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Upgrading to a Bigger House?

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I was out walking my dog last week and ran into a neighbor down the block who we "cordial" with. I wouldn't say we are good friends, but whenever we meet, we talk for 5-10 minutes. Before I met them, I envied their house. The developer of our little nook of a neighborhood used a similar plan for all the houses.

However they've significantly added on to the house. They raised the roof (in the rarely-used literal sense) and added an in-law apartment. It would be perfect for a hot well-qualified nanny (just checking if you reading, honey). It has two beautiful balconies in the front (though this is probably dangerous for our small children) and their garage extends to cover a third car (we'd use it for storage, not a third car). It borders on what I'd call a McMansion.

Alas, I'd never have a chance at the house as the owner made it clear in the past that renting it out for income is part of their core retirement plan. However, last week, she had a different story. They had some recent events that made them realize that their long-term plan of being a long-distance landlord might not be for them. She said that she was thinking of maybe selling in August and was curious if we were interested with our growing family.

I kept the best poker face I could and said that I'd talk with my wife, but I was (still am) excited. I have to admit that the scarcity of houses that I'm envious in our neighborhood plays a factor. I've never been one to want a huge amount of living space, but going from a family of 2 to 5 (yes the dog counts) in a few years has me thinking again about our space requirements.

The "problem" is that the house isn't going to be cheap. Not only that, but money in a house isn't accessible for things like paying for college or our retirement (unless you get a HELOC or something similar). Then again, that's not really what your home is for. It's for living life, right?

In an ideal, financial-specific, world, one would live in a tiny house in an area with a cheap cost of living. They might be able to own it outright in just a year of saving. From then on out, the money that would normally go towards rent or mortgage could be redirected towards your financial freedom. I proposed this idea a few years ago: Get Rich by Thinking Small?

The large house with an large mortgage (perhaps from the appropriately named Newcastle Permanent company) runs counter to that. The only saving grace is that we could rent out our current home. This would be stealing our neighbors plan to use income from our house as a tool for retirement.

As you can tell, I am conflicted on this. As a result, I feel like I'm rambling. Fortunately, there's a lot of time to think about this, and it might never be a realistic possibility.

Last updated on January 24, 2014.

This post deals with: ... and focuses on:

Real Estate

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7 Responses to “Upgrading to a Bigger House?”

  1. Could you rent out the in-law apartment in addition to renting out your home?

    Also, this may be the best line ever: “They raised the roof (in the rarely-used literal sense)”

  2. It’s always nice to think about the “what ifs” of a bigger and nicer home! I’ll admit to looking at real estate listings in my dream town from time to time ;) I wonder if they would let you tour it now so you could consider it early, and then you could buy it without an agent — I’m sure they’d like saving the 6% commission. Maybe they’d pass the savings on to you?

  3. Louise says:

    Hi! I bought a small house on my own, and then added a husband and two boys. Small is easier to clean and easier to manage, and the mortgage is better. But it would be lovely to have another bathroom, and another room where grandparents/friends could stay when they visit. If your current house has less than two full baths, I’d say move. If you are paying for an external storage space, remember you’d be saving that $$ by storing in your garage. Finally, you can put plexiglass around your balconies, preserving the view but making it safe for kids.

    • Lazy Man says:

      Louise, we have 2 and a half baths, but 3 bedrooms, so no room for any visitors as the boys grow (the rooms are small enough that they’d require their own).

      Rebecca, they’ve offered to let us tour it. We’ve seen it from the front door before, so we have a little idea. It’s a good idea to see about skipping an agent and seeing if they will pass on the savings.

      Michelle, we tossed out the idea of using AirBnB for the in-law apartment, so maybe that income is helpful.

  4. BB says:

    I’m curious as to what your current mortgage situation is. Maybe you don’t feel comfortable posting real numbers?

    How long have you been in your current house? If it’s been a few years maybe you have a higher interest rate. Would this higher-priced house possibly have a similar monthly payment due to lower interest rates nowadays?

    Also, has the equity in your current home grown much since you purchased? A cash-out refi is another option if you’re in a position to do so.

    Recently my family moved into a much larger home, going from 1,000 to 3,000 sq ft. It was a little overwhelming at first but now we’re quite comfortable. It does take much more effort to clean though.

    This home was purchased as a short sale, and quickly went up in value. We recently did a cash-out refi and are planning to use the proceeds to purchase an investment property.

    • Lazy Man says:

      BB,

      I’m actually working on a blog post where I post a lot of real numbers, not just my mortgage, so I’m happy to put it out there. It’s $2622/mo. PITI (principal, interest, taxes, insurance). We refi’d at the lows last summer, so we have a 15-year fixed at 2.75%. Today’s rates are higher. We’ve only owned it for a couple of years and the value in the area seems to have gone down 5% (going by an average of Trulia of Zillow, which seems reasonable for the property). That’s limited the amount of equity we have in the home.

      We still have equity, but there really is nothing positive about selling. The ideal thing would be to rent out the current house. That would make it investment property #4 for us.

      The problem comes in with coming up with a down-payment for the new, bigger house and convincing a mortgage lender to lend to us given that situation. To that lender, our current house isn’t going to look like an investment property as we don’t have it rented out for a year.

  5. Nancy says:

    For me, it would be a question of this: In a $200k average neighborhood, are they going to need $300k? If you’d be spending $300k for a house in a $200k neighborhood, why not spend that same $300k in a $300k neighborhood? The problem with enhancing your home to the extent that they have done is that most buyers are thinking along the lines I just laid out, and if you spend that kind of money in a lower-end neighborhood, even though you love the house, your buyer in the future will be wondering, why should buy here when the same money buys a better school and more amenities upscale.

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