Many families dream of having a larger home, or living in a better neighborhood. Unfortunately, the cost of purchasing an upgraded home holds people back.  If this is your case, there may be a solution.

Before we go into benefits of upgrading, it is important that I reiterate my personal view. There is a lot of emotion tied to where we live, and the decision to upgrade can be highly sensitive.  For as long as you live in your home, it is an expense, not an investment. If you want to own real estate as an investment, purchase investment properties that produce cash flow.  Living in a home that meets your needs and makes you happy is what matters. Owning a larger home for the sake of status or investment isn’t typically wise.

A Look At The Numbers

If covering the increased monthly payment is possible without hurting the budget or sacrificing long term retirement savings, it may just be that you need to take a deeper look at the numbers to determine if  an upgrade can be logically justified.  Let’s review an example where the increase in home price is $100,000 above your current home value:

Approximate increase to monthly payment: $550 – Annual cost   $6,600

First year principal reduction: ($1,800)

Estimated first year appreciation (assuming 3% rate of appreciation): ($3,000)

Estimated mortgage tax savings: ($920)

Total Net Cost of $100K Upgrade: $880

 It is important to remember that the benefit of increasing equity in your home is not realized immediately.  In most cases, it is realized when you sell your home.  However, it is increasing your net worth and can certainly be of significant benefit later in life.

Cash Flow Issue – Pay Off Debt

In some cases, it is excessive consumer debt that prevents families from living in a more suitable home.  Financial comfort is compromised when the amount of cash flow required to support debt payments exceeds what is comfortable.  In fact, high debt is what prevents many from investing in their futures. The secret is to invest in appreciating assets (such as a home, retirement accounts, etc). However, most families invest an unhealthy portion of their income servicing debts on depreciating assets such as cars, boats, motorhomes, etc., or revolving accounts such as credit cards.  Such debt payments can keep people in bondage and exaggerate financial stress.

If you are in this position, and you have equity in your current home, you may be able to pay off some debt to free up the cash flow so that you can afford an upgraded home.  Making a one-time decision to become debt free may be a wise decision, assuming you don’t fall back into consumer debt afterwards.

The Next Step

Making wise financial decisions is something that many people struggle with. If you would like a free debt and mortgage review, or a plan to upgrade, call or send me an e-mail. With home values moving higher, now is a great time to sell a home and upgrade.  As homes increase in value, the more valuable the home is, the greater the amount of growth.