Financial considerations associated with buying a larger house you can grow into v. something that is just right for you

dk240t said:   dshibb said:   
Bolded: My point precisely again why you need to still perform an analysis between renting a smaller place(with no additional costs for moving up) and buying large(to grow into).


Am I just writing this in a way that is hard for people to understand or what?

I think you are doing a fine job. People are just having a problem differentiating between the financial and non-financial aspects of the deal.

If you want to compare the financial aspects of renting the place you currently need vs buying a place and the place you buy will be larger than you currently need, you shouldn't analyze rent vs buy using a rental that is the same size, as that is not your alternative in the decision making process (financially speaking).

Perfect paraphrase!

chibimike said:   Rent vs buy calculations aside, I chose to buy a house to grow into.

I can change aspects of the house to my exact liking over time, doing as much work as possible myself. Paint it the colors I want when it needs paint. Replace the flooring as it wears out, to my liking. Extend the deck. Change the kitchen layout/countertops.

If you rent, can't do any of it. If you buy small intending to move, much of that work could be throwing money away. You may need to repaint if you are into bold colors. If you end up having to replace a furnace, water heater, or any major appliance you may just be giving a gift to next owner. Then you move into the new house and may have to replace them again. I can buy high-efficiency, high-end appliances when the time comes and not worry about them for years. Will I do that if I might be selling?

Everything you say makes complete sense, but you should notice the OP says "Financial consideration associated with buying a larger house..." it doesn't say "Luxury/quality of life considerations associated with buying a larger house...".

Different questions provide different responses.

dshibb said:   JTausTX said:   dshibb said:   Yeah if your rent is 1% of purchase price you should look into owning
Million dollar question to everybody out there: Would you ever willfully rent a place that is substantially larger than what you want or need at the moment? [No!] Why? [Because that's just additional rent expense with no benefit] Precisely so why do you think buying a home larger than you need has next to zero cost to carry for that additional space?


The obvious answer to this is no.

However, the reason for this is that with a rental you can leave at the end of your term with no additional costs (aside from perhaps a lost deposit) and find a place better-suited to your needs. When you purchase a home, it becomes much more expensive to move frequently, and you are exposed to more market risk. So it makes sense to buy a home that you can grow into (as opposed to renting a place you can grow into) because you'll most likely be there longer.

Now, you say to keep the first house and rent it out. Well, that's all well and good, but what happens if you get a deadbeat tenant, or can't rent the place, or a tenant destroys it? Then you're up shit creek.


Bolded: My point precisely again why you need to still perform an analysis between renting a smaller place(with no additional costs for moving up) and buying large(to grow into).


Am I just writing this in a way that is hard for people to understand or what?

Step 1- Decide if buying or renting makes sense

Step 2a - If renting makes the most sense - Rent
Step 2b - If buying makes the most sense then (Decide what OP is talking about)

I think everyone perfectly understands but that is not what the OP was talking about. Your step is step 1. Most of us here are assuming a person has gone past step 1 and has decided that it is best to buy or wants to buy for whatever reason. At this point do you buy what fits now or buy larger. The key word is buy. No one here said buying is the best financial move every time, but when a person is buying what financial considerations should one consider.

Someone should always do step 1 like you stated earlier before considering step 2

dshibb said:   mikef07 said:   dshibb said:   JTausTX said:   dshibb said:   Yeah if your rent is 1% of purchase price you should look into owning
Million dollar question to everybody out there: Would you ever willfully rent a place that is substantially larger than what you want or need at the moment? [No!] Why? [Because that's just additional rent expense with no benefit] Precisely so why do you think buying a home larger than you need has next to zero cost to carry for that additional space?


The obvious answer to this is no.

However, the reason for this is that with a rental you can leave at the end of your term with no additional costs (aside from perhaps a lost deposit) and find a place better-suited to your needs. When you purchase a home, it becomes much more expensive to move frequently, and you are exposed to more market risk. So it makes sense to buy a home that you can grow into (as opposed to renting a place you can grow into) because you'll most likely be there longer.

Now, you say to keep the first house and rent it out. Well, that's all well and good, but what happens if you get a deadbeat tenant, or can't rent the place, or a tenant destroys it? Then you're up shit creek.


Bolded: My point precisely again why you need to still perform an analysis between renting a smaller place(with no additional costs for moving up) and buying large(to grow into).


Am I just writing this in a way that is hard for people to understand or what?

