in-town-vs-out-of-town is the spreadsheet used to support my posts.

The first in the series just lays out the facts. In this we’ll try to form a conclusion. It really boils down to a simple question: do the savings in home ownership make up for the loss in car ownership?

Let’s start with the first observation: You can’t be in a situation where you can’t afford to live out of town but can afford to live in town. There are about 22 working days in a month. So if you don’t carpool, get 24 miles per gallon and drive 50 miles each way you will spend $360 a month in gas going to and from work. You save $700 a month in mortage payments so per month you’re ahead about $340 living out of town. In five years you will probably need a new car having driven yours about 130,000 miles. In the meantime you have saved around $20,000 in monthly mortgage bills.

So if you put the money you save away into a high yeild savings account each month you’ll have enough for a brand new car every 5 years in cash. $20,000 will buy you a very nice car.

Obviously it’s not ideal to break even.

So you have to decide, can you find ways to cut back on vehical costs and gas usage or will you end up at a loss after 30 years because vehical maintenance brought you down?

Personally I think it’s a lot easier to chop off costs on a car rather than a house. It’s hard to find an affordable house in town. It’s easier to find someone to carpool with. Or buy cheaper cars. A brand new engine will set you back less than $10,000. So if you really want to be cheap you can buy an older used car and just replace the engine every 5 years or 150,000 miles.

Once you buy a house there’s nothing you can do to cut down the cost of your mortgage. Eventually you may be able to refinance and get your interest rate down a point or two. But that’s rare and only saves you 10-20K over the life of the loan.

Most of the time you will save money living outside of town. As long as you find a way to carpool. That’s the easiest way to double the life of your vehicals and cut your gas usage in half.

The other thing that makes your decision easier is the advent of the electric car which is happening in just a couple years. That will reduce your gas usage to 0. The estimate is that electric is about the equivelant of $1 per gallon. So you save 75% of your gas cost. Which adds up quickly and makes living outside of town more appealing.

So really I don’t see how you can lose by living outside of town. Unless you don’t find ways to cut back on vehical usage.

There was recently an article on Slashdot about telecommuting and how some business don’t allow it. There are a lot of reasons to not allow it. The main one that caused HP to stop doing it was lost productivity. I suggested carpooling and living out of town to save money. That was poo-pooed because of the assumed cost of car maintenance given the increased miles. So I did the math.

All else being equal I used $160,000 for the cost of the out of town house and $260,000 for the comparable in town house. A reasonable estimate in the Phoenix market.

I’ll start with the 30 year pay off plan. With a 7 percent interest rate the in town house will cost $1729.29 a month. The out of town house will cost $1064.48 a month. So right away you’re saving $700 a month by living out of town. At the end of 30 years you will have saved $239508.90 on the cost of the home itself.

But now we have to start deducting things. The in town home is 10 miles from work. The out of town home is 50 miles from work. Over the life of the loan you will travel 156,000 miles to and from work from your in town home. You will travel 780,000 miles to and from work from your out of town home. Assuming a 5 day work day 52 weeks a year. The car gets 24 miles per gallon and gas costs $4 per gallon. You will spend $104,000 more in gas living out of town. If you replace your car every $150,000 miles and each car costs $25,000 (including interest and fees) then, interestingly enough, you will spend an additional $104,000 in car ownership. Out of town you will have to purchase 5 cars over the life of the loan. As opposed to 1 in town.

So over the life of the loan you will save $31,508.90 by living out of town.

Now let’s look at a 15 year loan. Right off the bat you will save $161,789.09 from the lower mortgage with an out of town home. Your monthly payment is $900 less than the in town home. But now we have to start subtracting things. You will need 2.6 cars over the life of the loan as opposed to 0.52. So you lose about $52,000 in car ownership. You also lose $52,000 in additional gas costs.

So over the life of the 15 year loan you will save $57,789.09.

But in 30 years you will end up losing 46,210.91 from car ownership and gas prices.

So let’s carpool for 30 years. You now save $161,508.90 over the life of the loan.

Let’s carpool for 15 years. You now save $122,788.90 over the life of the loan. With 30 years of car ownership you save $83,789.09.

Let’s say you pay your out of town house off in 15 years but would have to pay off the in home house in 30 years. You save $363,860.60 in house ownership costs. With 30 years of car ownership and not carpooling you’re ahead $155,860.60. With carpooling for 30 years you’re ahead $285,860.60.

Enough to purchase the in town house with a few bucks left over.