The housing market has changed in the last few years, and with those changes should come a change in our approach to buying a house. We need to get the best deal on a home that we can, and that can only be done upfront.
Here are five reasons to buy the least expensive home in the neighborhood or subdivision.
Premium prices are mostly about cosmetics
In most neighborhoods and subdivisions houses are pretty standard from one to another. A builder buys up a tract of land, subdivides it into individual lots, then puts up dozens or even hundreds of essentially identical units.
If that’s the case, then why are there price variations of 10% to 15% on properties for sale in the same subdivision? Cosmetics. Clean, new paint job, nice landscapingâ”but nothing you couldn’t do yourself after moving in.
Ask any successful real estate investor and they’ll tell you it’s better to buy a house that needs a good cleaning, a fresh coat of paint and a yard clean up. You’ll get more house for the money.
Until a generation for so ago, first time home buyers often bought fixer uppersââ”houses that needed some love and elbow grease. Today, everyone buys turnkeysââ”houses that are in move-in condition, no remedial work necessary. It may be more convenient to buy such a property, but you’ll pay more for it.
Any extra price you pay will be financed
There are two important points to remember here:
- Any premium you pay for a house will be proportionally included in your mortgage and paid for over a 15 or 30 year period, and
- The benefits of the cosmetic superiority of one house over another will last about five years at bestâ”after that, you’ll have to start replacing and repainting anyway
Let’s say you have a choice in buying Property A that needs some tender loving care for $200,000, and Property B that’s in mint condition and selling at $225,000. You plan to put 20% down in either case, and take a 30 year mortgage for the balance. The down payment on Property A will be $40,000, while on Property B it will be $45,000.
The mortgage on Property A will be $160,000, and on Property B it will be $180,000. At 5%, the monthly payment on Property A will be $859, while the payment on Property B will be $ 966. That’s a difference of $107 per month; over 30 years, that’s a total of $38,520 over the life of the loan.
So here’s where we’re at: you’ll pay an extra $5,000 on the down payment for Property B, plus an extra $38,520 in mortgage payments, for a total of $43,520!
If you buy Property B, all that extra money will be paid so that you can avoid some routine work on the house and maybe $5,000 in cash outlays to bring the house up to standard. That doesn’t sound like a good deal at all.
You’ll probably customize the house when you move in
I’ve seen people move into recently redecorated homes, only to do their own redecorating just a few months later. The old new carpets and window treatments are pulled out and replaced with new ones, as are late model kitchen appliances.
The point is, when you move into a new home, you’re going to customize it to make it your own, no matter how superior the condition of the home was when you bought it. Style by Carden Exteriors can help you make the outside of your home really look like your home, because making a house your home doesn’t just mean making the inside look nice.
Neighborhoods determine property values, not the houses in them
It’s easy to fall in love with a house when you’re out lookingâ”emotion plays a huge role in the purchase of a home. But it’s equally important to realize that a house doesn’t establish value; the neighborhood the house is in plays a far greater role.
It’s sometimes said that when it comes to buying a house, you’re better off buying the cheapest house in the most expensive neighborhoodâ. If you follow that advice, the house you buy will be on the lower end of the price range. They’ll be room to increase the property’s value by making improvements after you move in. But if you buy at the top of the range, there’s little you can do to increase the value.
Getting the best value on a home is more important than ever
It’s more important than ever to get the best value on a house. Property values have proven to be highly unreliable in recent years, and that makes buying smart an imperative. We no longer have steady price appreciation to bail us out of a bad deal. The price paid up front may be the price for a very long time.
What do you think about buying the least expensive home?