Should You Buy A Bigger House?

Should You Buy A Bigger House?

Even though many people are buying less expensive housing these days, you might be very tempted to buy a bigger house. I can understand that. Interest rates are ridiculously low and real estate prices seem to be just bottoming out. I recently wrote a post explaining that most people are far better off buying real estate rather than renting. I believe that with every cell of my body. If that is true, wouldn’t it also be true that owning more real estate (in the form of a larger house) is better than owning less? The argument has merit.

But before you whip out your check book and call Moshe’s Movers, chill out. Even ifyou can af ford the new house, I suggest you pause. While there are a few good reasons to move into larger digs, there are plenty of reasons why you should maintain as small a footprint as possible.

Reasons to Move to a Larger Home

There are only three good reasons to move into a larger home:

1. Current Home Way too Small

One of the worst decisions I ever made was to buy a house that was really affordable but way too small for our family. My wife tried to tell me this before we bought the house. But of course the financial advisor expert in me took over and prevailed. Within a year we all agreed that we better move before one of us ends up on the 5 o’clock news.

That was very expensive because real estate prices had increased over that year and of course we had to pay the commissions and the movers and all that fun stuff. Drag. If you are in a house that doesn’t fit your family and you can afford a bigger house, I suggest you do it. Now is a great time for you to upgrade.

2. Current Home Way too Far

Just like living in a cramped space, living in a bad location can be a downer. If you are moving anyway, why not trade up a little? Again, assuming you can afford the upgrade, go for it. No reason why you shouldn’t.

3. Extra Costs of New Home Are Irrelevant

If you want a bigger home because you want a bigger home and you can easily pay the higher freight, it might be OK to go for it. This can be really tricky however.

One of my friends bought a huge house overlooking the valley when he was at the peak of his career. He spent a ton of money on a huge mansion and was very happy there – for a while.

Eventually he decided that he wanted to change his lifestyle. He realized that if he downsized, he could actually retire early and live very comfortably. Unfortunately, he hasn’t been able to realize his dream. The house is worth much less now than when he bought it. As a result, he’s stuck with the larger house, the very high upkeep and a lifestyle he’s dying to change.

To summarize, there are only 3 reasons you should buy a bigger home. Notice that I didn’t include buying a larger estate as a way to increase your real estate investments. While I do think it’s generally a good time to invest in property, the best way to do this is by owning rentals in the right market. Rentals provide income. Your residence doesn’t. Buying a bigger house as an investment might work out for you but it’s far riskier than buying good rentals.

Why You Should Not Buy a Bigger Home

1. You Can’t Afford It

Never buy a house you can’t easily afford. With the uncertain financial times we live in, it’s not unheard of to suffer big financial reversals. If heaven forbid you encounter such a situation (such as losing your job), the last thing you want to do is to lose your house too. People underestimate what it really costs to own a home. When you upgrade to a larger house all of the following bills go up substantially:

a. Mortgage Payments (duh)
b. Insurance
c. Taxes
d. Utilities
e. Upkeep
f. Décor and Furnishings (You’ll probably have to buy all new furniture when you move. At the very least, you’ll have to buy more furniture to fill up that castle you just bought).
g. Landscaping and grounds

Even if you think you can afford the new house please confirm it. Take a few minutes and crunch the numbers to be sure.

2. Risk

As I mentioned above, once you commit to real estate – especially if it’s your residence – it’s difficult and expensive to make a change. Consider how your circumstances might change over the years ahead.

Think of my friend who wanted to reinvent his life but couldn’t because he was trapped by the large home he owned and couldn’t sell.

My wife and I bought a pretty nice house in LA when our kids were younger. Before we knew it, 2 of them were in college and out of the house. We really don’t need that big house any more. I’m not saying it was a mistake to buy the house originally (12 years ago) but it would be a mistake for us to buy a bigger house now.

This is true even though it would be easier for us to afford a larger home now that two of the kids are almost done with college. There is no reason for us to buy a larger home so we aren’t doing so. Having a very affordable home gives us lots of freedom and peace of mind.

