In Episode #10 – Real Solutions with Real Estate, we talk about the realities of making decisions about real estate during divorce. Whether it’s a shared asset you’d prefer to sell or deciding whether to stay in the family home, this episode has solutions. We’re happy to be joined by Hilton Head Island-based realtor, Karen Ryan. You may view the original We Chat Divorce broadcast here.
The Unwanted Asset
Catherine shares about a recent experience where we were able to work together with another professional to provide a creative solution to end a client’s ongoing stress. In this case it was with our guest for this episode, realtor Karen Ryan:
“We had a client who was getting nowhere with her divorce. She was two years into the process, and they were stumped on this rental property that they owned ‘down on a beach somewhere,’ as she explained it to me. She did not want this rental property. She was the bread winner of the family. Her husband wanted this property. But there was really no way out, the attorneys did not know what to do about it. They were going back and forth, but he clearly could not afford it. She had some emotional issues with having it because of things that went wrong in their marriage. So, I said to her, ‘Where is this rental property?’ She said, ‘Hilton Head, South Carolina.’ And I said, ‘As a matter of fact, I’m going there; I know a realtor, I’m going to talk with her, see if she’ll take me there. And then I can evaluate it financially, see if it would be worth while keeping, and maybe we can financially be creative and come up with a solution finally end your divorce.’
That’s when I called today’s guest, Karen Ryan, and told her the situation. She took me through the property, went through everything, and said, ‘We manage properties, so the stress would not have to be on the client.’ We went through the numbers and she gave me a spreadsheet of possible rental income on this property. I went back to Pennsylvania, met with the wife, we went through the numbers, and our client actually started to cry. She said, ‘I can’t believe you have a solution for me. I can’t believe these two years can come to an end, because this could work.’ And I said, ‘Yes, it could. Go back to your attorney and here’s what you should tell them.’ She did. They got divorced. To this day, she’s still renting that property and she’s very happy about it.”
So, know that there are ways to think creatively about a financial situation, to take the emotion out of why you think do not want an asset, when the asset can be positive for you financially.
It’s so hard to make decisions in the divorce process at any moment, because you’re just so driven by your emotions and everything’s so new and unknown. That’s why we say we’re going to start with knowns and we’re going to keep going from there.
The Devil’s in the Deed Details
Another thing to consider is making sure everything is correct on the property deed. Even though it seems like a simple transaction, if it gets messed up it can be a reason for litigation later. So, any time you’re wrapping up things after divorce, and you’re ending up with property, make sure you get that deed reviewed by a real estate attorney.
Today we have a letter from Janet in Milwaukee:
“My name is Janet. I never thought I would be in this position, but I’m a new empty-nester and I’m facing divorce. I want to keep the family home, but don’t know how I can afford it. I’m afraid to live on my own, and I am not sure how I can keep up with all of the household responsibilities. Do you have advice for me?”
When you’re choosing to stay in your home, along with the responsibility of everything that is now on your shoulders, realize that this is probably one of your biggest assets. So, that asset will go into your column, which means that your spouse is probably getting retirement monies or cash, and you will find that you want when you move on in life. So, don’t decide to just keep this big responsibility and this big asset all wrapped up in this house without going through your financials, going through your post-divorce budget. And really thinking about where you visualize your life moving forward.
It could cut into your travel time, time with your grandkids, or you know, a whole host of things that you may want to do. You’re so connected emotionally to your house, but after a year or so, it becomes a burden, and an albatross of sorts. And then you have it, and then you have to spend the money to sell it, which, is not inexpensive either.
Or you really realize, as your children are older, how often do your kids come home? Then they start having children, so you’re going to their homes to visit them. So don’t be overly attached to your home.
We recommend that you make two columns - in the first column, write down all of your expenses to own the home. Just go through it line by line. And in the next column, maybe a less expensive home, and things you may want to do and see how that feels. In any event, make the best decisions for yourself and your situation.
Real Solutions with Real Estate
Karen: We are so happy to have Karen Ryan of Weichert Realtors here from Hilton Head Island with us today. Welcome!
Karen Ryan (KR): Thank you! I’m so happy to be here with you.
Catherine: Well, we’re so happy to have you.
Karen: Absolutely. Karen, why don’t you tell us a little bit about your background and what you do and what makes you get up every day.
KR: Sure! I love what I do. I’m Karen Ryan. I’m a broker/ owner of Weichert Realtors Coastal Properties. I’ve lived on the island for 25 years and I manage the residential sales team. I love working with buyers and sellers and I loved working with the client that you referenced, Catherine.
Catherine: That was just so wonderful.
KR: What you do is so needed, because it’s just such an emotional time. Any real estate transaction is an emotional decision, whether it’s positive and happy or really stressful because you’re going through such a life change. So, that you’re there for people at that time when they are so uncertain of what’s coming next, all these unknowns as you talk about, it’s great to have an advocate.
Karen: We have a lot of questions for you. Number 1, we get asked a lot. How does a person’s credit score affect their ability to buy or rent a new home?
KR: Greatly. It very greatly can affect your ability to buy. The first thing I would say, is to know your financial condition. Know your finances, where your money is. Find out what your credit score is, your ability to buy. You can go to Equifax, or many services to find out your credit score. You’ll be able to get a greater amount of money and your interest rates will be lower if you have a better credit score.
Karen: What if you have no credit score? We run into that.
