Where You Live Can Make or Break You

Here's a piece on the real estate market that I found today but the comments that stood out to me are as follows:

Doug Gylfe still can't afford to buy a home in Torrance, Calif., despite a 23 percent drop in prices.

In Torrance, the coastal city 16 miles south of Los Angeles where Gylfe lives, the median home price in his Zip code has fallen from a peak of $830,000 two years ago to $636,000. But that's still twice what Gylfe can afford on his salary as a real estate appraiser.

"I've lived here since I was about 10 years old, so I really like it," said Gylfe, 53. "I would stay here in a heartbeat if I could afford something."

What this reinforced to me: where you live has a MAJOR impact on your finances. Sure, you have the choice to live wherever you want. But if you choose certain cities, you're going to pay to do so.

Comments

[LC]

I remember reading about a doorman in NYC who won $5M in the lottery and still couldn't afford to buy an apartment in the building where he worked.

[Bad_Brad]

I agree, a lot of people who are in over their head on the coasts would be fine (at least financially) if they could move to the middle of the country, or even to a rural area of their own state. I realize that's not feasible for everyone. Some have specialized jobs that don't exist in rural areas or skills that don't port well to rural areas. Some have friends, family, or other deep roots in urban areas with high costs of living. Others just like the city life and can't bear to think how boring it would be to live in a small town. Which is fine. Those people just need to realize they are paying a price for the hipness of the urban lifestyle.

[D]

While everyone has a "choice" much of that is predicated on your skill-set, job experience, and chosen profession.

I get envious when I see doctors, veternarians, lawyers (for example) who can live in the country or far out suburbs, still make good money and buy more with their money.

However, given my profession or my wife's profession we are required to be near a big metropolitan city like San Francisco, LA, NYC, Boston, etc.

These are choices we made early in our careers without a whole lot of thought to where you might want to live in later years.

So, it isn't as simple as just deciding to move or live where things are cheaper.

[FMF]

D --

I think there are very few positions that require residence in a large city exclusively. I'll be posting on this issue next week, so stay tuned and share your thoughts.

[Bad_Brad]

Really, the only positions that require residence in a big city are positions with specific corporations that have offices or operations in that city, as well as professorship roles at universities. And even some of these large companies offer opportunities to work remotely, which might be career-limiting in some sense (i.e. you will probably never make VP) but might be worth it given cost of living differences. I work for a large corporation in Washington state but my immediate group of about 40 individuals includes people who work remotely from California, Oregon, Montana, Colorado, Kansas, Texas, the UK, Singapore, and China.

Probably for more careers, the issue is mobility. For instance, you might be able to find a job as a financial analyst for a small company in a mid-sized town, you won't ever be a big-time CFO, and even if you do make CFO of that small company, your pay won't be anything close to the CFO of a big company likely located in or near a big city.

[David]

My wife is a teacher and I make about half of what she does, yet we are pretty secure financially and will be completely debt free in about 5 years. On the list of reasons why that is the case, living where we do is near the top.

[FMF]

David --

Exactly! Think where you'd be if you lived in New York City. You might earn more, but the cost of living would eat that up plus a whole lot more!

Location, location, location. :)

It's true in real estate as it is in life. I wouldn't give up where I live at half the price.

[guinness416]

Why on earth does he need to buy something? It's not something everyone HAS to do (many would be better off never buying). He's 53 years old, if he loves where he lives he should just keep renting because quality of life is extremely important.

[Foobarista]

The reason Silicon Valley exists, and has been hard to replicate, is the large number of startups in odd fields that exist here. My field of relational db engines is like that; the vast number of db engines in the world were developed within 50 miles of my house in Mountain View, CA. There are a few db engine companies scattered about in other parts of the world, but since startups tend to fail, I'd never move to work in any of these places. In Silicon Valley, if a startup fails, you go find another one, and don't need to move. In another part of the country, you're probably hozed unless you start up a company yourself - and good luck trying to get a skilled engineer to move to your city just to work for your startup.

And telecommuting doesn't completely work, particularly in startups where you often need intensive interaction with other engineers, marketing & sales, and other customer-facing types. In my last company, we telecommuted 60%, but desperately needed the 40% of the time we were in the office together.

It's the "Hollywood effect": these places have a job market deep enough to attract and keep specialists with deep skills and experience of one form or another, even if the jobs themselves aren't very permanent. Since the jobs aren't all that permanent and need highly skilled people, the work pays a lot, which drives up the cost of living, particularly for real-estate.

[Lord]

If you are a top performer and really want to reach the top in an industry you really do need to go where the industry is concentrated. The Silicon Valley for tech, LA for entertainment, NY for finance. The opportunities there simply can't be replicated elsewhere. This is what makes them expensive.

Housing in expensive areas is based on two incomes. Few individuals can afford more than a condo. Those who can usually must put 25% to 50% down, often with the help of parents. Even then roommates may be necessary, to save for it or pay for it afterwards. While renting is expensive, it is no where near as expensive as owning, so it is a possibility, but rents rise faster than incomes in such areas, so it only gets more difficult. While prices may soften further, they aren't going to drop another 50%. I doubt increasing income is much of a possibility either. Even holding a job in that sector may be difficult these days.

[Dave]

I live in Southern California and wouldn't want to be anywhere else in the world. I deliberately moved here from the east coast for the weather, diversity, culture, and beauty of the city. I'm not in the entertainment business but I know many people who are. It really is true that if you want to break into entertainment, you'd be doing yourself a major disservice by living elsewhere. I've got a friend who's trying to make it as an actress in Atlanta and having a very very tough time, despite her talent.

Look, life's a tradeoff. If you had a million dollars, you can buy a McMansion in Central Pennsylvania or a 3 bedroom condo in Beverly Hills. What is your preference? Some people don't mind living in rural areas so long as they have their 2 acre lawn and 5 bedrooms. Personally, I'd be willing to sacrifice the lawn in favor of a vibrant culture, nice restaurants, and beautiful weather year round. As a person of color who grew up in a mostly white community, I also truly appreciate the benefits of living in a multiethnic environment. Life is short and meant to be enjoyed.

[Ryan McLean]

I definately want to start earning more money from my financial blog in order to be able to afford to live when I was raised. House prices are around the $600,000-$800,000 mark.

[FMF]

Lord --

Yes, those are some examples of having to live in a certain city to get a job in a specific industry, but out of the universe of all jobs out there, these are a very, very small percentage.

Dave --

Absolutely. The only thing I'm asking people to recognize is that there's a trade off/cost associated with where you live.

[Foobarista]

FMF: one piece of the puzzle is that there are severe downsides to living in an area with _cheap_ housing. The big ones: typically little to no work, and often a declining population.

A steadily declining population is a very bad thing; it's a sign that the local economy is poor, and the region is seen by young people and potential immigrants as staying that way for the foreseeable future.

There are some areas with relatively inexpensive real-estate and better economic prospects, such as Texas/Oklahoma and parts of the South. But the places with the cheapest RE in the country, such as Michigan and upstate New York, are that way because they're in secular decline, where a combination of fundamental economic shifts and awful state-level politics are combining to kill the local economy.

[FMF]

Foobarista --

It doesn't have to be a cheap area to make a big difference financially -- the difference between the most expensive areas of the country and even average to slighty expensive areas is significant. See details here:

http://www.freemoneyfinance.com/2006/09/move_save_money.html