# The allure of buying "bigger" and "better"



## kork (Jun 9, 2012)

Quick little back story. We purchased our home for $300k 5 years ago. We've put about $100k into reno's and it's gone up another $100k or so. So it's worth about $500k . The average price where I am for a detached home is about $350k and we're within an hour of Toronto. It's about 2000 sq feet (including the basement) , 3 bedroom across the street from a beautiful park and 100 meters from the water (we're not waterfront though)... Master bedroom isn't huge but it fits the king sized bed comfortably.

We're pretty happy with it, though it might be a wee bit small. We might also have a lot of useless stuff.

More importantly, we've always been careful that in the case of a personal downturn, we could sell our home and "downsize" if necessary. Rather than living in a home that might be on the market for a year, I'd rather be in the more "quick turnover" area.

Things are pretty decent. Between my wife and I we earn an higher than average income but our lifestyle doesn't reflect it and we're fine with that. However, on an investment level, we could afford to purchase a much larger, much more expensive home. RRSP's are maxed out, TFSA's are maxed out, RESP's are tuned efficiently to capitalize on gov't grants. Unregistered investments are being contributed to at a pace of about $25k a year.

And... the home we currently have has a mortgage of $768/month (that we double up on). Pretty easy mortgage and affordable and we can always stop the double payment if we fall ill or need to.

So to the smart members of this forum who have watched their friends/colleagues buy the big homes and then downsize because they're "house poor", have watched families become segregated in their houses of many rooms and many tv's, have watched net worth gains grow astronomically to be sold capital gains free, what do you think is the best way to go?

1. Keep the house, try to rent it and buy a larger home and then in 20 years, sell the newer, bigger home for significant tax free (primary residence) capital gains with the current home being taxed?

2. Sell the current house, buy bigger and in 20 years, sell with tax-free capital gains?

3. Stay the course. Pay off the house, keep saving? Enjoy the freedom of a smaller home.

Thoughts?


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## lonewolf (Jun 12, 2012)

I would stay the course. The baby boomers will be selling homes on mass I would be more concerned with losses then capital gains. A bigger home would impress your friends more which is often a reason people over spend.


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## Barwelle (Feb 23, 2011)

First thing ... $100k of renos does not necessarily equate to $100k of additional value of your home.

Aside from that... you don't mention how many kids you have, which can make a difference; you also don't mention your age or retirement plans. What I can say is... My parents have 2400sf total on two floors. It's plenty - raised 4 kids, can host a family of 25 for Christmas, and the layout has some quirks; it's not space efficient. Yours is a little smaller but not that much; I'd say it's more than enough for two adults, and sufficient for a few kids if you have them. If anyone feels suffocated, the solution is to go outside for a while and enjoy the park or the lake.

My vote: stay the course. enjoy your cheap mortgage. Be well prepared if there is a downturn. Keep your assets diverse - the other options, especially #1, give you a heavier allocation to real estate. 

Don't let that money burn a hole in your pocket. You're in a great position. Continue throwing extra cashflow into your investments and enjoy life unburdened by big mortgage payments.

Hell, if you're really feeling that comfortable about your position, I'd appreciate a hand up.


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## wendi1 (Oct 2, 2013)

My husband and I chose #3, too.

If you need to shake it up, hire a professional organizer, have a garage sale and buy some new drapes.

IMHO families are smaller now than they used to be and are getting smaller. Your modest home might hold its value better than a bigger one. 

It sounds idyllic...


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## tygrus (Mar 13, 2012)

I built just as the boom was taking off about 6 years ago and every time I made a change or something, it was another $10k tacked on like nothing. Clearly it was gouging. As a result, I didn't get quite the house I wanted. I attempted to look at a major reno to add that space on and it was as much as buying a totally separate condo somewhere. 

These contractors havent caught on yet and I am not going to enable them. We are looking at doing some revamped interior changes to make it work and save our money for the things that matter. After all, as my old school dad says, its just a house and when you are 60 you wont want to sit in it anyway.


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## Just a Guy (Mar 27, 2012)

Homes and investment properties are not the same thing. If you had 5 $100k homes, you'd probably generate more income than one $500k home. Also, if you lost a tenant, you lose all your income with a single property, unlike owning 5 properties. 

Next, in a downturn, high end properties suffer greater swings than lower priced properties. How many tenants do you expect at the higher end when the unemployed are increasing...do you think the lower end would suffer as much? I've found the demand pressure actually increases. 

