Popular Advice You Shouldn’t Take (Part 2): Buy Big

Jonathan Clements of the Wall Street Journal writes a good article that everyone should take a look at and thing about how it applies specifically to their own lives.  His advice has solid grounding, but the execution of the advice could be a potential pitfall for some people. 


http://biz.yahoo.com/wallstreet/070701/sb118323893642354294_id.html?.v=1&.pf=banking-budgeting


Read part 1: Amass cash


You are reading part 2: Buy Big


Read part 3: Get A Life


Read part 4: Go For Growth


The Popular Advice


As Mr. Clements notes, “another piece of conventional wisdom that's often doled out to folks in their 20s: Buy the biggest house possible.”

Mr. Clements Advice



  1. Real Estate may or may not be the best investment

  2. Look at your plans and your desires before deciding on a home

  3. LOOK AT THE FEES!


My Short Input


The key here is bigger is not always better.  You have to look at your plans!

I shouldn’t get all that I can afford?


Well, that would depend on what you mean by afford.  If you can pay for a house up front, then you probably don’t need to be reading any advice I have to give.  Seek an estate lawyer – a good one.  For the rest of us, however, we’re going to be taking out a loan to afford a home no matter what.


What I mean want you to focus on is that in almost every other area of American Buyer Culture you want the most for you money.  But in real estate, there’s so much more to consider than most square feet per thousand dollars.


When you buy a home you fork over money in points, buyers commission, sellers commission, mortgage-application fees, lawyer’s fees, moving expenses, etc.  This could be as little as 5% of the cost of the home or as much as 12%.  You pay these expenses up front and you pay them every time you buy and sell a home.  The key point here is that if you’re looking to sell relatively soon (within 7 years or so) a smaller house will do you good.  You lose much less to fees.


Huge homes also have huge utility bills, huge property taxes, huge insurance premiums, huge maintenance costs… are you seeing the point?  You should buy something you want.  Something that fits your needs and isn’t extravagant.  Something that you can see yourself living in for a long time.


To some people that may be a condo, to others a mansion.  By the way, there’s nothing wrong with going conservative on this one… you can always trade up… or even buy more than one house!