Buyers looking for a new house typically want to find the perfect house, in the perfect location, and of course, in the perfect condition. This is normal. Who wouldn’t want everything to be just perfect? However, reality sets in when you need to start matching your housing budget to the market conditions. Here is some simple advice to help you make sensible choices.
Think in terms of location, the size and floor plan, and the property condition. Location is impossible to change. The size and floor plan can be changed but are very expensive to do so. The home’s current condition is the easiest and least expensive to upgrade and can be done over time. I like to use the analogy of a three-legged stool. The more you can keep the three legs in balance, the happier you will be. If you sacrifice too much on one of the attributes you may find things are too out of balance. Trying to maintain this balance is super challenging, especially when you are slightly priced out of your favorite neighborhood. As you can imagine, in our pricey DC metro area this happens all too often.
Good Rule of Thumb
Generally, I strongly recommend not to buy a house that you already know is too small or that requires more renovation work than your budget can handle. This will only lead to frustration. If the house is too small, you’ll feel you’ve outgrown it shortly after moving in. If the house needs too much work and you don’t have the budget, it will most likely never get done. As you live with the defects, they may cause more stress than you anticipated. The purpose of owning a home is to make your life better. If you compromised too much, that may not happen.
Sometimes I see young couples who want to buy a small house and then trade-up as their family grows. I get that. Who wouldn’t want to live in the hottest neighborhoods when they are young? Just remember, moving is expensive and stressful. The less you do it, the better.
Once you buy the house, there are certain things you can change more easily than others. The trick is to think through your future budget. If you income levels are likely to grow substantially, you could be OK with a smaller house as long as it’s on a large lot that affords you the ability to expand. Keep in mind that expanding the footprint of the house will be very expensive. But it could be the right compromise if your budget is limited today and location is a top priority for you.
A larger house in the right location, but in a less desirable condition, can work as well. Ideally, you at least want the house to be clean and reasonably maintained. Cosmetic upgrades to kitchens, bathrooms and the interior and exterior of the house can all be accomplished in time, as your budget allows. This approach will also allow you to continue to build the resale value of the house.
To summarize which features are associated with each attribute, I’ve prepared the following list:
- Location – includes commute time, school district, walkability, access to public transportation, the lot size. Remember that none of these things can be changed.
- Size and Floor plan – includes number of bedrooms and bathrooms, size of the house, age, style, size of the kitchen, bathrooms, and closets. All these features can be changed but involve structural changes and can be expensive.
- Condition of the house – refers to updated kitchens and baths, landscaping, condition of floors, windows, roofing and heating and cooling systems. All these things can be changed piece-meal, as the budget allows.
- Most importantly, know yourself. Everyone needs to make trade-offs. Make sure you choose the ones that are most important to you.