Reader Joel McDonald is a real estate agent in Boulder CO and wrote the following for Hewn & Hammered. Please note that this article's copyright belongs solely to its author, and may not be reproduced without his written consent. He makes good points: while many people lust after the big lots and imagined superiority of new construction (which we know is a myth 99% of the time) and imagined safety of the suburbs or the (also sometimes imaginary) superiority of schools, the increasing cost of fuel - something that won't decrease in price anytime soon - will often make exurban living much more expensive.
In my own community - Sacramento, California - the oldest neighborhoods inside the city limits are Curtis, McKinley and Land Parks. They are also the most desirable. I doubt anyone, no matter how stunted their aesthetic taste, could argue that new tract homes in even the ritziest suburban neighborhoods hold a candle to the beautiful and sturdily-constructed Craftsman, Tudor and Mission Revival masterpieces of the urban core.
If you're not careful, you'll spend more in gas than what you save in mortgage payment.
One of the most common decisions we see buyers make is to buy 10 or 20 miles from the town they plan on working in because the price of homes in that area is 10% or 20% less out that way. Boulder real estate company owner Joel McDonald points out that the biggest factor homeowners don't take into consideration is what their own time is actually worth, the wear and tear on their car, and of course, the cost of gas (which ain't cheap these days). That's not to say that buying a home in a less expensive area that isn't in town isn't a good idea, but more often than not, it's not saving as much money as you might have initially thought.
Let's say you're contemplating buying a $450,000 home in-town, vs buying an otherwise similar home for $400,000. Let's also say the $400,000 home is 18 miles from the town you plan on working in 5 days a week. That $50K in savings might be attractive to you because if you take out a loan for the difference, you're looking at a monthly savings of between $320 and $370 a month. The key in making the best decision, however, isn't whether or not you're saving a few hundred bucks a month on your mortgage payment -- it's how much you're spending every month by commuting into town.
Let's say your car gets 20 miles a gallon. At $3 a gallon, you're looking at about $6 a day to drive into town. Every mile you drive on your car typically represents about 20 cents in wear & tear. (Those oil changes, new tires & every mile put on your car depreciate your car's value, and those expenses are usually more than the cost of gasoline!) 36 miles round-trip times twenty cents is another $7.20 a day in expenses.
Last, but definitely not least, you've got the most expensive part of the equation to weigh: your time. If you have a $40,000 job, your "on the clock" time is worth $20 an hour. Believe it or not, your "off time" is twice as valuable as your "billable time". If you don't buy into that logic, think about how valuable vacation time is to you, or think what you'd pay on Monday morning if you could just have a third day off. Your "billable rate", by the way, assumes a 40-hour work week. The more hours you work per week, the more valuable your off-time is, so $40 per hour could even be underestimating what your time is actually worth. For the sake of this argument, however, let's just say that if you earn $40,000 per year, your time is worth $30 an hour. By living 18 miles from work, you are spending an average of 4 extra hours per week commuting! That's $120 per week (or $24 per day.)
When you add all 3 variables up, and consider that you commute to work an average of 22 times a month, let's see what you're spending to make that commute:
- $6 in gas 22 times a month is $132
- $7 in wear & tear 22 times a month is $154
- $24 in lost time 22 times per month is $528!
- Add it all up, and your 18 mile drive is going to cost you $814 a month!
Even if you don't value your off-time at $30 an hour, or you enjoy that drive time because you get to listen to a good book-on tape, you're still looking at $286 in car expenses every month. Next time you find yourself grappling with the issue of whether to buy in town vs. commuting into town for a less expensive home, be sure to not to ignore the extra expenses you'll be picking up in trade for what you save in monthly mortgage payment. Your "more expensive" home could be several hundred dollars a month LESS expensive, when you factor in all of your peripheral expenses.
This article was contributed by Automated Homefinder - your Boulder CO real estate experts.
