Real Life Planning Podcast Episode 5: Are You Ready To Upsize Your Home?Financial Planning
In Episode 5, Cynthia Meyer discusses the 3 questions to ask yourself when you are thinking about buying a bigger home. When does it make sense to stay in your home – and when to start browsing for a bigger one?
“You'll have the most financial freedom in your life if you keep your total housing costs, and by that, mortgage, taxes, insurance, general utilities, and maintenance to 25 or 35% of your net income. -Cynthia Meyer
This week on Real Life Planning Podcast, Cynthia covers:
Can you afford a bigger home? [00:01:14]
Why are you upsizing to a bigger home? [00:02:54]
Criteria to use to assess if you should upsize [00:04:10]
Can you handle the increased costs of living in a bigger home? [00:05:20]
Good reasons not to move [00:07:45]
“A bigger house is a bigger financial commitment. If you can't afford the total cost, you'll be house poor.” – Cynthia Meyer
“With a bigger house or even just bigger acreage, you are up-sizing more than your mortgage. Everything costs more proportionally or sometimes disproportionally.” -Cynthia Meyer
“If you're in a neighborhood that's highly appreciating, a good exit time may come later, especially if you're planning to move to a lower-cost housing neighborhood.” - Cynthia Meyer
About the Real Life Planning Podcast
Host Cynthia Meyer and guests share real life stories of how they are realizing their financial potential.
The Real Life Planning Podcast aims to provide:
- 1-3 practical, realistic takeaways of actions the listener can try
- Encouragement to learn from different paths to creating results
- Possibility and optimism
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Transcript - Real Life Planning Podcast - Episode 5
Are You Really Ready To Upsize Your Home?
[00:00:11] Cynthia Meyer: Hello friends. I'm Cynthia Meyer and this is the Real Life Planning Podcast. There's been a lot of real estate activity in the country lately. It seems like everyone under the age of 40 is looking to buy a first home. Those people who have already bought their first home, maybe thinking about upsizing to more space for home office or place for the kids to do school, if there's remote schooling. There's this vast sea change in what the housing market has looked like. I hear from clients over and over again, " I'd like more space. Maybe I'll go a little bit bigger. And do I have enough money to do this? Do I have enough wiggle room in my budget to do this?"
[00:00:49] I'm also seeing some larger homes for sale in my neighborhood. The families who want to buy those homes have multiple children and they want room to grow. They want the excellent public school system [00:01:00] that I have here in my town. So you may have been thinking , " Is there some room to go bigger? Should we stay where we are or can we afford it?" I want to talk a little bit today, in the discussion about, here are some factors to consider.
Factor #1: Can You Afford It?
[00:01:14] Cynthia Meyer: Obviously, the first factor is, "Can I afford it?"
[00:01:18] You'll have the most financial freedom in your life if you keep your total housing costs, and by that, mortgage, taxes, insurance, general utilities, and maintenance to 25 or 35% of your net income. That's your take home income. If you're paid as an employee, that's your net income after expenses. That is a little more stringent than what you hear many financial planners say, but if you want to have the most expansiveness in your budget, you'll keep your housing costs to 35% or lower of your net income. This can be very challenging to do in an expensive neighborhood. We're going to talk about that in a different podcast. I'll dive deeper on how to [00:02:00] buy a home in an expensive neighborhood.
[00:02:01] For today, let me just give you an example. If your family takes home $4,500 a month, your monthly housing costs would range from $1,125 to $1,575.
[00:02:12] With the 20% down payment and a 30 year mortgage at 4%, that's what I'm thinking, where rates are going to go in the first half of the year next year, that's a purchase range of approximately ,$212,000 to $300,000. You know, I realize I'm in the New York City area, I realize that 35% of your net income rule could be really a big challenge in an insanely expensive city like the New York area where I am, or Los Angeles, San Francisco, Boston, for example, where housing costs can eat up more than half of a family's take home income. But it's a helpful guideline for maximum financial ease. Your situation may be a little bit different depending on where you live in the country.
Factor #2: Why Are You Upsizing To A Bigger Home
[00:02:54] Cynthia Meyer: Let's assume that income is not a problem. Question number two is, Why are you upsizing to a bigger [00:03:00] home? I don't necessarily think that upsizing is bad. That's something I did myself. My husband, Steve, and I did in 2010, when we moved back to the United States. We'd been living in Bermuda for an overseas assignment. That was a country that has a really super high cost of living. It was the bottom of the U.S. housing recession and we felt like we could really get a lot for our money. There were great deals on large homes everywhere in good school districts.
[00:03:26] So we upsized our living space. We were looking to have room for three kids. I had a nephew who was going to come and live with us for a year and go to high school here. We wanted to have room for lots of visitors. My husband comes from a very large family and we have friends from around the world. We wanted to have a really spacious home. And we feel grateful for that at the beginning of the pandemic, because we're all in the home together. And yeah, everybody had a little space. When we did this, we still spent less than our previous location's housing costs. So we actually spent more on housing renting in Bermuda than we [00:04:00] did buying a home in New Jersey where we live. I don't think we'll stay here permanently. But up-sizing maybe right for you, if you can afford it and you meet these other criteria.
You Have A Growing Family
[00:04:10] Cynthia Meyer: So you want to have space for all your kids or extended family, right? You have grown children or grandchildren who are moving in with you. Or maybe you have a parent that's moving in with you. Or maybe more than one parent is moving in with you.
