This is a guest-post from Tim Ellis, author of Seattle Bubble, a blog and forum dedicated to real-estate market conditions in the Seattle area. Tim is a long-time GRS reader. Previously on GRS, Tim has written about renting vs. buying and renting in a new city. A localized variant of this post appeared on Seattle Bubble earlier in February.
Before I got into the blogging and real-estate analysis business, I spent the first decade or so of my career doing electrical engineering (i.e., circuit design, PCB layout, etc.). In the world of custom electronics, it seems that every customer wants their widget to cost just $5, be packed with features that are 100% reliable and have the design completed in a week.
Obviously, it's impossible to achieve all three of those goals at once. The key to a successful project lies in the ability to figure out which of those ideals the customer is willing to compromise in order to get the other two.
- Are the most important goals to have a reliable, feature-packed device with designs delivered in a week? No problem, but it's going to cost you (a lot).
- Does the device have to be cheap and delivered fast? We can do that, but we're going to have to cut features and sacrifice some testing.
The saying we used to describe this process is one you may have heard before: “Fast, good, cheap: pick any two.” This concept is sometimes known as the project triangle.
Everyone would love to buy the $100,000, brand-new, 3,000-square-foot home on an acre lot with a sweet view and an easy commute near the heart of their favorite city. No such home exists! — nor will it ever exist. If you're serious about buying a home, you're going to have to set appropriate, attainable goals for your search.When it comes to real estate, there's a corollary to the engineering project triangle that can help you set more realistic expectations when shopping for your home: “Price, quality, location: pick any two.”
One of the worst decisions you can make when considering price is to borrow the maximum a bank is willing to lend you. Since you're reading Get Rich Slowly, I think it's safe to assume you're going to have a more conservative target price. Maybe you can “afford” to take out a loan big enough to buy a $400,000 home, but it's important to you not to go above $275,000. Figuring out whether you are able and (more importantly) willing to compromise on price is usually pretty straightforward. Pick a number that works for your budget, and stick to it.
Quality can mean many things to many people. Here, I'm using it to mean things like the size of the house, the size of the land, the age of the house, the architectural style, and the finish quality of the house. Is one of your top priorities to have a move-in ready home that doesn't need any work? Or perhaps your family of six needs no less than 2,000 square feet to fit everyone and their stuff. Think about picking quality as one of your two priorities.
Location is usually a priority that most people don't want to—or shouldn't—compromise. After all, there's a reason that the top cliché in real estate is “location, location, location.”
“Drive 'til you qualify” (i.e., buying a nice home in some far-flung, inconvenient suburb) is a trap that all too many people fell into during the bubble, and now they're stuck commuting an hour or more to work and spending half their life in a car. However, if price and quality are extremely important to you, maybe location should be what you give up.
The Bottom Line
Decisions on price, quality, and location are not a simple yes or no choice, but a give and take. If you're willing to give up the perfect kitchen, you can pay a little less. If you broaden your home search to include some slightly less upscale neighborhoods, you can get a better house for the same price. You get the idea.
The price, quality, location equation is probably the way most people intuitively shop for a home already. With this semi-formal framework, you should be able to make better, more intentional decisions as you search for the home that has just the right combination of factors for your budget and lifestyle.