Is buying the best house on the block smart?
While many factors weigh on a decision of this magnitude, “my short and quick answer would be no,” said mortgage expert Ivan Simental.
Simental explains a topic that’s near and dear to his heart because it’s one he has first-hand experience with. Here’s what he had to say on a recent episode of The Mortgage Reports Podcast.Verify your home buying eligibility. Start here
Listen to Ivan on The Mortgage Reports Podcast!
Why most borrowers shouldn’t do it
Owning a home is one of the best ways to build wealth, either through equity or a sale.
The top reason why Simental argues against the premise of buying the best house in an undesirable area is there’s less room for your property’s value to grow relative to those around you.
“You’re buying the best house on the block, right? So there’s really no comparables that will help you when you’re trying to sell it for more or when you’re trying to justify why your house should be worth more,” he said.
Though it’s important to note that the answer more accurately depends on the buyer’s situation and goals. If you’re less concerned about what your potential sales profits could be or if the location is great for your lifestyle, then it could be a good option.
“If it makes sense for you to buy a nice house in the ugly neighborhood, then 100% take advantage of that,” Simental adds. “You might even be able to get it at a discount because you’re like, ‘this house is beautiful, but the neighborhood really sucks.’”Find your lowest mortgage rate. Start here
What about buying the “worst” house in a neighborhood?
“In my opinion, I would like to buy the not-so-prettiest house in an okay neighborhood or up-and-coming neighborhood,” Simental said.
He explains that this scenario provides a quick and easy path to boost your home’s value. You start by purchasing a bargain relative to the nicer properties around you and do the work to improve it. Your house will then be at or near the same value level as your comps but you will have paid much less for it.
“You might get this house at a somewhat of a discount and then you put some love into it.
This could be a good way to save yourself money and do minor upgrades and basic landscaping. This could definitely bring up the value of your property fast,” he continued.
Simental actually followed this plan in real life after consulting with a few real estate investors. He bought what was “literally the ugliest house in the neighborhood” for $360,000, put in about $40,000 worth of renovations and sold it a year later for $580,000.
Advice for borrowers
Home buying is a major commitment of both people’s time and money. According to Redfin, the median U.S. homeownership tenure was 13.2 years as of 2021 and the median sales price was $383,460 in January 2023.
“This is why it’s important to get with a lender and real estate agent that really understands your plan, your short term goals as well as your long term goals. Because they can advise you based on that,” Simental advises.
If you’re ready to buy a house, talk to a lender to see what the best path to homeownership looks like for you.Time to make a move? Let us find the right mortgage for you