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Yvain comments on Rational Home Buying - Less Wrong
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Comments (137)
Most of this assumes you're treating your house as a place to live and not as an investment. Because you'll probably be paying interest on a mortgage, it's usually not a smart idea to pay more than you need for a house - but I admit that the possibility of selling the house later is a major factor that alters a lot of these calculations.
Since a house is inevitably both a place to live and an investment, it would seem to be appropriate to treat it as both. (Unless doing so spoils your enjoyment of it as a place to live, or something. For what it's worth, I've always thought of houses both ways, have never noticed such a negative effect, and have always been happy with the results on both counts. But I've been pretty fortunate.)
[EDITED to add: I agree that the extra mortgage interest you'll pay is a genuine extra cost -- and that, not the $35k price difference or whatever, is what you should be weighing against whatever you're paying the extra for. How the two figures relate to one another depends a lot on the mortgage interest rate, how quickly you repay, etc.]
Mental accounting can really bite you here. It is easy to treat everything house related as an 'investment' without ever bothering to actually do the math.
I think what that argues against is having a single mental pigeonhole labelled "investment" and treating everything in that pigeonhole alike. But surely the right way to think about this is that many things you buy can later be sold for some non-negligible fraction of what you pay for them; goods for which that fraction is likely to be bigger than 1 and for which that's the only reason you buy them are pure investments, goods for which the fraction is tiny are pure non-investments, but lots of things are in between.
Failing to do the math in any situation involving large amounts of money is asking for trouble.
I think Yvain just meant that the house is not being bought for the sole purpose of selling it later to make a profit.
I agree, but that isn't sufficient to justify treating extra money spent on it as if it simply disappears into a black hole -- which Yvain did, which is why I commented on it.
Good point, I'll edit.