Friday, April 25, 2008

What do you want - Part I

When it’s time for you to begin looking at Saline real estate, the first question I’ll ask you is “What do you want?”

Let me paint a word picture: Why does a 60-watt bulb light a room, but give little warmth, while a laser beam will burn a hole through the wall? The answer: Focus.

The more focused you can become about what you really want in your Saline real estate, the more powerful a force you become in the marketplace.

But, how do you really know what you want?

Your first inclination may be to go out and look at lots of houses. You want to experience first-hand what your “wants” both look and feel like.

Many people start off with a list of requirements that look like:
“Must Have”: What you absolutely know you want
“Should Have”: What you think you want
“Could Have”: What you’re not sure you want
“Won't Have: What you absolutely know you don't want

For any number of reasons, what people say they want doesn't always line up with what they really want in their minds and hearts. A lot of times that's because of the difference between theory and application: being able to actually drive the commute or experience how many flights of stairs there are gives people a clearer picture of "Could" vs. "Won't". The tricky part is separating the borderline "Must Have"s from the "Should Have"s.

Have you ever heard the advice, "You should always buy a home where there are good schools?" There are advantages to this because these are neighborhoods which are (in general) the last ones to decline and the first ones to appreciate, but remember that if the neighborhood has a reputation for good schools, that reputation is already priced into the house.

If you have school-age children, you may save money by buying in a less expensive neighborhood and sending your kids to private schools. You will get more house for your money if you don't have to pay for the school district's reputation. And you may get more upside from an ascending school district which is building a great reputation than one that's maintaining its high scores. When the best kept secret in the area comes out, people will be looking for that good value.

Most of us consider commuting a necessary evil based on where we live and work. Time is money, right? Well, almost, because no matter where you were born, what your parents have, or what your opportunities are, everyone starts off with 24 hours in a day.

You can measure the value of your time in two ways. Economists measure the value of time in terms of opportunity cost, the amount of money you can make with your time at its highest and best use. Most people measure it in exactly the same way except with things they can be doing - activities like spending time with the family, or reading a book.

Now consider the cost of your commute. Let's say you've live in your home for five years and take the same commute each day. You earn a conveniently round number $100,000 and work 50 weeks out of the year for 5 days a week. Here's what your commute costs:

At only half-an-hour each way, the commute costs $62,500 over that period and $125,000 if your commute is an hour (two hours a day) each way!

There's no value judgment behind these numbers. Some people want to save money to keep their families fed, happy and well-educated so they will trade more commute time for cash savings. Others prioritize spending more quality time doing other things and choose to allocate more resources to the problem. My thanks to Steve Leung for this analysis and the ideas built around it.

The beauty is that the choice is up to you and experiencing a house search with an expert is an effective way of truly understanding what you want and what you're willing to trade-off in your search for your Saline real estate.

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