The Buying a House Conundrum

Investing
the buying a house conundrum

Me and my wife have been searching for a house for more than a year now. We have not been able to find one that fits our budget (it will be more expensive than our current), provides what we would like to have (note I did not use the word “want” but it’s close) or in the area we are looking in.

Although this is frustrating we know this is a big decision and will not rush it unless we are sure. Some of you might ask but why are you doing such a thing? Have you not mentioned that your home is paid off? Yes, that is correct, we still have the bond open as an emergency fund but it is paid off. The thing is we want to move for reasons which cannot be financially justified. One of the main reasons is that we would like to have a bigger yard with more space for the kids to play in. As South Africa is very different than many developed countries with safe parks nearby having a larger yard is a huge bonus for 2 kids who is both interested in sports. The main reason however is schools. We are not planning on private education for our children and with some good public schools close by we would like to move to those neighbourhoods. This will ensure acceptance into those schools as well as less travel for us the parents.

The upside

Naturally a larger yard and proximity to the schools would be achieved. We are conscious of various aspects and if we buy we would like to make this our home at least until the kids go on their merry way one day. This will also be a good happiness investment as I believe your home provides a lot of joy and memories for the parents and kids. The asset will not depreciate and as the neighbourhood is nice it should grow a bit faster than inflation. Don’t get me going on the rent vs buy debate as there has been very good articles on this. In South Africa rent might make a bit more sense, but I like to own the roof over my head and make this the stable place my kids will grow up in.

In summary it will be a marginally positive investment which delivers on all our wants and needs in terms of providing what we believe is good enough for our kids.

The downside

There will be new costs and taxes to purchase the new house and sell our old one. This can be quite an amount of money which we have already saved upfront. This money is now sitting in an interest account (6.5% p.a.) while we are looking for a house. Not the best use of these funds, but when the right house comes along tomorrow we need to be prepared. Although these costs and taxes are unavoidable it still hurts paying this and seemingly getting zero value from it.

Except for this it will have an impact on our net worth. You might be asking how? We are buying an asset and even if we have a portion of new debt the impact should still be neutral, right? Yes, but a more important move takes place in the asset column. We are moving some of our investable assets into fixed assets, our primary residence. So, we are placing potentially investable money into an asset, which luckily should keep track of inflation, but we are not planning to liquidate any time soon. Remember you cannot buy bread with bricks. This is less growing money babies from our assets which some day should turn into passive income money babies. I see that the measurement of wealth is also moving more into measuring investable assets and not just net worth.

Lastly buying a fixed asset in a country with higher political instability is always a bit riskier. But I am not planning on moving anywhere so I am a bit neutral on this, although it is worth considering.

What to do?

Well we are still looking and would like to buy a new house. I see this in the same light as buying an ETF or share and ask the same question. Will this be worth it 10 years from now? I believe this house will provide our kids with a good education and home to grow up in and that is worth every cent.

What we should very well be guarding against is over buying. It is easy browsing houses and convincing yourself you “need” a jacuzzi and third garage to store junk in. An easy trap but one to consciously avoid. As none of these things will lead to long term happiness.

In the meantime, we are still looking. If I do not post for a while we probably found the one and I am busy packing boxes.

Always grow your wealth for tomorrow while being content with your wealth today.

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