Should I Buy a Bigger House in Australia?

Moving or upsizing to a bigger house is a significant financial decision.

Perhaps you feel too cramped where you are, have received a financial windfall, or simply have itchy feet; it might be tempting to buy a bigger house.

But bigger properties come with higher costs, and it’s not just the higher mortgage repayments.

Before you make the leap, it’s vital that you are aware of all the pros and cons of making such a move.

Here’s a breakdown of all the factors to consider along the way, and how they might affect you.

Is buying a bigger house worth it in Australia?

First of all, you might be plagued with questions…

Do I need a bigger house?

Is buying a bigger house worth it?

The reality is that deciding whether to buy a bigger house in Australia depends on various factors that are specific to your own situation.

• What is your financial situation?
• What are your future plans?
• Where are you looking to buy?

Deciding whether buying a bigger house is worth it for you is not something I can really answer.

But I can take you through the reasons you might be in this position and give you some alternatives to think about.

Reasons to buy a bigger house

Unsurprisingly, the list of reasons to buy a bigger house is long.

Generally, when it comes to upsizing a property, multiple reasons might trigger someone to buy a bigger house - it’s rarely just one reason.

Most commonly, people upgrade to get more space, for a variety of reasons.

Here are 10 reasons to consider buying a bigger house:

1. You have a growing family

If your family is expanding, either due to growing children or even aging parents moving in, a bigger house can provide the space you need to accommodate everyone more comfortably.

2. You need more space

Of course, a growing family isn’t the only reason you need more space - perhaps the children are growing up, you want to host more get-togethers at home or even dedicate some more space to a hobby, upgrading can allow all of that to happen.

3. You want to enhance your lifestyle

Perhaps you don’t particularly need the space, but you want the luxurious living style that goes with it, particularly a bigger outside space or additional rooms.

4. You want more privacy

A bigger property gives the people who live in it more privacy. You might all be able to technically and comfortably fit under one roof, but more space means more privacy for everyone.

5. You want a property that is more flexible

A bigger house offers flexibility for future needs and changes in lifestyle as it can adapt to your evolving requirements - whether that is to accommodate guests or create separate spaces for work and leisure.

6. You need a home office

Whether your home has now become your permanent office or whether your side hustle has finally taken off, having a dedicated home office can dramatically improve your productivity.

7. You’ve received a financial windfall

If you’ve suddenly come into a chunk of money or received an inheritance, it might make good financial sense to put it to good use and invest it in upgrading your home lifestyle.

8. You want an opportunity to subsidise your mortgage

Many financially savvy homeowners rent out part of their home to help subsidise their mortgage. Upgrading to a larger home with a self-contained unit (or the potential to build one) might be a good reason to make the move.

9. You want to invest your money

Property investment can be less volatile than shares or other investments. Whether you achieve a rental income or rely on capital growth (or both), property can be a good place to put your money.

Instead of buying a separate rental property, some homeowners might want to invest in upgrading to a bigger home and possibly in a better location meaning better potential of return on investment.

After all, bigger and more expensive homes often mean you can make more money in the way of growth on your investment in a good market - 10% growth on a $500,000 home is $50,000 but 10% on a $1.5 million home is $150,000…

10. You’re financially and emotionally ready

This one probably trumps them all… if you’re financially and emotionally ready to buy a bigger house, it’s probably a beneficial move.

Buy a bigger house vs. pay off your mortgage

You might also ask yourself:

Should I buy a bigger house or pay off my mortgage?

Here are some pros and cons to consider:

The pros

The advantages of buying a bigger house help to offer a resolution for all the points above - it provides more space, more flexibility enhances your lifestyle, gives an opportunity for earning an income.

• Also read:How much of your income should you spend on a mortgage?
• Also read:Pre-settlement inspection guide: what to inspect, why and when
• Also read:The offer and acceptance process when buying a property
• Also read:Caveats – The Red Flags of Real Estate
• Also read:How much you need for a house deposit in each Aussie city

As a wealth-appreciating asset, your property could help you achieve better capital growth as it will increase in value over time.

BUT if you decide to focus on paying off your mortgage instead, you will be debt-free sooner and have equity in your property, which gives you peace of mind and financial security without the burden of monthly mortgage payments.

Paying off your mortgage will also improve your cash flow, meaning you'll have a higher disposable income for other spending or investing, less exposure to financial risk and the ultimate goal of financial freedom.

The cons

If you decide to buy a bigger home (even though it’s a wealth-creating asset) you will most likely have to take on more debt.

Not only that but you’ll face higher costs in terms of maintenance costs and utility bills meaning you can potentially financially overstretch.

It also leaves you open to market risk as there is no guarantee that your bigger house will appreciate in value more.

Meanwhile, the cons of focusing on paying off your mortgage instead means you face a lack of liquidity, risk slower market returns and having all your wealth tied up in home equity also creates an element of risk.

Buy a bigger house vs investment property

If investing your money is high on your agenda, you might question if it is better to buy a bigger house or invest it instead.

Here are some pros and cons to consider when thinking about buying vs investing:

The pros

The pros for buying a bigger house obviously remain the same here, but buying an investment property provides a whole additional list of benefits.

Your investment property has the potential to appreciate in value over time and grow equity as well as potentially providing a passive source of income.

Not only that but investment properties also come with a whole host of tax benefits, such as deductions on mortgage interest, property taxes, depreciation, and other expenses associated with owning a rental property.

Investment in property also provides diversification to your investment portfolio beyond stocks and shares.

The cons

Again, the cons of buying a bigger home remain the same - higher debt, higher costs and more risk.

But the difference here is the cons of an investment property are also the same.

Owning an investment property also means you’ll take on more debt, will have ongoing expenses (including maintenance, repairs and even letting agent fees) and are subject to market volatility.

Additionally, investment properties come with an added management responsibility, which can often be time-consuming (or costly if you want someone else to do them), and you face the risk of experiencing periods of vacancy, resulting in loss of rental income and increased expenses.

How to afford buying a bigger house

Perhaps you’ve made your decision to upgrade but now need to work out how to afford a bigger house.

Generally, it comes down to your financial situation, including your income, employment stability, your debt-to-income ratio, your credit score, the size of your down payment and the amount of equity you have in your current property.

There are two key ways to upsize your home:

• ‍Sell your current home and put the proceeds toward buying a bigger home
• Use the existing equity in your current home to secure a deposit on the new home, then keep your original home as an investment property

Online affordability calculators are provided by mortgage lenders or financial websites to help you estimate how much house you can afford based on your income, debt, expenses, and down payment.

You see, when it comes to buying a bigger property, the route you decide to take depends on your circumstances.

If financially possible, it is usually preferable to buy your new property first and then sell your existing one later.

But if not, you can try to carry out both transactions simultaneously.

Alternatively, you can sell first and then buy later, which of course, involves living in a rented arrangement until the upgrading process settles.

That’s areas and properties which hold their value over the long term, rather than benefit from an uptick in demand.

But even before looking for the right location, make sure you have a Strategic Property Plan to steer you through the upcoming challenging times our property markets will encounter.

Because aside from remembering that you should focus your efforts on investment-grade properties and locations, you also need to remember that property investing is a process, not an event.

That means that things have to be done in the right order – and selecting the location and the right property in that location comes right at the end of the process.

And that’s because what makes a great investment property for me, is not likely to be the same as what would suit your investment needs.