The Rachel Cruze Show - New Build vs. Pre-Owned Home: Which Should You Buy?

Episode Date: October 30, 2024

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Well, hey, you guys. So if you live in a rapidly growing area like us here in Nashville, then you probably heard your friends debate all kinds of different housing strategies, right? Like get an older home that has good bones. No, get new construction. Get the tall, you know, skinny houses. Get the retro ranch style house. I mean, there's so many options out there. And because mortgage rates have been on the higher end over the last year or two, and because the cost of living keeps going up, people are having to compromise. what their home wish lists are. And this is a really tough discussion, I think,

because priorities and expectations are shifting and setting more into reality of what it looks like today. So I want to talk through all the pros and the cons and remind you of the most important things to consider if you are a current or a future homeowner. And if you enjoy this channel and this kinds of content, make sure to subscribe. Only takes a second.

It helps us out a lot. All right, first, let's talk about when the right, time to buy a home is. So to get into the housing market financially, you want to be in a great place. So what does that mean? I want you out of debts. And I want you to have a fully funded emergency fund of at least three to six months of expenses. So that's really important because what happens is if you are living paycheck to paycheck with a ton of debt and you have no savings and you go and buy a house, it's probably going to end up being more of a stress point in your life than a blessing. So I think it is really important to put yourself in a good financial position,

and then you can go and buy. So once you're out of debt and you have a fully funded emergency fund, then I want you to save up at least 5% for a down payment. And ideally, you would get a 15-year fixed rate mortgage and that your payment is no more than 25% of your take-home pay. And that 25% I know is pretty conservative for a lot of people. But here's the deal. If your home and this one-line item in your budget is taking up, you know, 40, 50, 60 percent of your income, you're not going to have a lot left just to live on and to do other things. So again, within those boundaries is a really great place to be. And listen, homes aren't appreciating assets. And they are a smart investment over time. So I think being a homeowner is key to your overall financial picture long term.

And I think it's wise to get into the game when you're ready. And if you check the points on what we just talked about, I would go ahead and jump in. Again, rates are, they're actually kind of coming down a little bit now that we're filming this video and could continue to go down. So I always say, date the rates, but marry the house. So if you are in a position to buy, buy. But in order to reach that point, right, to get to this point that you have money saved or that you're getting out of debt, you want to take your income that you're making now and let it go as far as possible. And the best way to do that is to plan that out, plan your spending for the month. And that is why I love every dollar.

Every dollar is a great app to help you when it comes to your money, and to be intentional with every dollar, hence the name, goes of your paycheck. And it's completely free. So click the link below and you can create a budget just in a couple of minutes. All right. Now that you have an idea of when you might be ready for this step, let's chat about the common questions that people have when they're looking at what kind of home to buy. So some people say, okay, should I buy an older home, but it's in a better location? or should I move outside the city and afford, you know, maybe a new construction? Some people are even asking, oh, my gosh, are new houses even made to last these days?

Because it just seems like they're going up so fast. Some people are like, well, it's an older home of poor investment. You get in there to redo it and you find all this other stuff. Or some people are like, well, should I just go ahead and go super cheap and, you know, gut the whole thing and do a rehab there? Or should I go real cheap and buy some cheap just to get into the housing market? I mean, there are so many questions, you guys. There are a lot of theories about the right way to invest in real estate, but in this housing market, it all comes back to supply and demand.

And so there is still a housing shortage happening. There is. And that's why prices went up drastically during COVID, and we saw the effects of that a year or two after. And honestly, that's kind of why they're just staying the same is because there is still a housing shortage. So when you look at buying a house, again, in your four walls is food, shelter, utilities, and transportation. So housing is in there,

and I do think that there is a time to rent. I do not think if you're renting, you're doing something wrong by any means. Because if you're saving yourself time to get yourself in a financial position, then that's great. But again, if you have the means to go ahead and you're set up to jump into the housing market, again, that's what I would do because I think long term, that's some of the best use of your money. Now, when people need a place to live, then companies know that they can, you can build higher volume of homes and people have no choice but to buy them because there they are. So according to an article that I just saw, the average home is 32% more expensive than the average existing home during the same time period.

