When you get into the market of buying a home there are so many decisions to make. It's not just about your wish list for the home itself and the neighborhood you want to live in; it's also about how long you want to be there. One of the biggest dilemmas I'm seeing buyers face is whether they should buy a house they might only live in for a few years or buy as much house as they possibly can with plans to live there 5-10 years or more. There are pros and cons to both plans, which we're going to dig into today.
The benefit to buying a few-year home is you're spending less, so if your budget allows it, you may be able to keep a larger cash reserve and live more comfortably in general. Some might argue that buying a short term home is better than buying a long term home now because if prices drop down the road, and they can purchase a larger home, they will be able to save a lot of money.
While that sounds great in theory, no one has a crystal ball, so we don't know if and when prices will drop significantly. Let's say the market turns five years from now, but prices continue to rise until then. You could end up buying a house in five years for the same price that you could buy it now or it might be even more expensive.
Because we don't know where the market is headed, another drawback to buying a few-year home is that when it comes time to sell, you could end up losing money if the market is down. Even if you decide to lease the house, rents might not be as much as you're hoping for. A worst case scenario is that you may be in the negative leasing the house. For example, if your monthly payment is $4,500 per month and you can only rent it for $3,800.
One of the biggest upsides to buying a 10-year home is that it takes a lot of the pressure off of worrying where the market is going in the next year or two. You also don't have to think about moving again anytime soon. Financially, if you get a mortgage rate around 3%, you will be able to pay down your loan pretty quickly. In 10 years, you're likely to see some healthy appreciation in the value of the home as well.
It can be a challenging decision to make and the recent rapid rise in prices doesn't help the situation. The entire market is in constant motion and can change even over the course of your home search. Buyers who have been looking for the past 6-12 months have been seriously affected by this. If they were looking at homes last year in the $1.3 to 1.5 range, with $1.3 being a short term home and $1.5 being a long term home, prices have risen so that now $1.5 is likely their short term home budget, and their longer term home might be out of reach.
If you are just entering the market, or have been looking for a little while, and have any questions or want to brainstorm different possibilities, please reach out to me anytime. Between my personal listings, my brokerage, and my network, there are a lot of properties that are going to be coming available within the next few weeks. I want to help my clients understand the trends and the home buying process so they can jump into the market with confidence and get the homethey really want.
Cliff Whearley has been a resident of Redwood City for 23 years. He is a Realtor at Dwell Realtors, Inc. and has been practicing real estate since 2007. If you have any real estate questions, he would love to help!