KR: We have seen that with women who are going through a divorce. And they feel like, oh you know it’s going to be fine, we have bought many, many homes over the years. And they come to find out that they have no credit. No credit is actually worse than bad credit.
Catherine: That’s so interesting.
KR: Yes, the scores are far lower. They have no history. The banks have no idea what kind of risk you are. So, if someone finds themselves in this position and they have no credit, the first thing they should do is get a credit card, and make payments on that credit card. You want to not necessarily get a charge on there and pay it right off, you want to get a charge on there and pay it over time. So they can see that you’re paying the minimum or more on the card. Don’t put yourself in financial risk, but show some history of on time payments. That really will help.
Karen: I would not have realized that. So, how long does it take to establish credit?
KR: Well, usually it will take about a year to establish credit. You can do it in six months. You can at least start to make a dent in it where it’s not the low 300 credit score because you have no credit. In six months, you’re going to see some established credit. So, it can happen relatively fast, but you have to know your position and where you are to start. Gather all the information you can.
Catherine: I’m curious what your thoughts are about renting and buying. So, renting – is it easier for someone to do that first and then transition to buying? Especially if you don’t have credit –it gives you that year to build some credit up.
KR: Right, sometimes. You know it really depends, I get a good idea from talking to the client if they really want a place of their own, and they’ve really just gone through an emotionally difficult time, and this is going to be their happy place. You know that’s a whole different scenario than somebody who’s very uncertain, who has a hard time making decisions. If I see somebody in that kind of state, I will say, “I really recommend that you rent for a period of time. Rent, we’ll continue to look, something will feel right.”
Catherine: Oh, that’s nice. So, you actually take that on as yourself. You say let me assess this person, and see how emotionally they’re ready for this – I like that.
KR: Yes, and I get a good sense from someone. And I think anybody that’s been in real estate a while can get a good sense from somebody if they are indecisive about what they want to do. One day they want to do one thing, the next they dial it back and say, “You know, I’m not ready for this.” I don’t ever want to push somebody in that position to move forward with buying. You’re right, have them make a list of how much it’s going to cost and they can make an informed decision. But I do recommend if someone is going through a very stressful life change, like divorce, and they’re uncertain with what’s next, it’s probably better to rent.
Catherine: When you take someone through to buy a home, and let’s just talk about a woman in transition, because we’ve all been there, when you go through the divorce process, and this is the first time you’re making this grand purchase for yourself now at this time. It’s all your responsibility. I was used to doing it for a spouse or with a spouse. Do you ever have to have the reality talk with them, that they can’t afford the upkeep of the home? Because a lot of people can afford to buy a home, but can they afford to maintain the home? And what negative effect that would have on them in the long run.
KR: Yes, I think, sometimes, if they’ve never owned a home by themselves, there is that unknown. And they don’t realize in some cases, there’s a regime fee and a property owner’s association fee, and there are transfer fees, there are all these different fees that come into effect with certain properties. So, we always lay that out – what it will cost them to get into that home, what it will cost for monthly caring costs for that home. And then they can make a decision, if that’s something they want to move forward with.
Karen: And alimony, the receipt of alimony plays in two different ways. One, how long do they need to have alimony in place before they would qualify? But also, alimony is going to end at some point, most of the time, and then, you know, they need to plan beyond that. And so many times, that’s not really taken into consideration. First of all, how many months of alimony do they need to have in place before they would qualify?
KR: They need, to have a history of six months of alimony payments or receipt of payments in order for that to count towards qualification for a loan.
Catherine: Which is a really good point to bring up. That needs to be negotiated in your agreement. So, if you are in the process and you are thinking of buying a home, make sure that it is recorded somehow that you’re receiving those payments sooner than later, if you are in anticipation of buying.
KR: Great point. Yes, because, they come out thinking, “Oh I’m going to get this and this is going to count toward it…” but it can’t.
Catherine: Because you actually take the decree and you have to submit that with your application, as proof that you are receiving that alimony. Along with the receipts and the length of time. You have to receive it for three years at least?
KR: Yes, to qualify. And then after that point, you have to just show that you can afford the property.
Catherine: There’s a lot to think about.
KR: There’s a lot to think about. But as long as you know these things, you go in prepared, you just gather that information. Talk to the right professional. I think your service is so awesome for somebody who is “deer in headlights.” They really need an advocate. And talk to a real estate professional, who will place them with a great mortgage lender who can give great advice. You don’t have to move forward either way. You shouldn’t be working with someone who is putting pressure on you to make a decision.
Catherine: Absolutely, I agree with that. And I like how you assess how they are feeling about their decision making and you’re willing to go, let’s go to rental right now. Because we say that often, I always say, just rent for a year and then decide. So it’s nice that you do that. And if someone is being aggressive, back off.
KR: Right, a real estate professional wants that person in the right home. We love home ownership, we love making someone really happy with a home.
Karen: Well, I would like to cover one more question before our time is up, because this really factored into when I was buying a home. What is the typical ratio of the income to housing expense?
KR: Well, what’s required by mortgage lenders is 50, no more than 50 percent of your income or your debt to income ratio. That’s a lot though. So, when you’re first getting divorced, you know you want to have a lifestyle, you want to go out. Really more comfortable is 40, 45.
Catherine: Twenty percent down? As a down payment in most cases.
KR: You can go 15 percent down, twenty percent down is for an income property. But there are other scenarios where you can put 3 percent down. Just depending on the kind of loan and kind of property.
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