Then you should consider the fact that tenants are hard on properties...they don't own the place, they don't take good care of it. Repairs to a high end place cost a lot more than lower end places.

Finally, real estate values have outpaced historical norms due the the ease of access to cheap money. When interest rates increase, you can't expect real estate prices to remain stable. As money becomes more expensive, less people will be able to afford the higher end housing, so prices will fall.

I'd stick with #3.


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## Rusty O'Toole (Feb 1, 2012)

My first impression is to say you are sitting pretty. Millions wish they were as well off as you. Get rid of some clutter and be happy.

On the other hand I can't tell what you want out of life. Maybe you get a kick out of moving every few years. There are worse things you could do. For a start, what money you make on your principal residence is tax free. Some people make a habit of buying a new house every few years, or even building a new one, with the idea of building up tax free equity.

This is called a high class problem. There really isn't a wrong answer, you will have to figure out what you want to do and what do you want out of life?


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## nathan79 (Feb 21, 2011)

Do you have hobbies or interests that would benefit from more space?

When it comes to space, the number of sq is only half the equation -- the other half is layout and storage. Increasing the house size alone won't necessarily help... you might end up with a cavernous house that still lacks storage space. You could hire someone to design storage for you, or do it yourself with stuff from Ikea or whatever.


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## Emjay85 (Nov 9, 2014)

#3. Hands down.

I think I know the battle you are having with yourself as I have it from time to time as well. It will pass, you just need to stay the course and keep doing what you are doing. 

Sometimes it isn't always about what you can afford, but do you actually want to pay the bill for it at the end of the day.


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## kork (Jun 9, 2012)

Barwelle said:


> First thing ... $100k of renos does not necessarily equate to $100k of additional value of your home.
> 
> Aside from that... you don't mention how many kids you have, which can make a difference; you also don't mention your age or retirement plans. What I can say is... My parents have 2400sf total on two floors. It's plenty - raised 4 kids, can host a family of 25 for Christmas, and the layout has some quirks; it's not space efficient. Yours is a little smaller but not that much; I'd say it's more than enough for two adults, and sufficient for a few kids if you have them. If anyone feels suffocated, the solution is to go outside for a while and enjoy the park or the lake.


Understood about the reno's. The 100k increase is conservative. Most houses in our area are selling for $700-$800k so I believe it's pretty accurate. Recognizing that a realtor will take a chunk of then when it sells though.

Two girls, 9 and 6. I just turned 37, wife is 44. On top of the 2000 square feet we've got a 500sq foot heated garage that we currently use as a playroom and gym. Perfectly comfortable in the winter.

Our retirement plans are always changing, but speaking honestly, I want to get to a point where we can say "made it" and then work to live and not work to save. What I mean by that is to say "house paid off, investments will grow another 20 years before we touch them... As long as we're making enough to pay our bills, we're in good shape." We both enjoy our jobs right now but we also both dream of what financial freedom might look like.

This may come in two stages (still trying to figure it out).

STAGE ONE, in 5 years when we're considering having our mortgage paid off. We've been wrestling with paying off the mortgage or saving but I believe we can do both at an accelerated rate. If we keep doing what we've been doing and have a 4% return, we'll have just under $900k in RRSP's TFSA's and unregistered investments in 5 years and the mortgage can be paid off.

At that point, the only additional saving we'd need would be to the girls RESP's. We enter STAGE TWO. What that looks like is either keep doing what we're doing because we still enjoy it, or, we choose to do something different that we love and as long as we're making enough money to maintain without dipping into our investments, we're in good shape. Perhaps we'll be working a less. Perhaps we'll travel more. Not sure what that looks like yet.

But the allure of that larger home throws all that up in the air. Would we like a bigger home? Perhaps? The idea of having a house that's got a towering roof with a home office and a view overlooking a forest or the lake seems nice. Right now, my home office is in the basement, or in the recliner upstairs in the living room (Laptop on a recliner). Bigger house, bigger mortgage, but in the end, more net worth?

OTOH, in my recliner, I'm looking at a park with a lake behind it and ride my bike around the waterfront every day at lunch in the summer. Certainly not complaining.

We purchased our home because the home isn't huge and because the lot is a good size. 60X160. We figured, this much room and location gives the girls the opportunity to play outdoors rather than be glued to the tv all the time. 5 minute walk from the beach, across from a park, big backyard, water close by... I figured we made good choices. But, as wendi1 and nathhan have indicated, perhaps the lack of space really is an organizational issue.


