Let’s consider a case study comparing the purchase of a new construction home versus a home in a prime location. This scenario is common among clients who are transitioning from living in a condominium in an urban area like Brookline to buying their next home in the suburbs.
Often, these clients have been living in renovated, modern, and stylish condos. Some may have compromised by living in less-than-ideal conditions, but now they are ready for an upgrade. When they start looking for homes in areas like Belmont, they often feel disheartened by the condition of the properties within their budget. These homes may be outdated, requiring new kitchens, bathrooms, and general refurbishments, which can be disappointing after experiencing modern urban living.
This situation creates a dilemma: they have a strong desire for something new and shiny but are constrained by budget and location preferences. As they search in Belmont, Arlington, or Lexington, the dated conditions of the available homes can be discouraging.
Eventually, they might explore open houses in shoulder markets like Watertown, Medford, or Woburn, where property prices are more affordable and the condition of homes is often better. Here, they find newer constructions with modern amenities, including garages and updated features, which can be very appealing. The trade-off, however, is that these homes are in locations that may not be as desirable as those in Belmont or similar premium areas.
This case study highlights the common conflict between the allure of new construction and the benefits of a prime location, illustrating the need for careful consideration and prioritization when making a home purchase decision.
When advising clients on their home purchase decisions, it’s important to compare the long-term benefits of buying in a premium location versus opting for a property in a shoulder market. Generally, properties in premium locations tend to appreciate more over time and maintain their value better, regardless of their current condition. These properties offer a strong base value due to their location and utility. Any necessary updates or improvements can be made gradually, adding value to the property over time.
On the other hand, buying in a shoulder market often means paying a premium for a property that is shiny and new at the moment. However, the allure of newness diminishes over time, much like the depreciation of a new car. As the property ages, it may no longer be considered current or stylish in five, ten, or twenty years. While purchasing in a shoulder market can be a reasonable choice, it’s crucial for buyers to understand the implications of their decision.
A significant risk in shoulder markets is the potential of buying a property that, despite its current appeal, has fundamental flaws that make it difficult to sell later. These properties might look beautiful but could be inherently problematic, leading to substantial losses. Therefore, it’s essential for buyers to be cautious and ensure they understand the true value of the property they are purchasing and the long-term impact of their investment.