Imagine shopping for your next home with your spouse. You drive around nice neighborhoods you can’t afford just to browse. All of a sudden you find a home for sale with overgrown weeds and rough exterior. It’s in a great neighborhood with great schools and it is the cheapest house on the street. Should you buy it? This is a situation that is common in America. If you watch HGTV, you may be familiar with Chip and Joanna’s Fixer Upper show or another hit show, Flip or Flop. They always choose the worst house on the street to renovate.
High Status Neighborhood Means High Ownership Costs
It is easy to forget that nice neighborhoods with nice schools usually have high taxes. The difference between a good neighborhood and your average neighborhood could be as high as $500 per month. That is a new car payment that you are stuck paying for as long as you live in your home. You may also be required to pay an Home Owners Association fee, or HOA. This HOA fee could run you $300 or $400 per month if not more. With your neighbors upgrading their homes or buying BMW’s and Porsche’s, you will feel the need to do the same. This psychological effect is often referred to as “Keeping up with the Jones'”. As your neighbors upgrade and spend more money, you will feel the need to spend more money. If your neighbor John buys a ride-on lawn mower, you will feel the desire to get one too.
Negative Location
In some cases, you may find the cheapest house on the street in a location that is not so ideal. Any property neighboring an industrial or commercial property can be a hard sell. You may think it is convenient to have a house across the street from a 7-Eleven, but there are risks. This is mainly because of noise, privacy, and security. You could also be near a flood zone or a sewage or trash plant. If you have children, the property may be in a poor school zone. Any property within a block of a gas station could be at an increased fire or explosion risk.
History & Renovations
These days you can see how long a house has been on the market and you can see if it had a foreclosure. You can see previous list prices and what it sold for. If you are buying the cheapest house on the street, there is a good chance that house is a foreclosure or it has been on the market for a while. If you flip the home and sell it in the future, it may be a hard sell because of its history. History can also be used to determine if you will need major renovations. If a property has been on the market for a long time, there is a good chance it has major problems. Foreclosure typically means the property has not been taken care of.
Finding The Right Home
To summarize, a cheap home is often a neglected home. There is a good chance it will need lots of repairs. When buying a home, you want something that is already valuable with a potential to grow in value. If it is the most expensive house on the street, you will pay more in loan costs over time and you will have less appreciation in your property. If you buy the cheapest house, well, we just finished reading about that. Find a home in a good school district and in a quiet and private area. A townhome can be private if it is on a quiet street without any thru traffic. Look at the history of the home. If they have been owned for long periods of time and the home looks to be in good shape, the previous home owners probably took good care of the property. If you find a home with trimmed grass and a nice garden, there is a good chance the house itself was taken care of.
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