Homes Sweet Homes: Sizable questions
We live in a super-sized world, from the Big Macs we eat to the SUVs we drive to the bling we wear around our necks.
So, when buying a house, why not do what real estate mogul Donald Trump would do?
Why not buy "yooge?"
The family room can be 2-stories tall, the garage built for three cars. A tennis court, in-home theater and state-of the art gym are a must, not to mention the eat-in kitchen with wine cooler and bread warmer, two refrigerators and two dishwashers.
And no master bedroom can exist without gigantic his-and-her walk-in closets, a sitting room and fireplace, plus a master bathroom with shower, soaking tub and twin sinks.
Why not own the biggest house on the block?
"It makes you feel like you're the king of the neighborhood," said Thomas Crivello, owner of ERA Statewide Realty in Belle Mead in Somerset County.
Real estate professionals said buyers should love the house they intend to buy, but also look around at the other houses on the block or down the road. Being king of the block isn't always the smartest move in the real estate world.
Big houses cost big money, both to buy and to maintain and just think of the landscape and utility bills.
And as investments, big houses aren't always that great either, which is something that will come as an immense comfort to your neighbors who look up longingly at your McMansion from behind the cheap white shades of their tiny three-bedroom Colonials.
There is the mortgage to consider and the prospect of selling it some day when you want to downsize and simplify your life. The first is expensive, the second difficult.
Two years ago, Jeffrey Otteau, president of the Otteau Appraisal Group in East Brunswick that analyzes residential real estate trends, said his advice would be to "buy as much house as you can."
Not anymore.
Times have changed.
"Essentially, you're taking on more debt, more financial burden and more risk in a market not likely to have the big payoff we've seen over the last five years," Otteau said.
Big houses may "stroke the ego," Crivello said, "but they're bad for the pocketbook."
And yet, buying one is so tempting, especially with creative financing mechanisms, such as adjustable-rate mortgages and interest-only loans. Both allow homeowners to take on big mortgages, but pay more modest monthly payments. But they come at a price.
With adjustable-rate mortgages, the rates are tied to a market index and rise and fall along with it. So while the rate is low initially, it "has the ability to ratchet up quickly," Otteau said.
Interest-only loans are just that: they require payments on interest only for the first few years. Using one allows a homeowner to buy "22 percent more house" for much lower monthly payments, Otteau said, because the buyer isn't paying anything toward the principle balance.
But when the set period of interest-only payments ends -- typically about three years -- interest-only mortgages may not be an option available in refinancing because the banking industry is considering eliminating them. Then the homeowner could be left paying higher monthly payments -- Otteau estimates it could be 30 percent more -- on a more traditional mortgage, one that will likely carry a higher interest rate than available today.
A "double-whammy," Otteau said.
So, while buying a big home with a big family room that can accommodate your big-screen TV might seem like a lofty goal, financing it could be risky.
And when it comes time for you to sell -- or if you have to sell because you can no longer afford the payments on your big house -- it can be much harder to do compared with selling a smaller house priced at the lower or middle range.
"It's just simple economics: There are more buyers for that $250,000 house," said Crivello of ERA Statewide Realty. "How many people can buy a $2 million house?"
That brings some consolation for owners of smaller homes. Here's another: When your neighbor builds a gigantic house next to your tiny one, it brings up the value of your home, while the value of theirs is compromised by small houses such as yours.
"The homeowners of the smaller properties -- they love it," said Pat Hoferkampf, president of Burgdorff ERA in Parsippany. "They look at the big dog and the price he gets and it brings up the value of the entire street."
So what should you do if you want to buy big but can only afford small? Otteau of the Otteau Appraisal Group gives this advice: "Buy as much house that you can in the best community you can find."
In many cases, that means a smaller house. But it is a way of shoring up your investment.
"The blue-chip communities see the most property increase in an up market," Otteau said. "And when we do find ourselves in down markets, which is very rare, they lose the least in value.
"You always want the least expensive house on the market," he said. "You never want the largest and most expensive house."
Judy DeHaven may be reached at jdehaven@starledger.com or (973) 392-7804.
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posted by realestatenj @ 2:22 PM
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