It happens to many. We purchase a home thinking we have found the oasis that will serve our needs for a lifetime. A few years later children arrive and the oasis seems a little more cramped. I sit in this exact conundrum at the moment as my wife and I look at purchasing a larger home. Penning my thoughts provides benefits two-fold in a) providing you with thought-provoking information while b) helping me work through my decision making process.
My wife and I now have two bouncing baby boys whose ages are 18 months and 4 weeks. When I say bouncing, I mean bouncing. If our second-born boy (Bo) follows in the first boys (Kiaan’s) active footsteps we are definitely going to need more space. Also worth consideration is when the in-laws and others visit Wellington and stay (or if another brother or sister comes along one day).
If you had asked 2 years, 18 months, or even 6 months ago a move was never on the horizon. We didn’t need or want a bigger home. But oh my how quickly things change. Now, the wife has a serious four-bedroom plus new listing search saved on her phone and my messenger inbox is constantly pinging with potential new family homes to vet.
No secret to anybody is the heat in the property market. Daily I see jaw-dropping prices filtering through our office. Those who are looking to purchase right now find themselves going through a very serious period of demoralization followed by a very quick period of acclimatization. We personally are very lucky in the respect of already living in an adequate (if a little small) home at the moment but this also makes us (me in particular) a little picky for the next move.
As the search and time progress, it is very easy to let the wallet wander and the budget stretch. A large proportion of people I talk to in real estate are in a similar position. Many are wanting to take advantage of the low-interest rates and possibly thinking a higher price bracket gives them more value for the money.
My wife and I have seen a home that we have both fallen for but it is a little more pricey than either of us was ever considering! A definite forever home. The question is do we or don’t we buy? Let us look at a few pros and cons:
Positives
- Obviously the main pro for me is the benefit the children will have to live in the house, this is the reason we are even considering the purchase in the first place. Large grounds and a spacious home mean that time spent there will be nothing less than enjoyable. After all, you only live once so why not enjoy it. You spend a lot of time in your home so I don’t begrudge anyone for having a nice one. An added bonus is more space may mean out of town family feel more inclined to come and stay!
- Often, by going much bigger you do get more value for money. The more expensive the home the fewer people who are able to compete to purchase. In an absolute sense, you can get more house and land by increasing the price.
- Larger homes can attract a premium on resale. Below in the cons, I state that “larger homes tend to have more volatility in the market”. This is true, but from a pro perspective, a higher-end trophy home can really attract a premium on resale if you nab the right purchaser. They are often harder to price but when you are attracting a demographic that are financially affluent, you just don’t know when Mr or Mrs Moneybags might stroll along. A larger home in theory should also attract more capital gain (a 10% market increase on $2,000,000 is $200,000 where a 10% increase on $800,000 is $80,000) but in practice, it often doesn’t work exactly like that. Remember, your rate of appreciation on the mansion will often not necessarily be as good proportionately compared to a lower-priced property where the affordability level means there are more buyers competing.
- You probably won’t need to worry about the stress and cost of moving for some time if a much larger home is found. Every move has stress and costs associated with it. The dreaded commission fees from the agent, solicitors’ costs, moving costs, purchasing more furniture, and appliances. You name it, it is there. Add to this the time it takes to actually find a home and submit a successful offer. One move could be much more efficient long term.
Negatives
- Taking on a significant amount of debt with a personal residence reduces your ability to invest elsewhere. There is going to be a point at which the bank looks at you sideways when you come with cap in hand. Tying up a lot of your borrowing capacity in your personal home goes against what most investors will tell you is the smart thing to do. In basic investment terms, your personal residence is a liability and not an investment as it costs you money (although with capital gains, I would personally argue against owning your personal residence as being a bad idea). Long story short, owning a large family home is not always the smartest financial decision.
- Owning a larger, more expensive home means everything by default becomes more costly, starting with the obvious, the mortgage. But add to this the rates, insurance, heating, and electricity costs. This all should be factored in. The belts will need to be tightened and potentially more of an eye kept on the outgoings. It will no doubt be physically more property, meaning more upkeep and maintenance. Where a smaller lock and leave could mean more time to get out of the house.
- Larger homes tend to have more volatility in the market. The statistics combined with a bit of intuition shows that the top end of the market is usually the first to come off the boil when a market starts to slow. The peaks and troughs in value can also be more pronounced (this could be a pro or a con depending on when you brought and sold). As you can see from comparing two Auckland suburbs below, Mission Bay made great gains between 2016-2017 but if you had brought in 2017 your property could be worth into the hundreds of thousands less right now. If you had brought in Titirangi in 2017 your losses would be mitigated/nonexistent. I chose Auckland not Wellington as some of the higher-priced Auckland suburbs tend to have a little more visible volatility on the graph. But that is a good thing right? It shows that Wellington is more consistent overall.
- If you are buying the most expensive home in a moderately priced suburb a) capital gain potential may not be so great due to neighborhood constraint and b) resale could take longer, especially if the market takes a hit.
- Stress and worry due to living “house poor”. A major benefit of upsizing is the lifestyle it brings. However, if the cost of this lifestyle means one of the parents having to work many more hours (or potentially both parents having to work many more hours) is it worth moving anyway? The last thing I want to be doing as a dad is thinking about work when I am trying to be present with the kids at home. You also need to factor in a lack of disposable income that comes with higher expenses. If you think you may be living to fund your home, it could be worth reconsidering.
- Will you need to sell to buy? A tricky juggle may need to take place. The age-old story: Do I sell before buying? Do I offer subject to the sale of my current property? Do I take out a bridging loan? If you take out a bridging loan be aware that the acid may really come on if you are not getting the interest you initially think you may. This could result if being forced to accept an offer less than you had budgeted for.
The outcome
What did we decide to do? After weighing up the pros and cons we did decide to break open the piggy bank and offer on the home we really fell for. Unfortunately (perhaps fortunately who knows) we were not successful in purchasing but that is ok. You win some you lose some, the search continues.
I sincerely hope this blog has helped give you some take aways if you are in the same boat. If you would like to chat about your situation or would like an online sale quote please do not hesitate to get in touch.
