A young athlete with a promising pro career, often plans to buy a house, along with a new car and a few luxuries as soon as the contract is signed. But is that the wisest move? While there’s no doubt that a comfortable home can offer pride in ownership, it also comes with costs and risks if finances are unstable. And the fact is, players often spend at a level that only makes sense during peak earnings. When those earnings end, a house payment, along with attendant expenses like property tax and maintenance continue.
Consider this: the average playing career for an athlete in the NFL is 3.3 years; for an NBA player, it’s 4.5 years; and in the MLB, one in five players will have only a single year career although the average is 5.6 years. Career volatility and the propensity for injury varies with position in football and baseball, but across the board, most players enjoy only a handful of years of active play. What happens after?
Professional athletes must also think about how long they will be based in one city. Players get traded from one franchise to another, moving from city to city and across the country. Accepting a trade may be required by the player’s contract—and life changes in an instant. Given the possibility of a trade or simply being cut, means renting can be a better option. Moving out too soon can result in tax penalties. If you don’t live in a home for 2 years, you will probably pay capital gains on any profit made in selling the house. As the seller, you also pay a realtor’s commission that ranges from 4% to 6% of the selling price. And property doesn’t appreciate quickly enough to turn a profit if you have to relocate in a year or even two.
Additional costs of ownership can occur if an athlete buys houses in different states—especially if one or more of the houses is an investment property. Loans for an investment property are often at a higher rate than an owner-occupied property. Estate and tax issues can also arise if you own multiple homes in multiple states, as well as legal complications should a dispute arise about the properties. You’ll need a good attorney in that case.
Home ownership also entails a time commitment. Again, consider how often a professional athlete travels during the playing season. While absent from the home, someone has to deal with maintenance or any damage that may occur due to fire, flood or earthquake. Renters can expect a landlord to take care of repairs and other chores, but a homeowner cannot. Do you want to take time to find a plumber when you’re on the road? Or, do yard work when you return?
While owning a home offers benefits like equity and certain tax breaks, renting offers greater flexibility. After all, real estate is an “illiquid” asset, meaning a property can take a long time to sell and you may not get the price you want. So, there are several considerations to take into account to make sure it’s the right time to buy, and the right place to buy—remembering that no one can foresee the trajectory of a playing career or guarantee a comparable income in the next phase of life Sudden reversals are just the nature of the business.
Home ownership is the American dream, but at a minimum, you must have:
- Enough cash for a 3%-20% down payment (while first-time homebuyers can get a loan for as little as 3% you will have to pay PMI)
- No debt – student loans or consumer debt
- Financial reserves to cover all expenses for at least 6 months should your income be disrupted in any way
- Beyond the down payment, and mortgage, you’ve factored in expenses like homeowners’ insurance, PMI, HOA fees, utility bills, property taxes, upkeep, etc.
Interviewed in Chicago magazine, professional basketball player Nazr Mohammed described how he learned the hard way about buying a home, renovating and losing money when he had to relocate from Detroit to Chicago. “I tell everyone, not just the rookies: rent. Because as an athlete, the only person making money when you’re coming and going [to new cities] is the real estate agent.”