How Flawed is Too Flawed?

I have clients who are thinking of buying an apartment above a bar. "Does that make sense?" one of them asked me. "I mean, would we get a deal on it, only to find out we'd never be able to resell it again? Just how flawed is too flawed?"

And the answer is: it depends.

In real estate, everything is related to price. At full market price -- or at a 10 percent discount -- I wouldn't want to be near noise. At 40 percent off, I might seriously consider it.

Maybe you have seen such a home -- it could be near a cemetery, or a very busy street, or as one friend of mine once described his apartment, "on the dark side of the moon."

And yet maybe it is the right home for you. You just need to think about two things first.

1. What else can I get for my money? Am I getting enough extra for my money to make this trade-off worth it?

For example, if living near a busy street gets you an extra bedroom, compared to everything else you could buy, that might be worth it. The key words here are "my money" -- you have to think, "does this trade-off make sense for ME?"

Then you need to consider:

2. Who else is like me? When I want to sell, how long will I have to wait to find someone like me, who would make this trade-off?

Sometimes the answer will be "too long." If you are considering a house that's discounted because it's near a high-traffic street, in a neighborhood whose biggest draw is a great elementary school, it's unlikely that your prospective buyer, a parent of little kids, is going to want to make that trade-off.

Just make sure you step into your prospective buyer's shoes and think, "Does this tradeoff make sense for THEM?"

Comments

[dadw5boys]

I got ahead of the college cost curve by purchasing buildings along busy highways where homes were still zoned residentual.
Slowly ever slowly the demand for Commerical Peroprty along that road grows. Just like the kids are growing and preparing for college.

Trying to set a price for Commerical Land is hard because the cost of removing the home that is there. Do I keep the rental houses or demolish them one at a time and assmue the removal cost to ask a high price for the land?

[foggycity]

This is all very useful, and I would add one point. Sometimes you are ahead of the curve in where you are willing to live, and you have to attempt to judge how far ahead. When we couldn't get enough bedrooms in the usual neighborhoods in San Francisco, we bought a home in the Outer Richmond district--a foggy area near the ocean. Besides the fact that my peers considered it far away (hard to get playdates for the kids!), it was a predominantly Chinese neighborhood with few English-speaking couples in our age group. When we sold it two years later we felt lucky to make a little money. Two more years went by and suddenly every young white family who couldn't afford a house discovered the Richmond district, and the house sold again for 150% of what we got when we sold it. How we wish we could have afforded to hold!