How Much Should You Value Schools When Buying a Home
I remember shopping for my first house with my wife and ignoring the school zones and their ratings. We were solely concentrating on price, square footage, location and appearance.
While these are all important considerations to take when buying a house, the quality of the schools should have been a big part of it as well. We didn’t really realize this until it was a bit too late and we had already made a purchase in a bad school district.
Why would you even ignore school districts?
Those of you that are new to real estate may wonder why we would ignore it at all. The reason is simple, price! It is not uncommon in my city to see a 20% price difference in identical houses in the same general area based on the school district.
The school district a house is in can be the difference between the house costing $400,000 and $500,000. It is easy to say “I am not paying $100,000 extra for the same house in a different school district”.
This seems like the reasonable thing to do but it is a false economy. Your house will become one of your most valuable assets so you owe it to yourself to do a bit more research.
How Much Does That Savings Really Cost Me?
I never asked myself this question until my oldest child was getting close to school age. Then I sat down and did the math.
Private School Tuition
If you plan on having children then I would suggest calling a few of the local private schools and inquiring about their tuition. In my case private school tuition was around $15,000 per year for each kid! To make matters worse tuition was rising at rates over 5% a year.
I did some time value of money calculations on the tuition costs for my two children and 13 years of K-12 private school education for each. Not accounting for the inflation of prices, each child was going to cost me $195,000 apiece in tuition. With 5% growth the actual number was over $265,000 for each child through high school!
That $100,000 savings on the purchase price of the house was going to cost me over half a million dollars over 13 years.
This money would be far better utilized by investing in a 529 plan and using it to pay for a great college education.
Education is always in demand
We decided that the poor schools in my area were a cost we were not willing to bear. We decided to change houses.
Of course this comes with the huge expense of selling a house where you can lose up to 10% of your house value in fees, expenses, commissions, and closing costs. This cost around $40,000 in our case.
On top of that, we found out the hard way that houses in poor school districts are harder to sell while good school district homes can be somewhat recession proof. In a cool market it took us longer and cost more discounts to unload our old house than expected. At the same time we had to get into bidding wars on houses in top school districts.
You can’t sell a diploma but you can sell a house
When your kids graduate from high school you can always sell the house to get your money back. Many people want to downsize by this point in their life anyhow. Since education will still be in demand, you can always sell the house to recoup the extra money you spent.
As the population in our area grew but the number of quality schools stayed the same there was evidence that appreciation of home values were actually higher in good school district areas. This is likely very local market oriented so you will need to do your own research here.
What if I don’t and won’t have kids
I would still consider it even if you don’t plan on needing schools. Demand was more stable and appreciation rates higher in my area which made it a good financial decision for me even without the private school tuition savings.
It has been my experience that when people buy into an area based on the quality of schools, parks, etc, they tend to be very motivated to maintain and improve the community. This just means a better place to hang your hat.
What if we want to do private school anyhow
Many people will want to send their kids to private school regardless of the quality of public schools in their area. What I found was that quality public schools in the area help control the price of private schools in the area.
In a community with bad public schools, private schools can charge whatever they want and people will pay it. In a community with good public options, private schools have some limitations over what they can get away with.
It is probably a good idea to do some basic research and check the tuition rates of some private school options. For my situation they were significantly cheaper in the area with great public schools.
What about risks to my investment
Buying in a great school district is not totally risk free. The schools could devolve in your district and change from an asset to a liability. I personally don’t see this as a major risk though, as I mentioned earlier the people that buy there are invested in maintaining the community and schools. If anything, I think the risk of the community falling apart while you live there is lower.
The other way you can be impacted is if you are re-zoned into a different district. This can be a real risk if you have areas with poor schools adjacent to areas with good schools. You can get rezoned into a poor school district. Research how often the schools in the area redistrict. Moving very close to the school itself can help reduce the risk you are rezoned.
I wish I had known then what I know now. I could have saved myself a lot of hassle and tens of thousands of dollars. While it may seem like a steep price to pay to get into a good school district, it is often worth it.
If you don’t ever end up having kids you should at least break even on the purchase difference.
If you do have kids it will probably save you hundreds of thousands of dollars over the course of their education as well as give you better and easier sales options when you decide to move on.