The Price of Happiness: Sometimes a higher priced lot is a better deal

There are people who have money and people who are rich.

-- Coco Chanel

 

        There is nothing like finding a true bargain to quicken the pulse and puff out the chest.  For those looking for property in most golf communities these days, there is plenty of potential for chest puffing and thumping.  Developers and in-over-their-heads private owners are doing all they can to turn their dirt into quick liquid assets, and the quickest way is to lower their asking prices.  Someday the textbook definition of “buyer’s market” may include a reference to 2010.  In chasing bargains, however, some buyers of golf community property lose sight of the fact that a more expensive choice could be the better one.

        Let me explain with an invented example.  Jim and Nancy decide that the Pollyanna Springs golf community is the place they

want to be.  They have played the golf course, eaten in the local restaurants, and met a few of the community’s residents.  All that remains is to find the property that will best suit their needs and the home they plan to build in five years.  They have set a budget of $275,000 for the lot.  Because the Pollyanna Springs developer has not sold half his properties, and many of the lots he sold have been re-listed by owners whose plans have changed, Jim and Nancy have many wonderful properties from which to select (and the competition between the two groups leads to competitive pricing).

        Pollyanna Springs requires that property owners become members at their well-regarded private country club.  Since Jim and Nancy both play golf, club membership is not an issue, although they aren’t crazy about the $50,000 initiation fee (non-equity).  After

  two separate trips to Pollyanna, they narrow their choices to two nice pieces of property, both with views of the golf course -- a developer-owned lot at $250,000 and a resale lot listed at $300,000 for which they would offer $275,000 and request the seller also kick in $25,000 toward club membership, making the net price $250,000. (The seller, for the sake of this example, will accept the deal.)  Jim and Nancy much prefer the views from the resale lot, and a builder has told them their dream house will be easier to locate on the resale lot.  However, the developer, who still owns the golf club, is offering to waive the entire $50,000 club initiation fee.  That, in essence, knocks the price on his lot down to $200,000.

        Is the resale lot worth the extra $50,000?  Like so many things, it depends on the point of view, or more accurately the length of the view.  Jim and Nancy, both in their early 50s, intend to make Pollyanna Springs their home until they are ready for an assisted living facility.  With continued good health, they can look forward to 25 years in the home.  Assuming an annual appreciation rate of 5% on both properties, the more expensive lot will surpass the value of the less expensive one by more than $50,000 in 14.4 years.  If homes in Pollyanna Springs appreciate by an average of 6%, the more expensive lot will be worth $50,000 more than the developer’s lot in 12 years; at 8%, the crossing point is just 9 years.  (Of course, appreciation rates of less than 5% will make the time period longer.)

         Like many baby boomers, their Pollyanna Springs home will likely be the last that Jim and Nancy purchase.  In contemplating which lot to buy, the couple should put a price on happiness.