3. Opportunity Cost

If you tie up lots of money in your residence you incur an opportunity cost. The money you put in as a down payment is money you can’t invest elsewhere. Maybe there are better alternatives that you can’t take advantage of because you haven’t got the scratch. And remember that more of your monthly income goes towards the house payment. That’s money you can’t invest for your retirement. It’s also money you can’t use to travel or have fun doing other things with.

Real estate presents a wonderful opportunity right now. I’m a big fan. If you are thinking of taking advantage of the present circumstances to buy a larger home, it could be a really smart move. Just make sure you do this with your eyes wide open and do it for the right reasons.

Are you thinking of buying a larger home now? Why or why not?

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How to Buy and Sell a Home at the Same Time

Now that the real estate market is picking up again, many people are looking to sell their homes at last. But when you sell, you have to move somewhere — which usually means buying another home. Buying and selling at the same time brings up a whole new set of challenges, but those who plan well in advance can make it happen smoothly.

 

Here are five ways to successfully buy and sell a home at the same time.

1. Prepare to be stressed

Buying a home is stressful. Selling a home is stressful. When you do both at the same time, the experience is super stressful, not to mention emotional and difficult on many levels. You’re potentially carrying two mortgages or trying to time the purchase with the sale. There will be a lot of sleepless nights, worrying over finances and pressure to make a decision. It’s enough to ignite a family war.

 

Accepting upfront that this process will be extremely stressful will help in the long run. Know that most homeowners go through this, and there is success at the end of the long, dark tunnel. Plan everything as much as possible in advance. Do your homework. And take care of yourself. You’re going to be busier than usual.

2. Meet with your agent early on

Owners often believe their home is worth less than what the current market will bear. That’s why it’s important to meet with your real estate agent early on, even months before you plan to buy or sell.

 

Researching online valuation tools or doing basic research will help to guide you. But a local agent will help you understand your home’s true current market value and marketability. A good agent is in the trenches daily and knows your neighborhood and market inside and out.

3. Learn the market where you want to purchase

After getting some hard numbers for your home’s sale you need to do the same on the purchase side. What’s on your wish list? What are your priorities? Determine your needs and understand what you will get for your money on the purchase side. You need to know this to factor in how

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financing will work with the buy/sell.

 

Also, understand that market. Is it more or less competitive than where you live now? How long can you expect to search for a home? This will factor into your sale timing. If you’re moving within the city or town where you

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live, your listing agent will likely serve as your buying agent. If you’re moving just outside your area, you may need to ask your agent to refer you to an agent knowledgeable about that area.

4. Know your numbers

Once you understand the numbers on both the purchase and the sale, you need to know your financing options. Many people today don’t have a strong-enough financial foundation to purchase another home before selling their own, so knowing this upfront can help you plan more appropriately.

 

Engage a local mortgage broker or lender and understand what kind of down payment you’ll need to make a purchase, given the price point and type of home you seek to buy. How much equity do you have in your current home, and is the equity available? Do you have enough of a down payment liquid and would a lender allow you to make the purchase before selling the home? Find out by going through the loan pre-approval process. A good, local mortgage professional is as valuable as a good real estate agent.

5. Make a plan

Now that you know your numbers, it’s time to come up with a plan and execute. The plan can vary greatly, depending upon any number of conditions. Some examples:

  • Buying in a competitive market? Adding a contingency that your current home must sell before you buy probably won’t work.
  • Selling in a competitive market? You may be able to negotiate with the buyer for a longer escrow or even a rent back. This would buy you time on the purchase side.
  • Selling in a slow market and buying in a competitive market? Need the sales proceeds in order to do the purchase? Unfortunately, you’re in the worst-case scenario. Consider the option of selling your home first and moving into temporary housing. While not the most physically convenient, it could be less stressful.
  • Need temporary housing? Start researching those options now well in advance

Understanding the variables

There are so many variables that can come into play when buying or selling. Each one may affect your decision-making process. Identifying and planning for the variables as much as possible early on will help you avoid sleepless nights, stressful days, or fights with your spouse or partner.

 

Source: zillowblog.com