Reverse Sticker Shock

May 17, 2008 · 0 comments

I’ve been in California for about 8 years now. When I first moved out here from Maryland, one of my best friends in Maryland had just bought a $200K house (and a nice house at that!). I remember thinking about how ridiculous it was to spend that much money on a house, and then nearly freaked out when I got to California and realized that out here that same house would cost $700K, and it would be pretty tough to find anything decent for less than a half-million dollars. Over the years, I’ve become desensitized to the real estate prices out here; I no-longer flinch at the thought of a nice 3-bedroom, 2-bath house in a nice neighborhood easily costing a million dollars or more. This desensitization has happened so gradually that I didn’t even realize it had happened.

Until recently…

My fiancee and I started looking at houses in Atlanta several months ago (to buy for our personal residence). We spent last Thanksgiving checking out the neighborhoods, getting a feel for what types of properties were on the market at what prices, etc.

Based on our experiences in California, it was only natural that we ask, “What can we get in Atlanta for the same price as a decent house in California?” Well, given that a decent house in California is $1M, we started there. To our surprise, we quickly realized that for that much money, we could literally buy a gated mansion on more than an acre just outside the city. Our imaginations ran wild thinking about the ridiculous house we could buy for that price. Luckily, it only took a day or two before we came to our senses and realized that not only did we not need anything that crazy big, but we also likely couldn’t afford it if we were really serious about not going back to work and starting our new companies.

Still thinking big, we started driving around the suburbs looking at the $700K McMansions. For that price, we could get one of those houses we grew up dreaming about — 6000 square feet, 7 bedrooms, 6 bathrooms, etc. This time it took a little bit longer to come to our senses…but after a couple days, we did. We realized that given the upkeep, landscaping, heating, property taxes and everything else associated with having a house that big (and given that there are currently just two of us), we’d essentially be throwing money out the window to buy something like that.

So it continued…we slowly but surely started to realize that the crazy cost-of-living environment of California had completely desensitized us and clouded our perceptions of real estate reality. We dropped our price range to $500K, and started looking at all the new construction that was selling for $700K a few months earlier, but was dropping in price by the day as over-building and excess inventory flooded the market. A month later, we realized that by dropping our price range to $400K, we could avoid the higher interest rates associated with a jumbo loan, and all we’d be giving up was a fifth or sixth bedroom (oh well, I guess we’ll have to limit our sleepovers to 10 people).

After looking at houses for another month, we realized that while there were a lot of great houses in this price range, we’d probably end up spending a bunch of money on remodeling and upgrades to make it exactly what we wanted. Well, we thought, if we’re going to put a bunch of money in the house to make it what we wanted, why not try going even lower?

So, we started looking at houses in the $300K range, with the goal to spend $25K or so in remodeling/upgrades. For that price, we could find dozens of houses that met all our criteria — less than 10 years old, 4 bedroom, 3 bathroom, with a finished basement (for our offices), and a nice yard for the dog. Add in another $25-30K for upgrades, and we could get our brand new kitchen, all hard-wood floors, remodeled master bathroom, and new landscaping.

I’m not sure where we’ll end up (stay tuned!), but it’s very satisfying to think that by spending some time to get re-sensitized to how far our real estate dollars could go, we’ve cut our anticipated housing cost by several hundred thousand dollars over the past few months, and we’re just as excited about what we’ll end up with now as we were when we were looking at those ridiculously unnecessary million-dollar mansions.

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