Why I Say Buy A Big New House

Buy a big house

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.

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31 Responses to Why I Say Buy A Big New House

  1. Teri says:

    Oh gosh – I need to add more too. I forgot to say in the article that I always see “people with big houses have to go buy a lot of furniture.” I would honestly be surprised if we spent more than $3k on all of the furniture in our entire house over the years, and yes we had a couple of years with a few completely empty rooms before we had kids. So be it, nothing wrong with that. 😉 Nothing about planning ahead made us feel like we had to fill up the house right away. Our house is mostly filled with hand-me-downs and used furniture though, but regardless how big or small the house is, that is how we buy bigger items – mostly used.

    We have also never bought a lamp or a light bulb – recessed lighting and ceiling fixtures throughout the house (& our last home) – all CFL – 5 years and going strong – no doubt helps the electric bill too.

  2. Jason says:

    Here again the disconnect between housing prices and income for young adults is put on display. For those that take their undergrad degree in business or engineering and enter the workforce, maybe the idea of buying a $300k or $400k house isn’t a stretch, but not everyone has taken that route. Financial advice has neglected those people that have taken out student loans to finance a masters or PhD and whose jobs do not pay 6 figures. Maybe the assumption is that those people should just take an ARM, but why should that be the assumption? For me to save up in my area (Boulder, CO) to buy a big-house (or just buy a house for that matter) is an exercise in futility, but no financial advice ever acknowledges that possibility.

  3. darren says:

    I have always heard that purchasing the least expensive home in most expensive area that you can afford is the best way to go. This is because the least expensive houses in the best areas will have the most demand in future years and will be the easiest to sell no matter what the market forces are.

  4. georgia says:

    I can bet right now that this was written by somebody who lives in a hot housing market. Everyone who lives in California or Florida or someplace else where houses have appreciated a tremendous amount always say things like this. The problem is that housing in all parts of the country have not done this. While I am happy for you your luck in getting a house that has appreciated a great amount, giving this advice to others who live in other areas is wrong.

    While there may be certain circumstances where this may work, I don’t think it is good advice for most people who live in the USA.

  5. Boston Gal says:

    Larger homes generally mean larger real estate tax bills. You are also likely paying larger insurance costs. If you have empty rooms you are still paying to heat/cool them, pay taxes on them, and insure them. While you might eventually fill those rooms with children, if you don’t you are wasting money.

    If you had gone with a smaller (say three bedroom) brand new home in the same area I assume the purchase price would have been lower, your real estate taxes would have been lower, and yes, your already lower utilities bills would have been yet even lower.

    For a couple with plans to someday have children, a three bedroom home seems just as logical an investment “with room to grow” as a five bedroom home. But I guess that depends on how many children you anticipate having…

  6. savvy says:

    Every $1,000 in additional mortgage taken out over 30 years at 6% costs $1,040 in interest. An extra $100,000 in mortgage loans would have a payback value of over $200,000.

  7. Amy F. says:

    Despite all the naysayers here (who do make good points), I think this is a really interesting article with a perspective I haven’t heard before. If I change my mind about buying a place in the future, I will remember your words.

    One argument I’ve heard against buying new is that new homes can have significant defects, and if you’re the first owner, you’re the one who gets to find out about them the hard way. I’ve seen people buy brand new multi-million dollar condos that flooded at the first sign of rain. But hopefully a good home inspection would prevent that from happening to most people.

    Buying used furniture certainly saves a bundle over buying new, and often only requires a slight compromise in quality if you’re willing to look.

  8. Teri says:

    No, we don’t really pay any more for real estate taxes or insurance. Just to re-iterate that the price differential was only $30-$50k when we bought – by going from smallest and cheapest to more luxury. YEs, I did say we were in a unique market, property taxes are locked down not to rise too fast, so makes little difference. In fact, we would be way worse off starting smaller and upgrading later (same house would be double the property taxes if we bought today – since they slam you with the property taxes when homes change hands).

