Mr. Money Mustache: How to Buy a House

Moving House

 

Well, it’s official: The Mustache Family is buying a new house.

We’re pretty excited, as this is a chance to put many of our favorite values into action. You might think that buying a house is just something you do, rather than a skill that must be learned. But the truth is quite the opposite: for the typical non-millionaire, a house is the biggest purchase ever made, and thus the opportunities for both grand mistakes and massive scores are plentiful.

Mindset

You can start things off by giving yourself a great gift that will make the rest of the process go much more smoothly: A calm and rational mind. Repeat after me: “I am not buying a flowery pillowcase of emotions or a future of warm memories. I am conducting a business transaction to purchase a piece of land and an assembled collection of construction materials.” For now, you are a BusinessMan or BusinessWoman looking to conduct some business. The strength provided by this mindset is essential to get the results you want.

Location

Next, choose your location. You need to do this before you start looking at houses, because it is way more important than the details of the structure itself. I suggest starting with the assumption that cars don’t exist and designing a life around that assumption. You’ll still have your cars, of course, but your level of need for them, and thus the quantity of money and time you waste sitting on your butt in them, will be completely different. With a bit of planning, it’s almost always possible to put work, grocery store, school, library and anything else you need right within the area you live.

Rent vs. Buy

There are a few old bits of folk wisdom that need to be put out of their misery. “Real estate is always a good investment, because it never goes down.” “They aren’t makin’ more land, so buy it now.” “Renting is just throwing your money away. You should buy, because you’re building your equity.” In expensive areas (homes start at over $300,000), the math often comes out in favor of renting. In cheaper areas, especially with the currently-low interest rates, buyers usually win. In between, there are some considerations that tilt the balance, but in either case, there are costs: if mortgage interest plus property taxes and insurance alone add up to more than rent for an equivalent house, you are throwing more money away by buying than you are renting.

Fixer-Upper or Fancy Luxury

Much like the rent-vs.-buy decision, this question often depends on how expensive the target area is. In pricey hotspots, everything sells at a premium – a renovated 3-bedroom house might be worth $200,000 more than the same thing in dated condition. Since it costs far less than 200 grand to renovate a house, you’re better off with the fixer-upper. But there are still many U.S. towns where houses are selling at less than their construction cost, even assuming a land value of zero. In this case, you might as well get all the quality you need while it’s on sale, since even DIY-renovation will cost more than purchasing an already-nice house.

Ignore the Fluff and See Opportunity in the Bad

When touring houses with buyers, I’ll often hear things like, “Oh my, I love this pantry!” or “This place smells dingy … Let’s get out of here.” Small details tend to have a big impact on buying decisions when really they should not. These represent things that can easily be changed at a tiny fraction of the cost of the house itself. Would you make a car buying decision based on how full the gas tank or the wiper fluid reservoir is?

Pay More Attention to Big Details

For example, which part of the house faces the sun? How efficient is the furnace, air conditioning, insulation and water heater? These things make a difference of thousands of dollars per year, which makes them more important than most other home features. And good solar exposure and window placement can make for a happier living environment in general.

Take your Time

For the past eight years, I’ve researched every listing and every eventual sale in my area, so I’ve soaked up the market on a fairly deep level. Given the large sums involved, it makes a lot of sense for a home buyer to plan to shop for six months or more, rather than rush to find a house during a brief window of a summer vacation or a weekend house hunting tour. If you spend 50 hours researching houses, but save $50,000 on a purchase because of it, what is your hourly rate?

Move Fast when the Time Comes

You found a great house, and you know it is underpriced. Do you go away for the weekend and think it over, then maybe try to set up a showing next week? No. You tour it within a few hours of its arrival on the market, and you make an offer before you eat dinner that night. Good deals go quickly, so if you want one yourself, you must be even faster.

House shopping is much like car shopping: as soon as you train yourself to look beneath the superficial veneer, you gain a huge advantage in the marketplace. So good luck!

 

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