I have a friend who loves the Dollar Store. He is lured in by anything that is really cheap and can’t resist the urge to buy something. We sometimes see our buyers having a similar mindset when buying a home. Short-term this may get them a great deal on a home, but long-term I’m not sure this is the right strategy. Sometimes a little more money spent up front can make a huge difference in your satisfaction with the home and its long-term resale value.
- There is a reason it is so cheap – The cheapest home in the neighborhood is usually cheap for a good reason. Maybe it is in poor condition, suffers from an unusual floor plan or is in a less-than-desirable location. When the real estate market improves, guess what, it will still remain the cheapest home in the neighborhood for those reasons and will remain difficult to sell.
- It is VERY expensive to expand or modify a home – Cosmetic fixes aren’t usually that difficult and can be done for a reasonable amount of time and money, resulting in a home that is worth more. The trouble comes when a home suffers from a poor floor plan or configuration. The minute you start moving walls and utilities, the cost of a remodel will skyrocket. It is also terribly expensive to add a 2nd story, add a bathroom or increase the footprint of a home. Often it will make more sense to buy a house that is in your desired configuration rather than trying to retrofit the cheaper home.
- Is it really the configuration you need? – Maybe you’re single and will be satisfied with a 2 bed/1 bath configuration for the near term. However, owning a home is a longer-term commitment. If you believe that your family situation will change and grow, find a home that you can grow into over a few years.
- Focus on resale – Eventually you will have to sell the home. It is easy to ignore resale in the excitement of buying a home, but important to do so if you want to pay attention to the long-term investment that you are making. If the home is too small (or too large) you will immediately lose most of the population as a potential buyer. If you have the option, focusing on homes with 3 or 4 bedrooms and 2 or more bathrooms will maximize the pool of buyers when it comes time to sell.
- Do the math – It is easy to focus on the higher sale price and be deterred from buying a nicer home. However, with today’s low interest rates, mortgage money is cheap and the difference in your monthly payment won’t be as large as you may think. You also need to account for tax benefits to owning a home to figure out the effective monthly payments that you will be making, after tax breaks.
By all means, if you are at the top of your budget, don’t let this advice put you in a situation where you are “living to pay your mortgage”. However, there are times that spending a little more will get you a lot more in the long-term value and satisfaction in your home.