose my 5 weeks of vacation," you should not consider giving that up.

Also unless you have a need for a bigger house, then what's the value in that?

I have had this thought a few times too, gotta be careful on a few things and a few points to ponder.

• Property tax isnt the end all, be all.  Gotta look at the total state tax situation, sales tax, income tax, etc.  
  • Then there is the cost vs benefit.  If you take advantage of a lot of civic services, it may benefit you more to live in an area with more services, despite paying more your total spend would be less.
• 20% increase in property values on a 100k property is a lot less than 20% increase on a million dollar property.  
  • So if I can afford a nice place right from the jump, may as well.  Its only gonna go up in value (of course thats a broad brush, but this whole discusison is a broad brush)
• I look at places with a relatively low COL, those places also have some intrinsic challenges that don't always make up for a low COL.   Poor access to health care.  Long drive to the grocery store.  Expensive incidentals.  Lack of travel options.

I wouldn't chase cheaper housing, don't see a value in it.  Only get so many spins around the sun, want to enjoy it.  

My justification for staying put is that while yes, it's harder to potentially increase the size of housing, the rate of appreciation in my region is considerably better than most places back east. 

The only way I could see moving would be:

- More pay
- Equal or better vacation
- Hybrid (if office is in a cool spot, cool coworkers, etc) or Remote

And that's why I haven't. Despite it being very difficult to raise children without a family network, we've tried pretty hard to stay involved within our church community and stay connected with neighbors who have kids of similar age. We don't have free child care, but our decently paying and stable jobs make up for it. 

It's all about math, except it also isn't.

If housing prices are 20% cheaper somewhere else, but average earnings are 20% lower also, what are you gaining?

Anywhere that has low housing costs but high earnings potential is not going to have low housing costs for long.  And, as 93gsxturbo says, it's way more than just housing values and property taxes in the mix.

For retirement it makes some sense.  My SIL and her husband (both retired) just sold a modest, somewhat aged house on about 2 acres in EBF New York state for over $600,000.  They were paying about $20k / year in property taxes, but they were near lots of things.  They moved to dead center Tennessee and bought a much newer house on the same acreage for less than half the money.  Lower property taxes, lower COL, less access to stuff.  MUCH lower earnings potential, but they're retired, so who cares?

But the big question is - where do you want to live?  That's where math doesn't apply so much.

I was raised in NJ in one of the wealthiest districts in the country. I now live in rural Alabama in one of the poorest. 
 

I absolutely agree that the lack of services is a strong reason to not choose to live in a less expensive area. But for me, there was a huge amount of stress living in an expensive area. Trying to make enough to pay those bills was terrible.

I've now lived in the rural South for over 30 years and have no regrets. 
 

The specifics of taxes vs house size vs income vs cost?  Yeah, that's just a math problem, and it's the wrong reason to choose to live anywhere. 

Houses are cheap and taxes are low in impoverished areas with minimal services. Unless you can find a remote job I don't think moving is justified. The cost of moving and realtor commissions will make a BIG dent in any upside calculation.

And what happens when your company decides they no longer want remote staff?

Really, the math is pretty straightforward. The PITI (principle + interest + taxes + insurance) should be less than 25-30 percent of household income after all income taxes are paid. That leaves enough room in the budget for retirement, vacations, generosity, and other savings goals. If it is much past 30-35% of post tax income then things are going to be too tight to hit other goals. That might mean a move, career change, adding hours, .... 

So on the actual house thing.  We seem to be conditioned as an economy to always want to "move up"- so we go from beginner home to bigger home to bigger home.  But is that really the correct path to take?

If you *need* a bigger home, then the answer is pretty easy.  

But if you *want* a bigger home, that should be questioned.  

First of all, the home.  As new home building has started the McMansion craze, this has kind of added a bigger home without the same increase in cost- meaning the quality of the home could be questionable.  Over time, the cost to keep the home safe and sound will catch up to you.  Have to be very careful that the deal is actually a good deal.

Second, the economics.  Trading up constantly will reduce the "investment" value because you are regularly resetting the loan since you are buying up.  So instead of 15-30 years of paying interest, sometimes these never stop (I keep seeing retired people getting new mortgages).  On top of that, taxes get re-adjusted when a property is sold in many states.  Or at least here in Michigan.  My property taxes can climb at a specific, legal, rate, which is considerably lower than the value of the house has.  But when I sell (or buy), the tax gets reset at the current value.  Whoever buys my home next will probably close to double the property taxes just due to that.

And then the timing.  How many people get new homes to get their teenage kids a bigger room?  Or think they need to do that?  Which means they are getting a home where the actual usage value of the bigger space is only utilized for less than 10 years.  And after that, you have a smaller group of people living in a big home.  Do you want to deal with a really big home when you are +65 and have no kids to help?

Bigger isn't always better.  

So are you looking at your payment after you remove your principal paydown and your tax write-offs. I feel like you are paying like 700$ a month if you do that for a house which is very low. 

I am thinking the same thing but we are at 1100$ a SQF here 16K a year in property taxes and flagstaff was one of the really cheap options were were looking at. 

In reply to wearymicrobe :

If you are actually able to write off the taxes and interest, you are paying a LOT of taxes and interest.  I've not been able to write off anything since the tax redo a few years ago, since the standard deduction is so high.

In reply to alfadriver :

I'm always amazed at people who have bought 2-3-4 houses without ever really changing location much.

We bought our house in 1993.  We raised 2 kids in it from infancy through adulthood.  It's now 30+ years older than it was when we bought it, but it's sized comfortably enough.  It's fixed up enough for now.  We bought right the first time and it has served our purposes since then.  In fact, since we were young and scared, we were probably a bit more conservative than we needed to be... but it was never worth the loss of capital to move somewhere else.

