Smart Moves by Ellen James Martin

How to Buy a Gigantic House

A colossal nine-bedroom contemporary house is under construction in a popular semi-urban neighborhood adjoining a regional park. The 14,000-square-foot residence dwarfs the 1950s-era split-level next to it.

With so much space -- plus a four-car garage with a guest apartment atop -- one might imagine that the place was designed to house a large family. But the married couple building the house will live there with just three school-age kids.

And well-off young families aren't the only ones hankering for huge houses

"A lot of boomers hanker for that 'last hurrah' house," says Merrill Ottwein, a real estate broker and former president of the National Association of Exclusive Buyer Agents (naeba.org).

A study by the American Enterprise Institute, a Washington, D.C.-based think tank, shows that even as the size of the average U.S. household shrunk between 1973 and 2014, the size of the average new home continued to rise.

"Most new home buyers of any age want as much square footage as they can possibly afford. Those seeking large custom-built houses are especially eager for a super kitchen, lavish bathrooms and huge walk-in closets," Ottwein says.

Depending on your circumstances, buying a very large property is either a solid long-term investment or an imprudent decision. Here are a few pointers for those pondering such a decision:

-- Make sure your financial house is in order before buying a big place.

Eric Tyson, an author and financial planning expert, says some who buy oversized homes do so without a careful look at the budgetary implications.

"If the bank says they're qualified for a mortgage on a big house, that's the end of their analysis," Tyson says.

For most buyers, even those with six-figure salaries, it's prudent to consider factors beyond those appearing on their mortgage applications.

"Your lender will never ask you if you've pledged to each year donate a large percentage of your income to your church or synagogue. Nor will your lender know if each year you take expensive ski trips to the Swiss Alps," Tyson says.

In addition, there's the obvious issue of your preparation for retirement. Have you saved a nest egg large enough to live comfortably in spite of the mortgage payments on a big property?

Tyson recommends that those considering a large home spend time projecting their future financial needs. Though he considers some online retirement income calculators overly simplistic, he finds others useful -- at least as a starting point. For example, he recommends the free financial planning tools available through such investment companies as T. Rowe Price (troweprice.com) and Vanguard (vanguard.com).

-- Take into account all the costs associated with ownership of a large home.

"Unfortunately, many people don't realize just how much it costs to maintain ownership of a really large house until after they've moved in," Tyson says.

Some big-home aficionados are willing to personally handle all the cleaning and small repairs involved in ownership of a big place. But there are also other expenses to cover.

"Keep in mind that you'll have to insure, furnish, heat and cool that property, as well as pay taxes on it," Tyson says.

-- Think through your assumptions about a big house as an investment.

Citing home value gains, the real estate data company Zillow (zillow.com) reports a continuing decline in the number of U.S. homeowners who owe more on their mortgage than their properties are worth. With fewer owners underwater, more can now consider selling and moving up to a larger property.

But Dr. Svenja Gudell, Zillow's chief economist, cautions prospective trade-up buyers to keep a lid on their expectations for future property value increases if they plan to buy in a metro area where prices are already high.

"A handful of markets ... are very hot right now, and it's possible home values may actually begin to fall somewhat in these places as more residents are priced out amidst affordability concerns, especially when interest rates rise," Gudell says.

No matter the market where you plan to buy or build an oversized house, Tyson says it's usually important to stay for at least five years to make it a worthwhile investment.

"In the past, many who've remained in their big houses for many years have been richly rewarded," he says.

-- Review your overall life goals before making a big home purchase.

Ottwein cites the example of a couple with six young children who could have afforded a spacious, high-end property, but chose not to buy one. Though qualified to buy a home with six or seven bedrooms, Ottwein's clients asked him to restrict their search to smaller places. In the end they picked a four bedroom, log cabin-style house with 2,400 square feet of living space.

"The house they bought was 50 percent smaller than what they could have afforded. But they wanted to use their spare cash to take their kids on educational trips abroad," Ottwein says.

Obviously, financial priorities are highly individual. For every couple who decide to buy a smaller home than their income allows, there are many willing to max out their spending on a showplace.

"If a really big, beautiful house is a top priority for you, and you've taken into account all the relevant financial factors, I say chase after that dream and make it happen for real," Ottwein says.

(To contact Ellen James Martin, email her at ellenjamesmartin@gmail.com.)