I am going to be honest; while I love looking at real estate I always am nervous about purchasing. The process of finding a home and then putting a value on that home is frustrating, particularly in an expensive market like California. We have gone through approximately 15 homes in the last week and we found one we liked. It was over the maximum amount I had planned on spending, and yet here we are contemplating making an offer at my maximum (50K below asking). Home ownership is rough on top of home purchasing.
How to justify home ownership!
I am buying land
The property comes with 0.6 acres. The land is usable and unfinished. This means I have room to put in a play ground for my son, plant some fruit trees, or even put in a pool one day if I want. Finding usable land (i.e. level) with a view (typically on top of a mountain with a steep grade) is hard to do. I think that this property provides that unique combination that will retain value going forward.
It has a view
It is hard to put a price on your lands view. For instance, in San Francisco ocean views or park views are desirable. Those properties are worth $ 50-100K more than a similar property without a view. Therefore, buy owning that land; you have increased the value of the home in a permanent way. You just have to make sure the view will never be obstructed by future construction, etc.
Privacy is another item that is hard to put a price on. Often with subdivisions homes are built on top of each other without room for privacy. This home has a neighbor on each side and open land on the back. The neighbors cannot see into the patio space, nor can we see into theirs. Being outside you feel like you are all alone and not in a neighborhood.
It is not a McMansion
While expensive, it is not a huge house. It is 4 bedrooms and 3 baths for a total of 3100 sqft. While I cannot justify spending extra money on unused space it still has yet to be seen if we will use all 4 bedrooms. If we have another child then we could, but honestly 2500 square feet is probably enough, but we did not see any at this size that we liked.
We are planning on staying here for at least 10 years
Homeownership is not a great investment. In fact, I have not made any money on my last two homes. I am not looking at this purchase as a financial investment but as a place to live. It will not be factored into my retirement calculation because I know it is a fairly illiquid asset with no guaranteed return (heck we may end up moving in 2 to 3 years and then we will surely take a loss). But my plan for now is to be here for some time. If that is the case, then I may as well live somewhere that I will enjoy. As they say, don’t buy a house unless you plan to be there for 10 years…so here we go.
It is still in my preset limits
While at the utmost highest price point I wanted to spend, it is still within my predetermined budget. I am not stretching my price point by $50,000 or $100,000 and will be able to afford the mortgage note, though it will hurt my savings rate for a little while.
One important thing to remember is not to think in terms of monthly payments. Now I am guilty of this. I calculated that for every $100K I spent on a home, I would need $350 more in mortgage at my quoted rates. This is a bad way to do things. The monthly payment is very important, but you should never go over your maximum purchase price. By thinking in monthly payments you can convince your self to buy more than you need. This is why cars and furniture are financed. You can justify buying that $40,000 car for $500 a month when in reality you can’t afford it.
Interests rates are low now and likely to go up
Interest rates are currently low and I doubt they will get lower. I suspect in 6 months to a year we may see an increase which would make buying a home much more expensive.
So while I have placed an offer that is quite high, I am not too stressed. Buying for the right reasons and understanding those reasons will allow for a good purchase. Also not going over your predetermined budget helps. It is easy to get caught up in the moment and emotion and buy something that you may later regret.
What do you think, is it a mistake to buy a house at the top of your budget?