    Darren – we actually did just that – bought a much more cheaper/modest house (compared to the others in the neighborhood) in a very upscale neighborhood – and you are right – this is part of the reason we have seen such gain. Going middle of the road is really the way to go if you ask me (we didn’t buy *the* cheapest and today in a slumping market our models are selling strong while the 3-bedrooms languish – interestingly enough – because only move-up buyers are buying right now. On the contrary, higher-end is now out of the reach of most – but being in the middle seems best). BUT if all you can afford is the cheapest house in a nicer area – by all means – the way to go.

    The key here is we moved somewhere cheaper to significantly lower our cost of living. & I felt we were smarter buying a little nicer than just going cheapest. you don’t have to buy a $300k or a $400k home to do so. The difference between cheapest and buying more value is often just another $20k or $30k which just may pay off in the long run, and that is simply my point. Regardless of short-term home fluctuations, for the long-term, will most often pay off more. I also see too many people buying nice houses in compromised locations, which is the opposite of Darren’s advice. Just dumb for the long run. In that case I will agree, you’d be better off buying small/cheap in a nicer area.

    You all don’t know but we bought a condo to start in the San Francisco area and when it became plain we could never afford a house there and have any sense of financial security in the process, we left. I would never recommend buying more house than you can truly afford. That is not my point at all. Just to clarify. We actually downgraded and paid far less for this house than we sold our starter condo for because I am not interested in financial ruin for a piece of home ownsership myself. Nor do we make anywhere near six figures – it is all a matter of perspective. From where we grew up a $300k was pretty darn cheap compared to what we had come accustomed to in the housing market. We only financed 70%. This article is for those who have a choice – who won’t risk financial ruin by buying a little more value. I just have to qualify that because you all don’t know me, but I would never recommend buying more home than you can truly afford, or financing a home with an ARM, etc. But having grown up in an insanely expensive housing market I know a $300k house is not that hard to get into if you put your mind to it. Our mortgage is far less than renting a 1-bedroom apartment in the worst part of town, back home, all a matter of perspective!

  9. Emily says:

    When my husband and I bought our house three years ago, we had to decide between a smaller house in a better neighborhood or a larger house in a worse neighborhood. He wanted more house, I wanted less house, just because the bigger the house the more time and money you have to spend to clean and maintain it.

  10. Teri says:

    P.S. I don’t mind naysayers – there is plenty to argue against buying a big new house. But in general a lot of the arguments I hear against it often make me cringe, as I don’t find a lot of truth to them. Just sharing another point of view, really didn’t expect many to agree. 😉

  11. Teri says:

    EMily – I really agree smaller in a better neighborhood is better than bigger in a worse neighborhood. That is another way it really comes down to value. You are getting more value for your dollar that way.

  12. Dan says:

    Not only do I agree with buying the large house, provided you can afford it, but the media has completely misinterpretted and overhyped the risks associated with Interest-only ARMs. Agreed, the Option-ARMs are risky and generally not a good idea, but the standard say, 5 or 10 yr ARM is no more risky since most of the initial payments on a conventional are interest payments anyway. I’ve performed a full financial analysis and have the results and spreadsheet available at my blog:


  13. Nigel says:

    After reading this post, read the following, just to get both points of view 🙂


  14. Uri says:

    This logic in this article is unsound.

    For starters, it implies that there are only two choices: big new houses and small old houses. Why were small new houses excluded from the list? The cheaper maintenance benefit disappears if such a house exists. The bigger new house will cost more. However, the author is correct that newer houses almost always will cost less to maintain than an older house and preset less risk when buying.

    What evidence do you have that a big new house must appreciate more than a small old house? Even if history were evidence, this article still fails to show causality. If both small and big houses change at the same rate, then owners of big houses are trapped when housing prices decrease not the other way around. The owner of a $200k house only owes $20k on a 10% drop while the owner of a $500k owes $50k.

    You are correct in pointing out that buying big eliminates the need to move later when you have kids, but it certainly doesn’t save you money.

    In summary, a given house during a given time period may be a good investment but housing is a terrible investment. You do it only because you need a place to live and its better than the alternatives. To buy a house, you must leverage large amounts of money – which you likely don’t have. They are highly undiversified historically relatively poorly performing investments.

  15. cw says:

    “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.”