You Plan On Moving To A Less Expensive State
[00:04:23] Cynthia Meyer: You're moving to a less expensive state and you can afford more house for the same cost. Now I'm in a very expensive state of New Jersey just outside New York city. If I could probably take the equity in my home and move it to another state in the south or the Midwest, for example, I could get the exact same house for less than half the price.
You Need More Space For Home Office Or Business
[00:04:43] Cynthia Meyer: You need more space for home office or business. A lot of us saw that during the pandemic and I think that may be here to stay, you know, as more and more people are remote working at least part of the time.
A Bigger Home Is Part Of Your Bucket List
[00:04:54] Cynthia Meyer: Maybe you just always wanted to have a big house. It's really a bucket list item for you. [00:05:00] I think my husband definitely fell in that category. He just wanted to have a big house. He's a tall guy and it was important to him. So maybe it's a bucket list item for you, too. Your financial plan is your life expressed in numbers, right?
[00:05:14] If it's a life goal for you, then you know, you're going to ask yourself if you can make it work.
Factor #3: Can You Handle The Increased Costs Of Living In A Bigger Home?
[00:05:20] Cynthia Meyer: The third factor is you're going to upsize a lot more than your mortgage. So I want to caution you: with a bigger house or even just bigger acreage, you are up-sizing more than your mortgage. Everything costs more proportionally or sometimes disproportionally. Higher property taxes, higher homeowner's insurance, higher home maintenance. More furniture, more painting, more landscaping. That little simple trip to Home Depot or Lowe's, that costs a hundred bucks to make your garden look beautiful before it could cost a thousand bucks now if you have a really big property. Make sure you take those increased costs into account when figuring out how [00:06:00] much you can afford. If your mortgage is 30% bigger, a good guideline is that your other bills are going to be at least 30% bigger as well. If you upsize from a $200,000 mortgage to a $300,000 mortgage, you should expect your costs related cost to go up a third as well.
[00:06:14] Upsizing can also prompt like, keeping up with the Jones' thing, where you think, "Oh my gosh, I just went to my neighbor's house for coffee and they have this beautiful furniture from this expensive store and the most expensive mall." You feel like you have to compete with your neighbors on a more lavish lifestyle. Avoiding that kind of lifestyle creep, wrote a blog post about that early on, maybe a couple of years ago, something to be aware of.
[00:06:39] New home. You may want nicer things. Budget for that. If that's going to be important for you.
[00:06:44] If you have visitors frequently, you're going to want to accommodate them in your home. Ask yourself, " Would it be easier or cheaper to put your family and friends up in a nice hotel nearby than it would be to buy a really large house so you could fill the guest room [00:07:00] once a month."
[00:07:00] Questions to ask yourself. Should you stay put, right? A bigger house is a bigger financial commitment. If you can't afford the total cost, you'll be house poor.
[00:07:11] I make a joke a lot when I'm talking to people about housing budgets. Do you want to have a frozen vegetables and ramen noodles diet? Or the adult equivalent of that? Where you feel like you're putting all your money into your home, your home expenses, maintenance, property insurance deductibles and things like that. Now you aren't able to have the entertainment or travel budget that you wanted because all your money is going into the house.
[00:07:35] If you can't decide what your next home purchase should be and at what price it makes sense, there are lots of reasons to stay put instead of moving.
Good Reasons Not To Move
[00:07:45] Cynthia Meyer: Good reasons to stay put that I tell clients as they're having this conversation with me is:
[00:07:50] You like your current home and the size fits your family.
[00:07:53] You're not planning to expand it any bigger.
[00:07:56] You enjoy your neighborhood and your neighbors.
[00:07:57] You and your spouse [00:08:00] don't agree on what to do next. This is a big major purchase. This is definitely something that you want to agree about.
[00:08:05] You don't want your kids to have to change schools. That's a big one. That's certainly for us, I don't think we would want to move our kids out of the school district until they're done with high school and they're going to college.
[00:08:14] The cost of selling a home and buying a new one may not make it worth moving right now. Housing costs are generally high. There's a lot of increased demand that we've seen over the past 18 months or so. It may not be the right time to move. Also, as interest rates go up, you're going to get slightly less house for your money.
[00:08:32] You may believe that real estate prices are going to rise on your street over the next few years, and you may want to wait to sell. If you're in a neighborhood that's highly appreciating. A good exit time may come later, especially if you're planning to move to a lower cost housing neighborhood.
[00:08:46] You know, moving is a really big decision. Our sense of community is connected to our physical space. You may find that going bigger, gives you a more spacious and satisfied feeling, assuming you can swing the [00:09:00] additional expense. On the other hand, if you're not sure that it's the right time to move on, I really want to invite you to think about just waiting and thinking and percolating on it for a little bit.
[00:09:09] Seeing what changes you can make in your existing home to make it fit your family needs more directly and not moving until you have a clearer idea of where you want to go and how much you want to spend.
[00:09:21] There's always next Spring to revisit that question again. If you're not sure if you want to up-size or not, I encourage you to just think about it a little bit more. You want to be really convicted if that's something that you want to do because you're taking on a much bigger bite in terms of the financial effect.
[00:09:35] If you have any questions that you want me to tackle in the Real Life Planning podcast, please send us a note at firstname.lastname@example.org. Leave a note in the comments. Please subscribe to the channel so you'll get notified of the next video. Thanks very much. Have a great day.
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