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## tygrus (Mar 13, 2012)

The only reason I can see for more space is for more kids or family members. Are you having more? Are they outgrowing your space? 

ps. Look online for garden studios or back yard offices. Great way to add some private space cheaply


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## kork (Jun 9, 2012)

tygrus said:


> The only reason I can see for more space is for more kids or family members. Are you having more? Are they outgrowing your space?
> 
> ps. Look online for garden studios or back yard offices. Great way to add some private space cheaply


No plans for more kids and nothing yet for more family members. Cross the family member bridge when we get there. The space is reasonable. We have a lot of kids toys... We need to purge.

I actually work outside a lot during the summer on a nice comfy couch and my laptop. So I've been going in that direction. But let me look into it further to see what more I can do. Thanks Tygrus!


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## Mortgage u/w (Feb 6, 2014)

If you need more space but like your location, why not build an extension? If you're not lacking space, I would just stay put. Buy a second home up north or down in Florida and spend your winters there when retired!


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## tygrus (Mar 13, 2012)

I paid $490k for 1775 sq ft back in the day. Thats a cost of $276/ft. The extension I was looking at building this year was quoted at $150,000 and added on 300 sqft. Thats almost double the sqft price. I could buy a condo in phoenix for that. I passed on it. Will find another way.

Kork, the backyard office idea also makes for a great guest room or kids retreat as well.


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## kork (Jun 9, 2012)

tygrus said:


> I paid $490k for 1775 sq ft back in the day. Thats a cost of $276/ft. The extension I was looking at building this year was quoted at $150,000 and added on 300 sqft. Thats almost double the sqft price. I could buy a condo in phoenix for that. I passed on it. Will find another way.
> 
> Kork, the backyard office idea also makes for a great guest room or kids retreat as well.


Yeah, when we were looking at the reno's it was the same thing. We have a 60 year old home so there'd be engineers and all sorts of things. To add a bedroom with a lofft was going to run well over $100k and it didn't extend our basement. 

So we opted to work within the existing structure, open things up and make the space more efficient. Now, having lived through renovations, I'm not sure I'd want to go through it again. Very stressful.


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## hboy43 (May 10, 2009)

Hi:

I'd say larger houses are owned for reasons outside the scope of physical necessity. If I look at my own situation honestly, I spend about 99% of my time in < 500 SF of a 1500 SF (plus basement area) : in round figures, 100SF of bedroom. 100SF of kitchen, 100SF TV room, 100 SF of great room, 100SF of bathrooms. Call it the 80/20 rule of houses. I suspect though the absolute numbers would be different, pretty well everyone would follow this pattern. I would be quite happy in a house smaller than what the Ontario government currently would allow.

Much of a larger house is really an "option". Extra rooms and such for guests. But, man what an expensive option. Again, if I am honest I'd find it hard to come up with even 20 "bedroom-days" of guest occupation in a year. Frankly if I had a 500SF house, the youthful guests could pull up a couch or air mattress, and the senior guests I could put up at the B&B down the road for $150/night, maybe $2000/year. What a bargain that would be over floating an unneeded extra 1000SF of house.

To avoid being a called a hypocrite, that is not to say that I don't have other buildings, I do. But they do not have the cost of ownership and work aspect of the house. I don't need to heat them, keep them clean, or keep them looking good. They are 100% utilitarian, and for many others without practical skills quite unnecessary. But I probably average about $10K to $20K of work a year that I do, but most would hire out, so $100K of workshop provides a good ROI in support of these activities. So for most folks, maybe less house and more garage makes more sense.

Anyhow this is such a personal thing, about all I can add is be honest with yourself. Maybe in the end, your evaluation of the situation won't be substantially different than mine.

hboy43


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## Berubeland (Sep 6, 2009)

Personally, less is more with your personal house as long as it suits you. I've had much more freedom because my house has been paid since 30 years old. I am self employed, I am the sole income earner, I have a lot of choice to migrate jobs if that was the case. 

I drove past the BridlePath today, and I was saying to my dad, even if I had the money to buy a place like that, I wouldn't. It's too much to clean, too much to maintain, too much to update and renovate. It might be nice to get a little bigger house, but honestly, that would just mean more junk. 

The house costs less to heat and maintain as well. 

