Buying a big home just for the investment does not make any sense. Buy
what you really need; excess space that you don't need simply becomes
a liability. When weighing a home as an investment, you have to
consider the cost of insurance, interest, utility bills, repairs and
maintenance, all of which will be higher for a larger home. You have
to also factor in the extra furniture to fill the larger house, which
will actually depreciate in value. Also, a million dollar house is
less liquid than a smaller house. That has a definite cost attached to
it, as it may take a long time to sell the property. After considering
all of these, and if you are still making a profit, you have to decide
if that profit is significantly higher than other forms of
low-maintenance investments (such as mutual funds and bonds) to
warrant the extra hassles that come with maintaining a large home. I
really doubt that you can make a case for an expensive home as a
viable investment.

People find all sorts of excuses to justify their expensive purchases.
SUV's and golf club memberships have all been argued as investments.
Bottom line is, buy a big house because you like to live in it. If you
want to invest in real estate, stay in the current home, and buy a
rental property. As long as the rent payments cover the monthly
operating costs of the property, you will end up with a profit when
the property is eventually sold.



(Warren X) wrote in message . com...
Good day,

A friend and I had the following debate when I said that I would one
day like to buy an $800K house, upgrading from my current $200K
condominium apartment, and I would like to hear more opinions on the
matter.

I said that we planned to stay in the condo as long as possible,
putting extra money down on the mortgage.

My friend said that we should move to an intermediate house of, say,
$400K, as it would provide more "financial leverage" that would be
required for the big house.

I argued that selling a home costs a lot of money in real-estate agent
commissions, legal fees, moving fees, renovation costs, etc.

He argued that the value of the houses increases at a rate that more
than compensates for these charges.

This is a possibility, but the market is at a high right now (area:
Toronto, Canada), and could conceivably "correct" in the next few
years once the glut of new homes are bought-up.

I also mentioned that a larger (intermediate) house begets larger P&I
payments, and larger interest payments mean a greater waste of money
that could otherwise have gone towards principal on my current
mortgage.

He then mentioned that the increase in value of property is
proportional to the size of the property (i.e., greater absolute
capital gain on a larger property than on a smaller one), to which I
must agree.

Can anyone offer any thoughts on this?

Thanks
A. Huahua