And aesthetics have become a major priority for buyers in the last 15 years with the rise of social media. But if new neighborhoods are built in a hurry, sometimes you're sacrificing the quality of the house just to get in. And if you're spending 32% more, then you're spending 32% more. then you may not have the margin that you need to make larger repairs down the road. So again, don't just go buy your house to compete with your high school friend that's on Facebook, right? You want to be in a position where you're like, okay, yeah, this is smart,

and this is wise for the barriers and the boundaries that I have for me and my money. So that may mean, you know, not going and buying a brand new house. But I know the hard thing is, too, people are struggling because a lot of people are staying in their homes longer. and so those older homes, again, aren't up for sale. So, again, I want you to be wide because I don't want you to be house poor. So if it's not a new construction, that's okay. And again, some of the new construction, you may be sacrificing quality as well. So we're thinking about that.

All right, one common complaint that I hear people talk about is the monopoly on real estate and popular destinations. So vacation homes seem to be snatched up really quickly by investors or hedge funds groups or Airbnb flippers. And so there's this idea when you go into a touristy city, sometimes some of the real estate there, right, is gabbled up by these entities. And so I've heard more and more of people seeing this and complaining about it. Some states are even putting some regulations around this. So again, this is an effect, I think, of housing costs going up.

But when it comes back to this idea that you can control what you can control, that's what's important. And so getting yourself in a position to be able to enter that market. enter the housing market when you can. But the more popular the city you're in, the more you're probably going to run into this. So in response to this competitive housing market, people have started trying to get some creative solutions. And like anything, some of these strategies

has some pros and some cons. So for example, centrally located homes, they're convenience, but they've usually been there the longest, so there may be some imperfections or even paying for some repairs that maybe you don't see that will be coming up. But on the other hand, homes outside the city are usually new,

but you're going to have more of a commute, and it's a little bit uncertain on how well they're made. So according to research, quoted by Realtor.com, lots sizes between 1990 and 2016 decreased from 8,250 square feet to 6,970 square feet. Again, with supply and demand, it's more profitable for builders to go in and build more homes in a smaller area.

So, you know, I think about Green Hills in the Nashville area. It's a really popular place, and people have been building small homes with these big yards, and now people are knocking down the homes and they're buying, you know, they're building two or three homes, or they're building a gigantic house where it used to just be a little house. So people are doing what they can to get what they want, but we're seeing real estate change so quickly. Now, with all this info, with all these opinions circulating around, here's what I want you to take away, is there may be a place in your heart that you're going to have to compromise.

So unless you win the lottery or maybe you're an heiress to a throne you didn't know existed, there's probably going to be some compromise to your wish list. And again, I think we've gotten more realistic as the years have gone on. It was a real gut punch about 18 months ago. But I think people that we're now seeing there wasn't a bubble. Prices are the way they are. So now what are we going to do about it? And so again, whether it's sacrificing the location, if it's sacrificing the type of house that you were thinking about, the yard,

whatever it is, you have to know your priorities and your non-negotiables and then everything else may be up for grabs. And that's okay because I also want to remember your home. Yes, it should be a long-term investment. You want to be in it for at least five years just to get the realized gains and everything. But man, you can move. Like there is a place that you could look up in a decade from now and be in a different home. And that's okay too. So I don't want you to wait for the perfect solution because usually there's not going to be. You're going to have to sacrifice something, and that's okay. But I want you to financially be wise about it.

So again, making sure that you're in a place to buy a home wisely, like we talked about at the beginning of this episode, is so, so important. So I hope that helps, again, getting back to this idea that you have the ability to control, which you can control, and in the housing market and all of this, it's a really big decision, but I want you to be as informed as possible. So if you're thinking about buying a home, or even selling a home, make sure to check out a Ramsey trusted real estate agent.

They really take the Ramsey message and use that when it comes to buying or selling your home, and they help you stay on the plan. So make sure to check them out. I'll leave a link below so you can contact a pro near you. And make sure to share this episode with a friend who maybe needs a great real estate conversation. So if you found this helpful, make sure to check out my episode about easy ways to pay off your mortgage early, so you can click the link below if you are listening on podcast to make sure to hear that as well. All right, you guys, remember to take control of your money and create a life you love.