Once you past this crazy idea that your house is an investment, it's just a place to live. Is your living ok? Then save the money, take a trip to Jamaica and enjoy your life.


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## kork (Jun 9, 2012)

What Emjay said on the first page is really resonating with me.

_"Sometimes it isn't always about what you can afford, but do you actually want to pay the bill for it at the end of the day."_

Simple statement, profound impact.

And hboy43, you're right. Most of my time is spent in certain parts of the house. A large bedroom with a chair in it would become a large bedroom with clothing stacked on the useless chair. At least this way, clothing is stored in the closet.

We don't have a guest bedroom, but we have found the need for being able to have a "separate" sleeping space. Guests, kids are sick, I'm sick, wife's sick, etc. So we just purchased a new Laz-Boy double pull out sofa with a high end memory foam mattress.

It'll get used 5-10 times a year... But it's in our basement which is away from the rest of the hustle bustle.


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## tygrus (Mar 13, 2012)

Just a tip for whomever, the cheapest all season enclosed livable space you can ever add to a home is over your garage. No foundation needed, exposed underside for plumbing and elec work, new trussed and floor and shingle are cheap.


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## sags (May 15, 2010)

I have yet to hear someone say........"Gee, I was unfortunate and had to live in a bungalow growing up".

If it weren't for the prospect of making more money with a bigger home, I think a lot more people would buy a smaller home and stay there.


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## Video_Frank (Aug 2, 2013)

My kids tell me that their bedrooms are smaller than their friend's bedrooms. I remind my kids that they get both of their parents to their hockey games because we can afford to turn down overtime. We can afford trips to Florida every year and a month off at our (paid for) island. If we wanted to buy a bigger house we'd need a mortgage and we'd need to work longer. Life is about compromises. Once you decide what's important you will have the answer. For my family, FI and time off come before house size.


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## sags (May 15, 2010)

Amen to that............blink and the kids are gone, so you have to enjoy being with them in the small window of opportunity in their soon to be busy lives.


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## SW20 MR2 (Dec 18, 2010)

We chose #2. If we stayed at our old house, we'd be mortgage free now (38 years old with 2 kids). The old house was big enough at 2400 sq ft, and I think our current house is a little too big at 3300 sq ft. The main reason for our move was a more central location, and getting a bigger house was somewhat of a byproduct due to the location. The mortgage payments were no problem at all, but we're weighing options right now. We're thinking about having my wife stay home, and going down to one income stretches the budget. We can make it work, but with the additional risk of being single income and decrease in savings because her paycheque was pretty much 100% going to savings. Hence, we're debating selling the house and downsizing so that we can be mortgage free or close to it. We bought the house for $1.05M two years ago with about $430k left on the mortgage. Based on recent listings in the area, I think we can now sell it for $1.3M and buy a small house for about $900k-$1M.

Decisions, decisions...


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## tojo (Apr 20, 2009)

#3. No doubt about it. 
Bought our modest size house right after the last housing crash in the 90's. Paid it off in 7 years. Started to raise a family after that. The market crash of 2008/2009 provided us with an opportunity to save for retirement and we are very well off now because of it. So glad that we decided to invest, rather than upgrade. We will retire with no financial issues at all. No need to buy a bigger house just to fill it with more junk. 

So, you can upgrade your house and pump money into an inflated housing market, or put your money into the current market downturn to set up your financial future. It seems obvious to me, but everyone has their own goals and objectives. 

Good luck!


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## JeanJean (Feb 12, 2016)

Don't know where your area is. 
The big picture seems to be: interest rate is going to stay low, if not going to negative.
The safe investment is probably a house, a house with land is better than a condo. Do not buy a condo in suburb. Buy a condo in downtown Toronto probably is ok because of the demand in downtown Toronto. Actually that's what I am doing. 

It's good to live in one house, and rent out another one. Within your financial affordability 
Then : location location location. You should find out about the rental probability and find out the future growth prospect of the region / area that you are interested in. 

My 2 cents. 



kork said:


> ...
> 
> So to the smart members of this forum who have watched their friends/colleagues buy the big homes and then downsize because they're "house poor", have watched families become segregated in their houses of many rooms and many tv's, have watched net worth gains grow astronomically to be sold capital gains free, what do you think is the best way to go?
> 
> ...


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## brad (May 22, 2009)

Our house is about 990 square feet and the previous occupants were a family of seven. We were a family of three when we moved in and it felt spacious enough; now we're down to two and it feels big.


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