If you’re an aspirational person, you may think about owning a big property with enormous entertaining spaces and masses of land. But going right up to the maximum of what you can afford doesn’t make financial sense. And it can seriously hurt your quality of life.
Sure, you have a beautiful property in which to live. But you also have higher costs and less spare cash. Eventually, you wind up regretting spending so much on your accommodation and wish you’d been a little less ambitious in your property dreams.
Figure Out Your Priorities
Spending a lot of money on property is okay if it is high on your list of priorities. Some people want a cozy, beautiful home, and that’s all. For them, other things, like holidays, don’t matter to them so much.
If that sounds like you, then you have more freedom. Using the majority of your income for a property is more sustainable. You don’t feel like you’re missing out on other things that soak up money.
If you have many hobbies that cost money, you’re in a different situation. You want a bigger home, but you also want to pursue other things in your life.
Ultimately, the only thing you can do here is to start budgeting for your priorities.
Think carefully about what you can realistically afford before viewing any properties. You don’t want emotion getting in the way, telling you to buy a house, just because you’ve fallen in love with it. Remember, once you go through the transaction, it’s challenging to change your mind.
Don’t Assume Prices Will Go Up Forever
People mistakenly believe that the price of housing will go up forever according to thesimpledollar.com. They think that because the supply of land is finite that prices can’t crash.
Don’t make this mistake. As we saw in the financial crisis, some places can see double-digit declines in property values. Some of the most inflated areas saw a 60 percent fall in a matter of months.
By not assuming that prices will go up forever, you protect yourself in two ways.
First, you can make sure you don’t take on a massive mortgage for a home that’s worth much less. And second, you go into any deal, knowing that the price of properties could change at any moment, leading to greater caution.
Expect Things To Cost More
Sites like Pigly.Com talk about the benefits of calculating your future expenses. You want to have a good idea of how much owning your new property will cost.
Don’t assume that you’ll be spending the same as you are now. If you’re moving up the property ladder, you’ll likely have to lay out more.
Remember also that a bigger house is typically more expensive to repair. It takes more time to fix a large roof than a small one, pushing up basic things, like maintenance, even higher.
So here’s the bottom line: only buy what you can afford. Don’t stretch your budget too far. Almost always, it’s not worth it.