Location, Location, Location: Your New Home and Your Commute
Ready to buy your first home? Congratulations!
What considerations should you take into account when budgeting for a house? Your preferred location and the amount you are willing to spend are two of the biggest factors. Right? But these two considerations may be much more intertwined, and fiscally significant, than you realize.
The REAL cost of a home entails much more than the sales price. For example, if you are employed and travel to work every day, your commuting costs can quickly add up. To prevent a serious, long-term financial mistake, take time to calculate this cost.
Case Study: Comparing Commuting Costs
If you buy a $200,000 house in a neighborhood within walking distance of your job, plus have easy access to other shopping and entertainment essentials, you could save tens, or even hundreds, of thousands of dollars, as compared to a $100,000 home that requires a 45-minute daily drive to work.
To illustrate the point, consider a round-trip commute of 41 miles each way, 5 days a week, 50 weeks a year. The cost to operate and maintain an average-sized sedan for this commute is $9,800 per year (2016 figures).
Only 15 years into paying off your mortgage, you will have spent $147,000 on commuting, as compared to $0 in commuting expenses for the location where you walk to work. That’s also assuming the cost of owning and operating a vehicle doesn’t go up in the next 15 years… at all.
So, the house that was half as expensive to buy will cost nearly $300,000 more over the course of a 30-year mortgage—just in commuting expenses. If you kept the same job and didn’t move during those 30 years, the $100,000 house will cost $400,000 to live in, compared to $200,000 to live in the $200,000 house. The real estate adage of “location, location, location” really holds up when you consider commuting costs.
Of course, people don’t tend to stay put. They usually change jobs, and homes, more frequently. Additionally, there are many other financial factors to weigh (such as real estate taxes) when choosing a location. Still, this scenario dramatically illustrates that commuting costs can be substantial, and deserve attention in your budgeting considerations.
Other Ways to Save Based on Location
Even if you can’t find a home within walking distance of work, you may want to select a home in a location that offers good, dependable public transportation. If you must drive, save money by looking for a home with the shortest possible commute, or a car with the lowest possible operating costs.
Work and Other Location-Based Considerations
If you work from home several days a week, or even work full-time from a home office, you still want to pay attention to several location-based considerations.
For instance, if the house is a steal, it won’t help you much if the cell phone reception is poor and high-speed internet isn’t available (and your work requires these tools).
In this situation, you may end up having to commute into the office anyway. Or, if you are self-employed, you may have to rent an office in an area with better infrastructure, just to work, stripping away the savings you gained from living in that “steal” of a house.
Picking a Home is About More Than Work
Commuting may be a big part of your decision, but choosing a location also needs to take into account any additional driving you may do to meet friends for dinner, to go to the grocery, and to do other social and personal driving. If you are social by nature, and you buy a home miles away from your favorite places and people, you’ll be spending more money to live there.
Remember: Jobs may come and go. Buying a house is a long-term commitment. Be sure your home is in a location where you want to live and will be well-suited to your lifestyle, even if the job you currently have changes.