Buy Bigger! You’re Only Borrowing It Until You Sell It!

By
Real Estate Broker/Owner with Northern Virginia Homes - FRANKLY REAL ESTATE Inc
So I wouldn’t be able to get away with this blog unless you had read all of my other blogs that have scared off some potential buyers from buying. So if you want, I’ll wait here until you read the others and come back…(blog)

 
…Ok. So here is a tidbit that a Realtor might tell you eventually, but you won’t believe them. You will try to buck the trend and prove them wrong.

 
Your dream home is just 10-15% HIGHER than your dream price.

Lets run the numbers. This happens more often with 1st time home buyers. In the DC area this can be a $500,000 home. What happens is the prospective buyers save up and they are ready to buy a home, and they feel in their gut that their max price is, lets say $550,000. There really is never any pure logic to where the number came from, it just tends to “feel right” for the buyer.

I think I know where the number comes from! It is oftentimes based on the rent that they are currently paying. They figure it would be logical to spend 15-20% more and therefore get the home that feels right. Problem is homes are still expensive (that was not a prediction of market direction since Realtors can’t pick the direction of the market. See blog). So the problem occurs when they feel like a 20% increase should do it, but they leave out of the calculations that they aren’t looking for a home similar to their current home. Instead they are looking for something 10% larger or 25% closer. The net result is ANOTHER 20% higher in sales price.

 
So you take your monthly rent and increase it by 20% and you are disappointed that the sucky Realtor can’t find you anything in this price range. You blame them because your gut tells you there should be something in this fictitious price range.  You see the “perfect house” at the right price, but it is practically ON a 4 lane highway. Or you hear yourself constantly saying “just put this house in XYZ and we’d buy it.” NO! It doesn’t work that way. If that house was in XYZ it would be $50,000 higher!

This blog's suggestions to cut to the finish line and buy higher only works for people that aren’t at their MAX. If you are at your MAX… don’t buy. Yeah, don’t buy. I don’t like it when clients stretch to their last dollar. So for those, I’m sorry, yes your dream home is in the next search bracket, but I don’t recommend fancy risky loans to get that house. Just rent (see Don't Buy Blog).

But for the rest of you that are qualified “up to” $600k, but “feel” like $500k should get you something, and you aren't finding anything that works, it won’t until you look up! Ok, I might be exaggerating to make a point, and some fool will comment on my flawed reasoning, but all I am suggesting is that you take a peak.

Just take a peak at the next bracket up. There is nothing more perfect when I hear a client say “this is overkill”, “this is too big” or “we don’t need this” and those phrases DO come out. But oftentimes I hear “Oh wow, I see what that extra $50k gives me.”

 

And the following phrase I have said a 1,000 times and finally it has made it's home in this blog (hopefully never to be repeated, I'll just send you the blog, so if you got this link, maybe this is for you....).


YOU ARE ONLY BORROWING A HOUSE UNTIL YOU SELL IT!

If you were able to borrow a Toyota or a Lexus, and you knew that you would be able to return it for the same value, which would you borrow? Many would say the Lexus

 

With homes, the risk when you increase your price target is minimal. If you are considering a decent $500k place, and are scared to stretch to a $550k awesome house, think about it this way.

If the market drops 10%, that $500k place will drop 10% or $50k to $450k.

If the market drops 10%, that $550k place will drop 10% or $55k to $495k.

The difference in the drop is what matters. $55k vs $50k is only $5,000.

 
If you buy the higher priced home and prices drop 10%, your INCREMENTAL risk is only $5k. So why not cut to the chase and take a peak in the higher bracket and enjoy life. The risk isn’t there as long as you can afford it. Again this isn’t for people stretching and when I say “afford it,” everyone thinks, they are poor. I’m talking about if the bank says you can afford 20% higher than your target, save yourself the headache and take a peak 5% or 10% higher. 

You’ll oftentimes see that all those "finding the perfect home" concerns are suddenly gone and you can start enjoying your new place.

Frank Borges LL0SA- Virginia Broker/ Owner FranklyRealty.com

Blog.FranklyRealty.com Featured in BusinessWeek, CNBC, WSJ etc.

                      

 

Please vote on this if you liked it. Also tell me about typos, I don't like looking dumb.

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Rainmaker
336,793
Thesa Chambers
Fred Real Estate Group - Bend, OR
Principal Broker - Licensed in Oregon
Ok Frank - I have had a very emotional day - and I signed on to clear my head and get back to work - this did it - your logic is perfect - as long as they qualify for the higher number... and you know in our market the market seems to go down on the lower house in larger numbers than the higher priced one.
Apr 22, 2007 06:24 PM #1
Rainmaker
137,680
FRANK LL0SA Esq.- Northern Virginia Broker .:. FranklyRealty.com
Northern Virginia Homes - FRANKLY REAL ESTATE Inc - Arlington, VA

Thanks Thesa, Sorry you had an emotional day. If you still need to unwind, go read how I tell sellers to bypass Realtors and save $20,000 selling FSBO with Flat Fee MLS listings.

Go FSBO! Save $20,000! Realtor Tells All!!

 

 Ha!

Frank 

Apr 22, 2007 06:42 PM #2
Rainmaker
127,037
Tchaka Owen
Galleria International Realty - Hollywood, FL

Size does matter!  >:-)

I agree with your logic, Frank.  But I will also state that if you the buyer are overly concerned about price drops, then don't buy.  Keep renting and don't freak out.  For those who understand that there's been a market correction and that there's just as much chance of values rising AND they haven't maxed out their purchase power (very important piece), then yes, go ahead and get your dream.  It's where you're going to spend half of your time, so might as well have the place you want.

We did the same thing when buying last summer.  We focused on the price range that made sense to us and ended up spending a tad more for a place that we really like.

- Tchaka 

Apr 22, 2007 07:36 PM #3
Rainer
145,869
Robert Whitelaw
Whitelaw & Sons Real Estate Services - Morgan Hill, CA
Broker, CEO, Realtor , ePro

A good point and what is funny is that it is so easy to make these points with some basic math. I am always surprised to talk with buyers that have worked with other agents and they have never had "The Numbers" talk with any of them. Where we sit down and basically run the kinds of numbers your talking about. If buyers don't understand the real world implications of what a home costs in terms of what they will end up paying monthly, then they are not well informed enough to make an intelligent decision.

What you talk about here relating to possible market fluctuations are is something every agent should be educating their buyers on. It's always better when you can turn scary sounding numbers into something more understandable.

Apr 22, 2007 08:14 PM #4
Ambassador
1,499,091
Renée Burrows
Savvy Home Strategies Realty, LLC-REALTOR®-Estate-Probate - Las Vegas, NV
Las Vegas Real Estate Broker - www.urLVhome.com
Excellent perspective as always Frank!
Apr 23, 2007 12:50 AM #5
Rainmaker
1,136,235
Bryant Tutas
Tutas Towne Realty, Inc and Garden Views Realty, LLC - Winter Garden, FL
Selling Florida one home at a time
Frank my market is very affordable but there is a huge difference in what $190,000 will buy and $215,000 will buy. The difference is about 500-750 sq ft. The difference in a payment is about a #4 at Burger King a day. So If they can afford it it does make sense.
Apr 23, 2007 07:49 AM #6
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Rainmaker
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FRANK LL0SA Esq.- Northern Virginia Broker .:. FranklyRealty.com

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