Hanging around the frugal online personal finance communities I see the general advice to buy the cheapest house you can afford. I disagree with this pretty heavily. We moved to a lower cost of living area in our early 20s because it was frankly the only way we could have the lifestyle we wanted to live and own a house. But we chose a large house in an upscale community and has turned out to be a wonderful investment.
Sometimes I regret not buying more (if we had taken the $400k house instead of the $300k house I would be on the beach sipping margaritas today, since those are worth over $1 million today). Obviously this just comes from market and timing more than the average housing market most of us face. But then again I never regret having bought more and seeing our house appreciate at a far faster clip than smaller homes.
Another thing is that I don’t necessarily view my house as an investment at face value, to me it is a place to live, and odds are I won’t cash it out in this life. But all the same, when you are in a high cost of living area and you have to plunk down a significant chunk of change, I think it is important to protect that investment. You want to protect your initial investment best you can, and you also want to make sure you can keep your mobility. If you go small and cheap with little regard for resale value, you might just find yourself stuck. Why not invest a little more in something that will give you a decent return and with high odds of keeping up with the market?
I also notice a lot of people buy a starter home in their 20s or 30s and then when they feel they have the money they upgrade to a much larger house in their 40s. I see this happen a lot. Maybe those of us in the personal finance community are more content to live in a modest house forever, and that is probably good. But I know people did not understand why we bought a 5-bedroom house when we had no kids, but we were planning ahead. We just didn’t want to have to move and settle again when it was time for kids. With our buying power we could have settled for something really small and cheap, but we really did search for value and hopefully something we would never want to upgrade. Just to simplify and help advert the mid-40s upgrade down the road.
Not only did we buy big, but we bought brand new. I would do it again in a heartbeat. We get a lot of assumptions, that a big, new house is very expensive to upkeep, the utilities and maintenance must be insane. Quite the opposite. Our first home was actually a newly renovated condo that we lived in for 2 years. Since it was all but new we never had any maintenance or repairs. We are now five years strong in our second home in the same situation.
The friends and family who went for the smaller cheaper houses have regular large repair and maintenance expenses. We have found it far more useful to limit those expenses the first few years of home ownership, so we could build a cash reserve as the house ages and the repairs begin to come up. Personally I expect it to be a long while. Materials and building techniques today are so advanced from decades past. Our roof is rated to last 50 years and the copper piping is expected to last even longer. These are just a couple of examples.
You could argue that we put a much larger initial outlay buying a bugger home. But when we bought the price differential was pretty small. Today it is huge, but we have just had far more appreciation because we bought a little more than the bare minimum. An aspect of a unique market perhaps.
Another strange assumption we find is that we must have insane utility bills. Actually, quite the opposite is true. Many homes built today meet very strict energy efficiency standards. We have found it pennies on the dollar to heat and cool this house where there is usually someone home 24/7, as opposed to when we merely spent nights and weekends in our condo, and the bills were far worse. Our average electric/gas bill is $50 per month. We don’t use the heat or air conditioning half of the year because the house self regulates in the milder months.
Another big plus is I don’t see any remodeling in our near future, everything is as we chose it and is brand new. I know too many people who bought the cheaper house but then sunk much into remodeling over the years.
I know buying bigger and newer is not always the smartest solution, but wanted to share another point of view. One thing I will admit that has backfired from our plan is that we have come accustomed to a big, fancy house, pretty quickly. It is amazing to me that this house was more than we know what to do with five years ago, and just a few years later we are starting to entertain another move for more house. Maybe our plan has backfired as we have come accustomed to a lot of luxury in a house, at a very young age. But for the most part, we have hardly sunk a dime into our home since we purchased it, and don’t plan to for a long while. In the long run we have saved a lot more money going for value rather than cheapness.
That is the point I really want to get across. It amazes me how sometimes when it comes to a purchase as big as a house, people throw their ideals of value out the window. To me, the bigger the purchase, the more something like value becomes important. Just some things to think about next time you are house shopping.