    Perhaps in your case, the build quality is just that, “quality.” However, I live in one of the “bubble” areas (phx. metro) and my family has owned/operated a residential/small commercial masonry company. All I have to say, the vast majority of construction (even on mcmansions/newer large homes) = atrocious, and it is a common fallacy people make when buying new (i.e., thinking new = problem free).

    I’m not saying this is true in your case. You strike me as a person who does their due diligence and all of that (so, nothing for you to worry about). However, I want to warn those out there who have a choice between new build (in one of these subdivisions that have sprung up over night) vs. older ranch home…. Quite frequently, the older homes (though they do require some maintenance) are “proven” (i.e., if they’ve lasted for 20-30 years and the foundation/structure is still in good shape, they are probably more reliable than *most* new builds).

    That’s not to say that build quality of newer homes isn’t up to par in specific circumstances… But, by and large, the enormous surge in demand for new builds (now cooling, though I still see new staking here and there for homes that have *yet* to be built) led corners to be cut in everything from the framing to drywall work. Essentially, builders were making such a killing (and got so greedy) that they sacrificed quality for quantity (to get rich quick before the bubble burst).

    I’m not sure where the 300-400k home you’re talking about is located (i’m not a frequent reader), but for most people (who don’t know a reliable house inspector/relatives who know about build quality)…. well, caveat emptor! From what I’ve seen (and heard, even from other blue collar workers like plumbers who get called out on emergencies), it is normally the new builds that are the sketchiest.

  16. cw says:

    “my family has owned/operated a residential/small commercial masonry company”

    meant to add, “for multiple generations”…. though, I’m by no means an expert (just know some basics… I’m not part of the company, though I grew up around plenty of job sites).

  17. livingplanet says:

    nice article. the meta message is, as i wrote last week,a house (or car) should fit your and your family’s household needs. these are just instruments to improve the quality of family life, which is very important in building wealth. if you need to spend a little more, go for it. the mantra should be, buy top of the line, but never full price.

  18. Phil says:

    I don’t agree. Usually you buy your first home at around 30 (if you’re lucky, I think that age is rising due to unaffordable housing, but I digress). It’s not a good idea to be in a position where you can just barely afford to pay the mortgage. No, better to buy a low end home, pay off early and then go on to buy another home (again, not really a high-end home, though maybe in a different neighborhood) and rent out the original one. Repeat if you like.

    As far as buying new goes: The problem with that in many areas is that the property tax can be significantly higher for the new home than it is for a comparable older home. The reason for that is that many states have limits on how fast property taxes can rise. But a new home starts out with the property tax valuation which you bought the house for. Where I live the difference can easily be $1000/year and in many cases much more than that.

  19. Paula says:

    I notice no one has mentioned the effort of keeping a big house clean. We bought a 7 bedroom house, and have 3 kids. It has lots of room and the kids love it, but I spend massive amounts of time trying to keep up with the dust, clutter and spiderwebs.

  20. Teri says:

    Phil,I live in California, and the opposite is true. Buying up, in the market in the last 30 years (not just in recent years) means a huge increase in property taxes. Better to lock them in for life here. IF we moved and bought a similar house today our property taxes would more than double, from $3k/year to $6 or $7k. At the time we bought, property taxes and insurance were not much different between our home and smaller/older homes. Property taxes are pretty much locked in – unless laws change – until we move. But you make a point – all things to consider based on the area where you live.

    I never really got that cleaning argument either. All the more reason to go new I guess. Newer materials are easier to keep clean. I don’t spend a lot of time cleaning the house – it just doesn’t get dirty – no cobwebs or anything. I think it is a newer material thing more than anything. IT doesn’t have any more kitchens or bathrooms than a smaller home, and to me that is what I spend most time cleaning. OF course as a family we all share house work and such, not like 1 person is stuck cleaning the entire house. I just haven’t found it a big deal myself.

