You make a good point. The site is off putting, but it's worth it to spend a little time investigating. I'll check out the link that huherto gave me and maybe take a look at the book.
> It's also a very illiquid purchase, meaning it's difficult to sell and you need it to appreciate ~7% just to make back what you paid (that's because of Realtor(tm) commissions).
Indeed. Realtor commissions are a huge drag. I do somewhat skip over the part about the importance of a house appreciating in value because I'm not purchasing a house as an investment in which the primary goal is to make money. It's a purchase of a good whose main value to me is its utility as a domicile. A secondary goal is for it to benefit me financially. I acknowledge that this may be an uneducated opinion, but I definitely know what a house means to me, and its financial value isn't terribly high on that list. Perhaps that will change as I learn more over the coming years. (I'm considering building a house too. I get the feeling it would be financially better to start smaller, and then incrementally add to the house as we accrue the necessary capital to do it. I very much intend for my first house to be my primary residence for at least a couple decades.)
If you're purchasing a house that you intend to stay in for a long time, reducing the cost of your mortgage as much as possible will save you far more money than the Realtor commissions will cost. The interest on a mortgage can easily double the cost of a home, and for the first ~third of the lifetime of the mortgage your monthly payments will be more interest than principal.
You reduce the cost of a mortgage by making a larger down payment, especially if you pay more than 20% in cash. You also want to avoid 'points' (which are just more interest) and to get the lowest interest rate you can. (A very good credit score helps a lot.) If you go for a variable-rate mortgage, read the fine-print very carefully; you want to make sure that the rate can't go up more than a reasonably small amount or more often than a reasonably long period.
You should also consider a lot of the non-purchase costs involved in home ownership. I wish the commissions had been the most significant expense I faced. Remodeling, repairs, improvements, decorating, re-decorating, and general maintenance added up to a large multiple of the commission I paid over ten years. And living in NJ, my property taxes have rising to nearly as much as my mortgage payments after a decade! I had never planned for any of that when considering what I could afford to buy.
> I get the feeling it would be financially better to start smaller, and then incrementally add to the house as we accrue the necessary capital to do it.
From my experience with other people who have thought like this, this is a mistake. One person wanted a 2 story addition, but couldn't afford it - so they put in a 1 story addition, but built the foundation so it could handle 2.
Needless to say they never added that second level even though they had funds - once you've paid for the roof, and the equipment and everything else (i.e. startup costs) adding that second level would have been just a small addition, but doing it now means starting over and the expense is no longer worth it.
Others have done that, but found the interface where the two connect to shift, which is unpleasant. Or the styles don't match.
Instead, build all the rooms you want, with exterior walls and roof, but don't finish the inside - no wires, no drywall, no doors, nothing except insulation, not even windows (when it's time for windows you just cut the exterior and add blocking on the inside). Close that section off from the rest of the house, and then when you have funds, and need, build it out.
The interior costs a significant amount, but the startup costs are much smaller than for exterior.
Note a possible problem: The inspector may object, I don't know.
>I'm considering building a house too. I get the feeling it would be financially better to start smaller, and then incrementally add to the house as we accrue the necessary capital to do it.
I don't know anything about your personal financial situation, so this advice may be completely off-base. But perhaps buy a house that's unrenovated but structurally sound and then hire a contractor to renovate it to your specifications? At least if my experience a few years ago was any indication, you'll learn a tremendous amount about permits, appliances, electrical upgrades, fixtures, moulding, doors and windows, insulation, decks, landscaping, and how to manage a complex undertaking that's likely (depending on the size of the house and the geographic area) to run into the six figures and last at least half a year.
Then, a few years later, you can hire an architect and do everything right the second time around. :)
Also if you live in the SF bay area (and I know your profile says you're in Massachusetts), be warned that all the good land is already built on or unavailable for building or vacant and extremely expensive -- as in millions of dollars for just a lot in Portola Valley, Los Altos Hills, or Woodside. There was a discounted property for sale two blocks down from me a few years ago for only $800,000 (!). But there was an active landslide on the property and the town expressed some doubt about whether the owner actually had the legal authority under the deed to subdivide in the first place...
So if you have a liquidity event, you can buy that 800 ft^2 shack in a great location in Palo Alto for $2M, tear it down, and spend another two years and $2M building a nice modern 3,500 ft^2 house (1,000 of that may have to be underground because, well, it's Palo Alto). Otherwise, well, New Hampshire is a nice place to live! :)
> It's also a very illiquid purchase, meaning it's difficult to sell and you need it to appreciate ~7% just to make back what you paid (that's because of Realtor(tm) commissions).
Indeed. Realtor commissions are a huge drag. I do somewhat skip over the part about the importance of a house appreciating in value because I'm not purchasing a house as an investment in which the primary goal is to make money. It's a purchase of a good whose main value to me is its utility as a domicile. A secondary goal is for it to benefit me financially. I acknowledge that this may be an uneducated opinion, but I definitely know what a house means to me, and its financial value isn't terribly high on that list. Perhaps that will change as I learn more over the coming years. (I'm considering building a house too. I get the feeling it would be financially better to start smaller, and then incrementally add to the house as we accrue the necessary capital to do it. I very much intend for my first house to be my primary residence for at least a couple decades.)