Beyond, taxes, insurance, and HOA fees, there are many other costs to living such as commuting and education.
I have known many people both directly and through friends that have bought cheap houses with long commutes or in poor school districts because that is all they could afford. For me, the kicker was they also had LARGE commuting and private school costs. Like every thing in life we make sacrifices if it is important. Therefore, if a certain area is important or you want your kid in a specific private school, then the sacrifice will probably make sense to you.
Is Your Cheap House Really Cheap?
On the other hand, I have met numerous friends over the years who bought the cheap house far away because it was cheaper and then just commuted in.
At one point, I was commuting 32 miles a day — round trip 64 miles a day. At 320 miles a gas tank, I refilled the gas tank once a week at a cost of $62 a week. The IRS says it costs 55.5 cents a gallon including wear and tear, car costs, and maintenance. So your monthly drive cost is $248 or $8 a day.
When we were looking for our house in Virginia Beach in 2011, I figured out that every extra $150 in mortgage payments bought us $30,000 more of house. Based on those figures you could buy $45,000 more of house or $70,000 more of house. The other thing that this is not taking into account is that commuting is lost money. You won’t regain it — the money you put into your house is paying off a mortgage — not a gas tank. Even if houses grow at the same rate, a more expensive house will have a large growth at the end.
100k grow 10% = 10k
145k grow 10% = 14.5
The other cost one needs to review is private versus public school. It is one thing if you make a conscious decision to put your kids in private schools. On the other hand, I know many people who put their kids in private school because the public schools aren’t good enough.
Private school for 2 kids at 10k each (very cheap)
$20k/12 = $1,666 buys $333,200 worth of house.
This is the same argument as commuting. If you were putting this money into your house, it would have long term growth potential rather than just ending at your child’s education.
While obviously people often do private school or live farther away from work for more than purely financial reasons. It is important to look at the entire cost to see if it is really reasonable. Houses in a great school area and close to industry tend to be more expensive. But from the case studies I have followed over the years, people have a better financial success by investing in these areas rather than the others.2