In fact, even in retirement, we don't plan to move elsewhere.  Would I like a bigger garage?  Sure.  Would I like a little different plan layout?  Yes.  But not enough to invest $100,000+ on top of what I have in my house now to make that happen.  And since 80% of America is like the other 80% of America, there is no compelling geographical reason to up stakes.

In reply to Duke :

I've owned 11 houses. And I've lived in 6 more that I rented.  You're right... moving is a pain and expensive. 
 

But I've made money on every one. Enough money that I now own 3 houses with no mortgage.  They are worth about $1.2 million combined.

I lost capital in previous houses but I transferred it to the next one. My mortgages and interest rates got bigger, but so did my equity because I gained appreciation. 
 

If I had it to do again I might have

chosen your path. Maybe. But that's just because the grass is greener. I have no complaints. 

In reply to SV reX :

I'm betting you made a conscious decision to do that. And that's all I would suggest people do. Upsizing for the sake of upsizing isn't the best path. 

In reply to alfadriver :

Yeah, I never upsized for the sake of upsizing. Never really cared much about keeping up with the Joneses...

But I don't know that it was always a conscious decision. Some of it was just what I fell into, and some was just plain lazy.

Ultimately it seemed like a comparison between taking on higher expenses, and gaining in appreciation (benefiting from inflation).  Sometimes I won, sometimes I lost. But I did well with appreciation over time. 

In reply to SV reX :

So, in other words, you made that part of your career.

I'm not talking about people like that.

In reply to Duke :

That's fair. 
 

But a lot of people make upsizing their home part of their investment strategy. People think it's an investment, not a home. 

Again, I'm interested in this not for myself, but for others I've met. I'm trying to learn more to be able to give better advice. Most of the folks I've talked with are middle class and don't take advantage of social services. Aside from quality schools and daycare, they don't benefit from higher taxes, unless those higher taxes come with higher median incomes. 

It seems like the only "good" way of moving to an area of more resources (ie, family or friends) is if you can do so without losing income. For most people that seems like a challenge. Usually it's the other way around - you chase higher incomes into higher priced housing markets. 

In reply to pheller :

I think you are underestimating services. 
 

Do your friends like potholes?  How about functional sewage systems?  Libraries?  Fire departments?  Law enforcement?  Do they enjoy downtown districts with amenities and businesses to shop at that have decent infrastructure?  Malls?  Nice restaurants?  Good healthcare facilities?  
 

None of those things exist where I live.  I'm good- it's a lifestyle choice. But as far as I know the vast majority of people who enjoy a middle class lifestyle appreciate the things that taxes enable. 

I've got all of that stuff and my property taxes are low. 

My in-laws in Pittsburgh arguably get a lot less for their considerably higher taxes, because they have to share those services with a tremendous amount of people in an old city that isn't easy to maintain. 

Flagstaff is a weird combination of cheap taxes, high prices, and average wages, but many, especially those who are East-Coast Transplants, can't believe how cheap housing is back east by comparison. 

In reply to pheller :

Flagstaff AZ is not a cheap place.  Columbus GA is.

It's not just taxes that determine the availability of that stuff (though that is a big part).
 

Your friend is asking about PA. PA has some of the worst roads in the country. Ok... Louisiana is worse.

Every place comes with trade-offs. For example, Tennessee has no income tax. It does have a hefty sales tax - 9.25% in Knoxville - and it's just about on everything, unlike other states. Property taxes are relatively inexpensive, but the housing market is insane, with most of the new construction focused on apartments and condos.

Ultimately, find the place that fits your personality, your lifestyle and your budget. Don't follow the trail of what is cheap necessarily. Cheap doesn't always equal happiness. 

I'm 5 years from retirement. Where I live in PA is 'mostly' okay, but there are places I'd rather live. I've looked around quite a bit, and studied a lot of the numbers. My dislike of winter, explosive growth where I am and the $6500+ per year I pay in property/school taxes really encourages me to change addresses. I've picked eastern TN as my place of choice. A home would be a wash (dollar for dollar and same size/type). Property taxes would almost go away, which would be like getting an annual raise. The higher sales tax doesn't bother me because we aren't rabid consumers, and it's 9-ish percent vs the 6% we have here. Additional upsides are weather, nicer people and great roads and car stuff to do. 

Having a paid for house also changes some of the considerations, as I do NOT want another mortgage.

Unfortunately, I'm married to a spouse that hates change and is not interested in moving. So I'll continue to piss away $6-7 grand every year for the privilege of living where I do until I die.

Honestly, I've been in multiple places and seen many schemes. None of them are perfect. I liked colorado the best TBH. It was a good mix of all 3 of the tax buckets with decent services. 

I personally like more consumption taxes vs high property/income taxes. I say this because as you get closer to retirement, you will usually slow down spending. I would rather not have the stress of $500-$600 a month for property tax. 

I'm not going to retire here. I've already picked out my retirement location and am planning for that. It's not Nebraska. It's a bit further south. It falls into the mix of what I like to see from my government and how I like to contribute with a great outdoors scene. 

I have lived 75 years in Florida.  Recently I had a conversation with a racing buddy that lives in Georgia teasing him about why he hasn't moved to Florida like everyone else.  He was a math major in College.  He told me he did the math...

Yes, Georgia has an income tax and Florida doesn't.   But when he calculated in gas prices, property taxes, home insurance, sales tax, etc:  Georgia was less expensive for the same level of lifestyle.

My older brother (a retired Miami fireman) about a decade ago fled to a large barndominium in Eastern TN, about 1/2 way between Chattanoga and Knoxville.   Happy as a clam.  But... he's retired and not dependent on being employed, which is a big deal for many GRM families.

You must look at the whole picture, not the tourist brochures...