Should I Buy a Bigger House?

 In #Buying Real Estate, #Real Estate Investing, #Thoughts

As a homeowner, you may be thining about wanting to upgrade into a bigger home. The biggest thought right now, is does it makes sense to sell right now while values are down, just to buy a bigger house? In this video, I explore that option.



Hey y’all, Zach McDonald, your real estate agent with Real Property Associates, and today we are going to discuss whether it makes sense to purchase a larger house or buy a bigger house in a down housing market.

I encounter this question frequently right now with people that I have worked with that own a house currently and are debating whether it makes sense to upgrade their house or buy a larger house while prices are down. And I’ll be honest, I’m even thinking about these same things. And when you start to make those considerations, you start to think through, well, do I want to be an investor and hold onto my house and buy another one? Do I want to sell the current one for less than I could have sold it for? Do I want to be an investor or or a landlord for a little bit? And then sell it when it’s worth more? There’s a lot of different considerations. I would say, as you’re thinking about this, I don’t really want to spend a lot of time on that in this video. I want to think through the financial implications of buying a bigger house when the housing market is down, because I think for some they think, well, if I sell my house that I have right now for less, that doesn’t really make that much sense and I think we need to think about this differently.

How’s that? So there are a few considerations outside of those that we’re not really gonna dive too far into here. I think the question of whether you should buy a bigger house has to be answered with, you want to do that already or need to do that. I think there’s no reason that you need to buy a bigger house, right? Nobody’s forcing you to do it. But if that’s the plan, you know, the bigger mortgage, more interest payments and more property taxes, that’s a consideration for somebody buying a larger house for sure and increase upkeep in maintenance. That’s also part of owning a bigger, nicer, more expensive house. So those are all things that are going to go up. Expenses are certainly higher. And as we look at this and consider, I wanna look at some simple math. So if we were to, let’s say last year, look at a house that is worth $2 million and you could have sold your current house for a million dollars, right?

You would’ve paid 2 million for the new one and sold your other one for a million, right? Pretty simple. If we look at what houses are selling for right now, and let’s factor, let’s say 20% less in the Seattle area than what you might have been able to sell for at the same time last year. All right? So 20% less of the million dollars is 800,000. So you’re gonna get 800,000 for your house, but when you make the purchase of the nicer, bigger house, you are getting that same 20% discount, but the dollars are a lot bigger. So you’re losing or missing out maybe on $200,000, but when you make the purchase, you are benefiting $400,000. So you’re paying 1.6 million for the same house that you would’ve paid 2 million for. That’s a $200,000 delta. So yes, you’re missing out on some equity that you don’t have anymore on paper, but you’re benefiting significantly on the other side.

So if we were to see the housing market just rebound back to where it was, you would’ve gained back the 200,000, but on the purchase you would’ve gained $400,000. So at the front end you are saving or benefiting that difference, and when they rebound back, you’ve essentially doubled the amount that you would’ve gotten back in return just by having the bigger house. So I think the simple answer, and again, we’re not factoring every single little expense in, but just from a conceptual idea, if you want to buy a bigger house or upgrade your house while the market is down, you’re essentially trading that money from the one that you have or the equity that you have into the new house. And you might want to put more down on the purchase as well, because that will reduce the amount of your monthly mortgage payment, interest payments and all of that.

But I think as we’re looking at or considering buying a larger house while the market’s down, I think it makes a lot of sense because number one, you are able to have a discount on the purchase price. You’re buying the new house at a better price than you would’ve purchased it at. And again, the bigger the house, the more expensive the house is, maybe the, maybe it’s a different neighborhood even. Maybe all you do is just move into a nicer neighborhood. Maybe the house isn’t even any different. You’re still getting a deal on the purchase in that more expensive community or for the nicer house. So you’re getting a discount on the front end. You are also going to have more options to choose from. There’s a lot more choice when the market’s slower than there is when you’re in a really, really competitive market.

There’s also number three less competition. So you don’t have as many buyers trying to buy the same house. You don’t have to pay over asking price necessarily. You might be able to have more favorable terms in the contract. Right? And that last piece we were just talking about, and I think that’s the big one that has been the hurdle for some as they think through this, they think I’m missing out on something by selling my house now, but not thinking about what the opportunity cost is in the future. And when you have a bigger house, a more expensive house, the same amount appreciation is going to be larger in dollar amounts on those more expensive houses. So not only are you benefiting right at the beginning, but once we get back to even, you’re going to continue to benefit into the future with the increased appreciation.

Again, the appreciation is going to be about the same, but you’re going to see more dollars back on a larger house than you would on a smaller one. As we wrap up this discussion about whether it makes sense to buy a bigger house in a recession or a down housing market, I think it’s important again to look at the actual numbers. And yes, you might miss out if you sell your house for less in the short term, but I think that the return on investment or benefit in the future outweighs the losses in the short term. Thanks so much for watching this video as we dialogue a little bit about this question and whether it makes sense to buy a bigger house in a down housing market. If you have questions about upgrading your house or making a move during this down market, maybe you have a house to sell and you’re thinking about another purchase, I’d love to be a resource for you.

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