The Analysis of Location, Location, Location

Posted by Ben

March 27, 2008

Real estate experts say that when you are shopping for a house, the three most important things to consider before buying is location, location, location. I recognize the truthiness of this, but working with the legal department at work has wore off on me, (on some unrelated IT matters) I feel the need to challenge some of the notions that go along with the importance of location.

Let us first define what we are talking about: location can mean a few different things to many different people. Some would say, it is the type of neighborhood you are potentially going to live in that matters, which is very true. On a grander scale, location also means how far away from work you are, which could either extend or contract your commute time, ergo your travel cost. I live near Washington DC, where there is an almost scientific inverse ratio relating the distance from DC and the cost of the average home. Naturally, the further we get from the nations capitol, the more affordable the homes are and the longer the commute.

Let’s first address the mass transit aspect. Its great for me and it doesn’t really matter where I go, the commute time will be insignificantly different. My girlfriend on the other hand, only has the option to drive and this is where the complications start to arise. We need to figure out if its cost effective to buy a home further out and tack more time onto our commute versus getting to and from work faster and paying for a smaller, but yet more expensive home.

So what is the difference? Further out, its about $100k - $150k cheaper, and 30-45 minutes (each way) more in commuting time. The homes have more land and are quieter and safer. But how much time would a person be missing out on? It would be safe to say about 2 hours a day. But the amount of money saved that could go either into the stock market, a Roth IRA, a money market, the house itself (to pay it off faster), the car (again, to pay it off faster; its losing value!) and just savings in general. It would be the epitome of living below our means. And it would be a wicked commute. What do you think? $