Thursday, July 19

Housing Strategies

Well, once again a reader comment has me thinking! This time I'm wondering about housing costs. Yesterday I advised saving money on housing by choosing a place that was less desirable and therefore less expensive for one of three reasons that housing is priced on:

  1. Size
  2. Beauty/quality
  3. Location

So if you rent, I think that you know what I mean immediately. Those of us who want to achieve financial independence have to go against the grain. So we play with these three factors and find somewhere that not everyone else would want but suits us just fine. Often at half the price of what our friends are living in.

(By the way, I though of another way to save big money on rent: stay put! My own experience and every landlord or tenant I have ever talked to supports the fact that most landlords would rather keep a good tenant than raise the rent and risk losing him/her. The longer you stay, the more this pays off! Come to think of it, there are enough costs associated with moving and buying and selling homes that staying put is good advice for most people looking to save money, even if you own your home.)

But what if you are buying your house? Is it worth the trade off on these factors when you will eventually want to sell the house again in the end? Again, I think that the answer is YES.

Buying more space than you need doesn't make any sense. If you have extra money to spend on space, it is better off being invested somewhere. Get into the right size of place and save yourself a bundle!

Paying for someone else's decorating or renovations is fine if you can't or don't like to do this stuff yourself. But chances are you will want to make changes anyway. Why not start from something that saves you money when you purchase it? Bonus: when you go to sell, the ugly discount will no longer apply.

And then there's location. The one thing that you can't change, right? Well, sort of. You can't change it, but time can. Savvy buyers have always known to look for up and coming areas that aren't as desirable now but have indicators that they will be down the road. Or it's possible that you don't want to live where everyone else does. So you can save yourself a bunch by buying somewhere that works for you!

But this brings us to the big question: what about when you sell? My answer: Fuhgeddabowdit!

The real estate market is fickle, just like the stock market or any other market. Your care of the house and upgrades or improvements will count, your size and location will count, but in the end the market forces will still play the biggest role in determining the price of your house.

And you have been paying down your mortgage the entire time, right? In fact, you probably accelerated it and it's paid off now. And you had to live somewhere all those years. And because you were smart about not paying too much for housing you were able to save and invest more, right?

So look after the things that you have control over and don't fuss about the rest. Chances are good that you will do more for your finances by pushing your monthly expenses down and staying in the same house for 20 years than by trying to chase profit in your primary residence. If you mean to be a real estate investor then use the money you are saving to start investing in other properties!

And remember to keep your eye on the ball. If financial independence is the goal, then lower expenses mean that you need less to get there, and everything snowballs and gets easier and easier!


J at IHB and HFF said...

Hello. I agree that keeping costs down is a good guiding principle.

Do you use Canadian dollars in all your blog's dollar amounts?

Thank you.

telly said...

Great post!! you make a lot of great points that really got me thinking.

It's taken awhile for my husband and I but we're finally realizing that, like you said, market forces will play the biggest role on your resale price, no matter what upgrades you make or neighbourhood you live in. We're in a market quite opposite to the rest of Canada right now (sideways or even declining RE prices) so it kinda hurts when you realize that the ~$20k we've put into our house won't be recouped if we sell now, and in fact, our house would sell for less than our purchase price 3 years ago.

But you know what? We bought something small and inexpensive, well under what we could afford. Also, we've been enjoying the upgrades (many of which were for energy saving purposes) over the years so we try not to dwell on the cost of the upgrades and appreciate that we've still spent much, much less on housing than we could have.

Now we're just working on trying to stay disciplined to not give in and "move on up". Sure I'd love a pool and my husband would love a garage but it's going to cost us a fair bit more month to month for many, many years.

I appreciate your insight on this post. It helps many of us with the discipline thing. :)

Rositta said...

Let me throw something out there. From my vast experience as a former (20 year) realtor I would often advise first time buyers whether single persons or couple, to buy the most expensive house in they could afford with a basement suite. They would then live in the basement and rent out the house part for a few years. The income was higher and the benefit greater. Just a thought...ciao

evannoble said...

I recommend the great series of Not So Big House books by Sarah Susanka. There's about 7 books in the series now. It's roots are in architecture, but the books address why McMansions are so cold and uninviting and why a smaller house will invariably be better.

Paying off your mortgage fast is great if you want to be debt free as fast as possible. But is it the best way to increase your net worth? Probably not. With the average mortgage rate somewhere around 5%, it should be fairly easy to invest the extra monies at a higher rate. You'd need 7-8% since the mortgage rate of return is 5% after tax. But that is not difficult.

the money diva said...

Yes, all amounts on this blog are in Canadian dollars unless indicated otherwise.

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