Step 1- Decide if buying or renting makes sense

Step 2a - If renting makes the most sense - Rent
Step 2b - If buying makes the most sense then (Decide what OP is talking about)

I think everyone perfectly understands but that is not what the OP was talking about. Your step is step 1. Most of us here are assuming a person has gone past step 1 and has decided that it is best to buy or wants to buy for whatever reason. At this point do you buy what fits now or buy larger. The key word is buy. No one here said buying is the best financial move every time, but when a person is buying what financial considerations should one consider.

Someone should always do step 1 like you stated earlier before considering step 2

I disagree:

1) Rent small vs. Buy small
2) Rent small vs. Buy big(for someone facing the question of buying large or buying small this one is important that you do as well).
3) Rent big vs. Buy big
4) Buy small vs. Buy Big
5) Rent Big vs. Buy small
5) Rent small vs. Rent Big(probably don't need this one)

If you did all of these you will come to the right answer. If you do some generic rent vs. buy calculation to narrow between those 2 and then do an analysis of the different options within your choice(let's say buy) you invariably end up changing details that could have an impact on whether you chose the other option(rent in the example).

Again I dumbed it down, but most of us are only talking about what to do on step 4, nothing to do with 1-3 or 5. I could list a bunch of other steps you forgot (and I left out of my post), but again trying to keep it simple.

dshibb said:   mikef07 said:   dshibb said:   mikef07 said:   dshibb said:   JTausTX said:   dshibb said:   Yeah if your rent is 1% of purchase price you should look into owning
Million dollar question to everybody out there: Would you ever willfully rent a place that is substantially larger than what you want or need at the moment? [No!] Why? [Because that's just additional rent expense with no benefit] Precisely so why do you think buying a home larger than you need has next to zero cost to carry for that additional space?


The obvious answer to this is no.

However, the reason for this is that with a rental you can leave at the end of your term with no additional costs (aside from perhaps a lost deposit) and find a place better-suited to your needs. When you purchase a home, it becomes much more expensive to move frequently, and you are exposed to more market risk. So it makes sense to buy a home that you can grow into (as opposed to renting a place you can grow into) because you'll most likely be there longer.

Now, you say to keep the first house and rent it out. Well, that's all well and good, but what happens if you get a deadbeat tenant, or can't rent the place, or a tenant destroys it? Then you're up shit creek.


Bolded: My point precisely again why you need to still perform an analysis between renting a smaller place(with no additional costs for moving up) and buying large(to grow into).


Am I just writing this in a way that is hard for people to understand or what?

Step 1- Decide if buying or renting makes sense

Step 2a - If renting makes the most sense - Rent
Step 2b - If buying makes the most sense then (Decide what OP is talking about)

I think everyone perfectly understands but that is not what the OP was talking about. Your step is step 1. Most of us here are assuming a person has gone past step 1 and has decided that it is best to buy or wants to buy for whatever reason. At this point do you buy what fits now or buy larger. The key word is buy. No one here said buying is the best financial move every time, but when a person is buying what financial considerations should one consider.

Someone should always do step 1 like you stated earlier before considering step 2

I disagree:

1) Rent small vs. Buy small
2) Rent small vs. Buy big(for someone facing the question of buying large or buying small this one is important that you do as well).
3) Rent big vs. Buy big
4) Buy small vs. Buy Big
5) Rent Big vs. Buy small
5) Rent small vs. Rent Big(probably don't need this one)

If you did all of these you will come to the right answer. If you do some generic rent vs. buy calculation to narrow between those 2 and then do an analysis of the different options within your choice(let's say buy) you invariably end up changing details that could have an impact on whether you chose the other option(rent in the example).

Again I dumbed it down, but most of us are only talking about what to do on step 4, nothing to do with 1-3 or 5. I could list a bunch of other steps you forgot, but again trying to keep it simple.

The key point is that in order for you to truly understand #4 you also should do #2 because if you pick buy big because of the friction costs associated with selling and buying again in the future than you should also once again compare against an option that has frictionless costs in upgrading.

My whole point the whole time is that even if you decide buy over rent if you decide 'grow into' house over 'current needs' house you then should go back and revisit #2.

That is solid and makes sense. If you know you are going to need bigger then either buy it or rent smaller until you can afford it or you actually need it. No point in buying smaller if you know you will need bigger. If you think you will need bigger then you may want to hold off a year or two until you know one way or the other.