Would you rather invest in a few shares of a blue-chip stock or buy lots of shares in a little-known company?
The same quandary that faces Wall Street investors often confronts home buyers, says John Rossi, a computer scientist who uses his expertise to help consumers reach their own housing decisions.
Which is the better choice: a small home in a grand neighborhood or a grand home in a more ordinary neighborhood?
“There’s no single answer for everyone,” he says. “Home choices are more personal than those made in relation to one’s stock portfolio.”
But Rossi and his brother, Steve, who co-founded Olympus Computing in 1983 to assist consumers grappling with housing tradeoffs, urge buyers to act on facts as well as feelings. “We give people an unemotional view of their finances,” John Rossi says.
Joshua Goldman, who sells homes through the Coldwell Banker chain, says that properties in neighborhoods with Tiffany-like names typically sell at a healthy premium in comparison with those in communities without golden appellations. He wouldn’t pay more for prestige, but he sees genuine advantages in choosing a prestige neighborhood over a middle-income one if the same sum buys a larger home and more land.
For instance, homes in prominent neighborhoods are less prone to severe price fluctuations.
“There’s a natural cyclic function in all real estate. But well-known neighborhoods tend to recover faster in a downturn,” says Carol V. Baker, a sales associate for Re/Max Real Estate.
Here are three points to ponder when facing difficult housing choices:
– Consider tangible realities before you rush into any housing decision.
Many home shoppers cite pride as the reason they want to buy in a ritzy neighborhood–the same reason that some car buyers pick a Mercedes Benz over a perfectly functional Honda Civic.
But housing choices have more sweeping and long-lasting financial implications than do decisions on cars, observes John Rossi.
The desire of many to live in a coveted community should be tempered by consideration of concrete factors. For instance, before you buy anywhere, you’ll want to inquire about the quality of the local public school system and whether property taxes are ascending rapidly in the area.
Olympus Computing seeks to help both home seekers and owners make rational decisions by analyzing their factual circumstances with software and other analytical systems the Rossi brothers began developing 16 years ago.
Fill out an Olympus questionnaire and, for a nominal fee, the firm will run a computer analysis telling you the expected financial implications of buying a home versus renting on a year-by-year basis. It can also help you decide on the wisdom of refinancing your current mortgage.
One of the firm’s Web sites (www.expage.com/page/condo) is designed for those comparing the purchase of any specific home (including detached properties) with a particular rental. Its other site (www.expage.com/page/refinance) is for homeowners deciding whether to refinance. You can also write Olympus Computing at: 7552 Newcastle Drive, Annandale, VA 22003.
– Ponder the less obvious pros and cons of buying within a luxury ZIP code.
Some people automatically assume that a wealthy hamlet will be friendlier than a lower-cost area. But conventional wisdom doesn’t necessarily apply in this case, says Baker.
Where families predominate, the local public schools are often the “bridge” that helps busy parents become acquainted, Baker says.
But in some high-income areas, many children attend private schools and therefore may have few pals within the community.
What’s more, residents of luxury neighborhoods may be too busy to socialize with neighbors, due to heavy career and travel schedules.
During their free time, neighbors in a wealthy area are more likely to jet off to Europe than arrange a neighborly potluck dinner.
On the other hand, one seldom-considered advantage of living in an elite enclave is that it’s likely to have few renters. Why? Because the demand for extremely high-end rental property is limited, meaning that the owners of homes in fancy communities are less likely to convert their residences to rentals, Rossi says.
That’s because those who can afford to pay a huge monthly rent for a princely address also have the means to cover large mortgage payments and usually prefer to buy rather than rent.
Having fewer renters generally translates to better upkeep, he says. “Renters don’t have an interest in the long-term maintenance of a house.”
– Consider your housing options in light of alternative uses of your money.
Rossi chose to buy his neo-colonial in a neighborhood where the prevailing price of a property is half what he could afford. But at age 47, he is less concerned with prestige than his plans for the future. He and his wife, a homemaker, hope he can retire within 10 years.
And, in their case, they believe it wiser to invest their discretionary funds in the stock market rather than housing.
“You never have to maintain the roof on your stock investments,” he quips.
Yet Goldman is now working with an engaged couple in their late 20s who have an entirely different view of home buying.
For more than two months, they have limited their search solely to two posh neighborhoods.
The pair is willing to reach to the top of their spending range in order to live in a 1,900-square-foot house in one of their two favorite neighborhoods, rather than accept a home of like size but a far lower price just a couple of miles beyond the communities they prize.
The two are convinced that such high-end housing will continue to appreciate strongly over time and represents a solid use of their investment capital.
Goldman doesn’t share the couple’s aspiration for prestige, but respects their investment priorities. “They’re thinking through their finances and are aware of what’s truly important to them.”
