One debate that people often have is whether you should live close to work and potentially pay more for a house versus living further away and paying less.
In my experience there are a lot of people who have decided to live further away in another state due to the cost savings. Let’s take a look at how the math works out.
Close to Work vs Far from Work
Let’s take Example A which is close to work. The median house price is $442,700, the property tax rate is 1%, and the drive is 5 miles each way to/from work. Example B is far from work and has a median house price of $252,600, a property tax rate of 2.5%, and the drive is 44 miles each way to/from work.
According to AAA, a medium sized sedan costs 58 cents per mile on average to drive. The driver in Example A will travel 2,600 miles to/from work each year and spend $1,508 while the driver in Example B will travel 22,880 miles to/from work each year and spend $13,270.
Let’s assume in both examples that they take out a 30 year mortgage and let’s also assume that the housing prices stay constant for simplicity. Over 30 years Example A will spend $45,240 in driving expenses and $132,810 in property taxes. Similarly, over 30 years Example B will spend $398,112 in driving expenses and $189,450 in property taxes.
Example A (close to work): $620,750
Example B (far from work): $840,162
This is actually a shocking outcome! Over 30 years the person living far from work ends up paying $219,412 more than the person who is closer to work.
People need to understand the full picture into account when deciding on one of the biggest purchases of their lives. What if the education system is much worse further from work so the kids will need to go to expensive private schools? How much is child care affected? Are you truly happy in your new community or are you just living there because it is cheaper on paper?
When deciding where to live there is more to consider than purchase price. Over 30 years the cost of property taxes and driving expenses really adds up.
This post does not cover the additional time and opportunity costs that occur because of a long commute. These topics will be covered in future posts.