Is bigger really better? Things to consider before upsizing your home

Written by in Buying

A white traditional house on a green lawn

Upsizing a house often seems like the natural progression for home ownership, especially in today’s highly competitive and pricey market. Couples look to get onto the market with an apartment, before using both capital and wage growth to eventually move into a building that can house a larger family. But is this always the way to go? What if you don’t want a family but think that you should still upsize regardless? There are a few things to consider before upsizing your home, and some of them may point you towards either waiting or finding alternatives to upsizing.

  1. Why are you upsizing your home?

Be sure that you are upsizing your home for the right reasons, and there are only a limited number of reasons why anyone should consider upsizing their home.

The most common reason is to house a growing household. If you have a child on the way, or wish to start a sharehouse at sixty, these are clear reasons to upsize the home. The only other reason to upsize is if it is financially beneficial for you in the longrun. You may want to grow on your investment and expand to a larger home in a better market, which will provide you with greater capital growth.

If one of these two scenarios suits your situation, great! But if not, be cautious of simply upsizing because you think you need to do so, or think you have ‘too much stuff’ and want a larger house as a storage solution.

  1. What are your longterm goals?

You may simply be looking to upsize your home because you want a different lifestyle to the one you have. For instance, you may be craving a backyard after having lived in an apartment for five years.

On the other hand, you may want to upsize your home because you have clear long term financial goals in mind. In this case, financial goals will influence the sort of property you look for, as well as its location.

Having a clear 5, 10 and 15-year plan, no matter how rudimentary, will help you find the right home. Sometimes larger homes in a suburb may not accrue the same proportion of capital growth as a smaller home, due to locally demographic changes. This is especially so within inner rings of major cities. It is then not always a financially savvy move to ‘go big’ with the expectation that your capital growth will match your investment.

  1. Know your limits

It can be often tempting (or even be an unconscious decision) when upsizing a home to ask yourself, “What is my limit?” before sourcing properties that best suit that limit, or even go beyond it. But buying a property that is at the limit of your financial capabilities dramatically restricts your financial mobility, placing you at greater risk to market forces.

For instance, a study was once made where two groups of participants were asked whether they believed Mahatma-Gandhi was (for one group) 9-years-old when he died or (for the second group) 140-years-old. Both groups answered in the negative, but when asked how old they believed he was when he died, the first group thought he was 50, while those that had been presented with the ‘140-years-old’ option thought he was 67 when he died. So, the mere presence of a number had a large impact on perception.

If you search only for properties that match your budget, you are likely to look further at properties beyond your budget. This risks slowly edging your way upwards to a point where you risk getting yourself into more debt than you intended. Make sure to search for properties well below your budget, you may even find the perfect property for much cheaper than you thought, while your perception of your spend-limit will be more balanced at the very least.

  1. Larger house, larger costs

Budget for the extra costs (both short and long-term) of upsizing your home. These include the short-term costs, such as stamp duty, conveyancing, moving, repairs, utility establishment, while the long-term costs can include higher council rates, maintenance costs, and of course the various costs associated with filling a larger home with more stuff.

  1. Alternatives to upsizing

Can you achieve similar results through renovating? While you may be able to add an extension to your home and have a similar ‘sized’ home, you need to weigh up what effect this will have on capital growth, and whether the costs of renovating exceed the costs of buying a new home if that new home promises greater long-term returns (i.e. if it is on a larger block of land.)