  21. Angie says:

    We built a large house nearly 5 years ago through a reputable company. We have had the basement do to a bad pour on the driveway-which they fixed. The master bath toilet leaked twice-my husband finally repaired it himself and a number of other small, but frustrating things happen. Our utility bills are the same as when we lived in our small, but old house. Our property value has skyrocketed along with our taxes. It takes a lot of work to clean and maintain such a large house and yard, using our evenings after work and most weekends to keep up with it. We are planning on scaling down shortly to free up time to do other things than sinking so much time, effort an money into owning and upkeep on our house. We did build with resale value and have kept walls, counter, flooring, tile, etc. in all neutral shades which helps with resale. Be careful the amount of debt you get yourself into. Choosing a house that requires two incomes means that no one will be able to stay home with the future kids should that desire occur. When my kids were little, only desperation would have had me working and dumping them into daycare every day. We planned our finances so I could stay home with our future children. Now one is in high school and the other college. We thought a big fancy house was what we wanted and found out it is a great deal of work and stress instead. I am ready to go to a smaller, simpler house and way of life. My advice–weigh your options, know your lifestyle and what suits you and plan ahead to make your dreams come true. My mistake was thinking my dream was to own a large custom house. Instead I want a simpler, less hectic lifestyle with more options. Those options aren’t alway available with the big, expensive house. They take more of your life energy than I would have ever imagined.

  22. Bruce says:

    We just recently bought a 600 sq ft smaller house than what we had. Our family is adding one more member soon, so that is not why we downsized. We like smaller much better for several reasons: cost of taxes and utilities are less, cleaning and upkeep is easier, and it is more “homey.” We are not soooo spread out, our family is closer. As a realtor I can tell you in this area the bigger house is going to take much longer to sell than a smaller house because many people prefer a smaller house, and the higher price knocks out a large part of the buying market. I have also heard horror stories about the quality of “new.” Established neigborhoods are also better since it is already built out, you won’t get a “suprise” in your area. And you know what the traffic is like. And you know how safe it is. Althogh these things can change, established is typically more stable.

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  24. Montreal says:

    I don’t want to buy a new house because 1) new houses are mostly out in the suburbs, 2) new houses have no character & they aren’t homey (unless you can afford to hire a great architect to design a house just for you).

    I don’t want to buy a big house because 1) I don’t want to be more in debt than I need to be, 2) I don’t need or want a lot of extra space, nor do I want to have to clean it!, 3) Again, big houses are more likely to be out in suburbia, 4) no plans for more people than we already have.

  25. Teri says:

    Angie – I certainly understand your viewpoint. Since we moved to a cheaper area we in a sense “downsized” and made a simpler lifestyle. I guess my point is the 2 aren’t mutually exclusive – I agree with all your points. But if we had gone much cmaller and cheaper it would not have been as good as an investment. (I would never buy a house that required 2 incomes to maintain though – and we picked a house that required much less maintenance and upkeep than others – too many assumptions here. 😉 )

    Bruce – you make interesting points as well. We actually have a very cozy home (2600 sf is not that huge and layout makes a big difference). Plus around here 3-bedrooms are not selling, they are plummeting in value, while a more mid-range house like ours goes strong. This varies from place to place, but I would not assume small would hold it’s resale value – not the case here at all.

    But maybe I should have titled this – why a say buy a medium, new house – LOL. You all bring up great points about going too large, indeed.

  26. LOL @ You says:

    Wonder why you’re not on this website anymore, and I wonder how your bigger house is doing these days. Blew up in your face I’m sure. This advice was atrocious, but of course, things were much simpler in 2007….

  27. Mari says:

    honestly this post has loads of contradicting information. Buy a home with 5 bedrooms once your kids move out? This makes no sense…sip margaritas on the beach lifestyle if you had bought the house initially? good luck with that with all the insurance costs and maintenance costs…all this makes no sense

  28. Patrick says:

    It’s only a paper gain, who cares really?! You will always pay for a place anyways, with the big ass house you will wish the appreciation stops at one point because your tax will go up. YOu have to buy something within your means, Why buying a MCMansion if you have to sell it at a loss(MOTIVATED SELLER ANYONE???).

  29. jmramella says:

    I can bet your all in debt up to your eyeballs!!!

  30. cici says:

    Hows that all going now in 2014?

  31. Holly says:

    What did you eventually decide on?

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