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Should you consider paying more?

Posted by Scott Van Voorhis November 6, 2012 08:03 AM

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For middle-income folks in perpetually-price-inflated Greater Boston, buying that first home can come down to two very difficult choices.

Option can involve settling for 1950s cape that hasn't been updated for years but is priced at $250,000. Option two, by contrast, involves stretching a bit to buy something in better shape, say a renovated cape or colonial in the $350,000-$400,000 range.

Here's a fascinating debate that popped on the comments section on this blog over whether paying up to get something half decent is a good move or simply torching hard-earned dollars.

The mini debate offers two very different approaches to buying a starter home. The post itself was on the rather broad topic of whether real estate still makes sense as an investment.

Thirtysomething offered this short but sweet argument for paying down, rather than up, when it comes to getting a foothold in the housing market.

Own a modest home (one of those small 1950s capes that everybody denigrates) and you are well on your way to financial independence. Hard to rent for less than that, unless you live in a slum. And owning a more expensive property is simply flushing money down the drain of your 3.5 bathrooms.

But BostonTenter, a new convert to the paying up camp, took issue.

After more than three years of looking hard for a bargain on the lower end of the price scale, BostonTenter recently bit the bullet and paid up - over $400,000 - for a four bedroom, 2 bath home. (OK, BostonTenter, maybe you can clarify the price - that was my last recollection.)

Buying a "modest" Cape in todays environment (for $350-425k) vs. something slightly larger/better that will cost a bit more (say $400-475k) is a BAD idea.

Yes, something larger/better will cost you a bit more on a per month basis, BUT it will get you a house that you will not have to move out of in 4-5 yrs.

We were looking for 3 1/2 yrs, and we saw sooo many young couples who had bought "starter" (ie, cramped) places, and were looking to sell/move out (with all the associated costs of buying/selling) once the kids came, and a 3br, 1 1/2 bath cape becomes "too small".

My wife and I considered our 2BR/2Bath Luxury Condo our "starter" home, and we now have a 4BR, 2 1/2 bath lovely place "under agreement" to close next month.

We won't out-grow that place, and it isn't going to cost us much more than what we are paying for rent now. (And our costs will be fixed, for the most part, going forward, as opposed to rent increasing every year, especially as inflation kicks in).

OK, so here's what thirtysomething had to say in reply.

BostonTenter, I wasn't proposing MOVING OUT of that modest cape. I was proposing living in it. For example, this home (decent condition) which raised a family with four kids just one generation ago sold for $240k. http://www.zillow.com/homedetails/98-Mechanic-St-Canton-MA-02021/57429413_zpid/ Contrast to this house (nicely updated, larger) that I believe sold around $380k. http://www.zillow.com/homedetails/31-Rockland-St-Canton-MA-02021/57429393_zpid/ I won't try to tell you that one or the other is the "right" choice, but the larger/newer home is easily 50% more expensive to raise a family in. You need to decide whether the new furnishings and extra space are worth stretching your budget that far. I wholly agree that it is foolish to buy a "starter home" with the intention of upgrading in a few years. But if your lifestyle can fit into that smaller home -- permanently -- then you are well on your way to your first million.

Of course, there is nothing easy about this choice. In fact, for more than a few frustrated buyers, there really isn't any choice at all.

My wife Karen and I bought our Natick fixer-upper for $280,000 in 2002. We could have found something more livable, but that would have meant spending significantly more - say $350,000 and up.

While we could afford that $350,000 house now. But at that point in our work lives and careers, that would have been a stretch for us.

So which side to do come down on? Does stretching a bit make sense to you given the choices on the market? Or do you have a number you just can't go above?


This blog is not written or edited by Boston.com or the Boston Globe.
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Scott Van Voorhis is a freelance writer who specializes in real estate and business issues.

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