Hello everyone and Welcome to another
episode of Selling Greenville your
favorite real estate podcast here in
lovely Greenville, South Carolina I am
your host as always Stan mun realtor
here in the Greenville area and you can
find all of my contact information in
the show notes if you need to reach out
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it today we are going to be talking
about owning the most expensive home in
the neighborhood what what does that
look like when you purchase the most
expensive home in the neighborhood
because we've heard it say many times
at least I have I remember before I
became a realtor I heard this type of
sentiment a lot you should never ever
under any circumstances purchase the
most expensive home in a neighborhood
and the the justification for that is
well it's not a good investment if
you're buying the most expensive home in
a neighborhood then you you know the
thinking is you're overpaying you're
making a poor investment it's just like
if you go and you know if you're buying
something at the grocery store and you
just automatically pick out the most
expensive thing you might not actually
be getting the best
value the most bang for your buck and so
that is the thinking behind that and
that thinking can be true in many ways
however the way the market currently is
there are a lot of people right now that
no longer the luxury of waiting for a
cheaper home to become available I mean
I I hear people come to me every now and
then that don't really understand the
way the market is and they'll be like
you know I want to look at
foreclosures okay well we're going to be
waiting three four maybe five years
before we start to see foreclosures I
mean there is no evidence that there's
going to be a foreclosure boom happening
any anytime soon and and same thing
with even that's the extreme of course
but even just looking at a neighborhood
just saying okay I don't want to buy top
of the market for this neighborhood I
really want a house like this but it's
at the top of the market I can't afford
that listen we're in a market where
Beggars can't be choosers and buyers
right now are the Beggars and and so
the reality is a lot of people making
moves right now have essentially no
choice but to pay for essentially the
the most expensive house in the
neighborhood or at least something very
close to that so if the only homes that
are available while you're in the
process of making a move are exclusively
the most expensive homes in those areas
is that a death sentence are you
signing away your future by making that
type of a
purchase all right now let's back up for
a second for a huge percentage of the US
population I I don't have the number in
front of me but it's a very very large
percentage the their Primary Home the
home that they live is their main
investment a huge percentage of
Americans have essentially all their
eggs all their investment and retirement
eggs in their primary residence now
maybe they have a small little 401k or
something like that that their that
their work you know offers them but
they're expecting a lot out of their
primary residence in terms of in
terms of that acting as an investment
and so for people that fit that category
if your primary residence is your
primary investment in your mind that's
that's what you are banking on down the
road as being something that that grows
in value and that ends up being a major
investment for you you have to be
particularly careful of the financials
of that investment now I have to say
this I am not giving investment advice I
am not giving Financial advice I don't
do that I'm not allowed to do that I'm
not qualified to do that get a financial
adviser get a financial planner get an
investment adviser all these people that
know what they're talking about when it
comes to this kind of stuff that's not
what I do this is simply
my ideas on how this all works from a
real estate standpoint this is my
opinion I'm not advising you to go
out and make the most expensive purchase
in aor neighborhood or to not make the
most expensive purchase in the
neighborhood you need to to find other
people to help you decide the
financials of it but I will say this
it is my personal opinion that if you
don't have a lot of Investments out
there it's probably a good idea to be
particularly careful on your primary
residence and making sure that that is a
long-term good investment for
you and again this isn't financial
advice but this is just a comparison to
me I see this that that buying the most
expensive home in a neighborhood is kind
of like buying stocks in a company when
prices are at their Peak you know like
looking at oh I don't know looking at
Amazon for instance you you say oh I
want to buy stocks in Amazon here's a
here's a good one because I I constantly
I've heard even Elon Musk say that Tesla
stock is too high you go out and you buy
Tesla stock when it's at its peak I
don't know I'm not a financial adviser
so I don't know whether you should or
shouldn't do it but to me that's the
kind of a similar idea to buying a home
that is the most expensive home that's
ever sold in the neighborhood your
upside is limited in terms of how the
investment can grow that doesn't mean
it's a bad investment it just means it
has limited upside it's not like you
know if you're purchasing stock in Tesla
where the owner of the company is saying
the stock is overvalued that obviously
has limited upside in comparison to
investing in a startup now investing in
a startup probably has a lot more risk
and and so these are are the things
that you're considering in real estate
there are there is some overlap here and
again I'm just making a comparison
between the two I'm not saying it is
Apples to Apples it's a loose
comparison in the in the simplest way
to explain this why there is
limited upside to to purchasing that
most expensive home in the neighborhood
is that again I'm I'm oversimplifying
things but essentially the rest of the
neighborhood has to catch up to that
home to a certain extent in order for
the most expensive home to really start
to gain value and in some markets it may
take a while to catch up now in our
current market it's not taking as long
as it typically would but reminder that
current market is an exception to the
rule it is not the rule now it's it's
been a lengthy exception we're not going
on two years of the market being like
this but we know it's not going to last
like this forever at some point it would
have it will have to slow down a bit
I don't anticipate there being a major
correction but I do think that we will
see at some point as interest rates go
up and boy they are going up right now
we will see a a slight slowdown it'll
go from you know a 10 out of 10 frenzy
to maybe a 9 out of 10 or an eight out
of 10 something like that and so the
levels of appreciation know we talked a
a few weeks ago on this podcast
about how the greater Greenville area
saw a 20 to
21% increase in prices for Real
Estate by the end of 2021 versus the end
of 2020 will that pace be able to
sustain itself probably not and so what
happens is again for these homes that
are the most expensive homes in the
neighborhood they benefit when the
market is in a frenzy like this because
then the rest of the neighborhood can
catch up to them more quickly but if the
market slows down that's going to
negatively affect those homes that's
just something to keep in the back of
your mind all that to be said for
those who on the flip side or sorry
not on the flip side but for those who
don't have Investments or
retirement outside of their primary
residence for for those who are really
again have all of their eggs in the
primary residence basket my personal
opinion not Financial or investment
advice is that a lot more caution needs
to be exercise when purchasing the most
expensive home in the neighbor I just
said that a few minutes ago I'm just
going to reiterate that it is not a yes
or no it's not a black or white it's
been presented as a yes or no or a black
or white in the past you shouldn't ever
do it I'm not saying that I'm just
saying that there needs to be caution
exercised I would also say this you need
to be prepared to stay in that home for
several years before you really see it
grow in value now you already have to
stay in a home for for two years or more
and again I'm not an accountant but
for tax purposes that's an important
detail consult your accountant for
more details on that but beyond that
like if you're buying the most expensive
home in the neighborhood really in the
ideal scenario you should be prepared to
stay there I would say probably 5 years
or more just to be safe and that's
assuming that there's not some kind of a
recession or something like that that
happens if you need the flexibility to
be able to move out of that house within
2 years after you move in be be
especially cautious you should be
cautious no matter what you should be
especially cautious in that instance
that you don't overspend on the house
you need you you need to to take the
extra steps in order to make a safe
purchase in that instance all right now
on the flip side when we're talking
about those who don't see their primary
residents as their largest investment
people that that perhaps have other
rental properties people that have other
types of Investments whatever they may
be I would personally my personal
opinion again talk to your financial
advisor about this but I would
personally think that that those are the
people that are a little bit safer off
buying the most expensive home in a
neighborhood and there are some logical
aspects to this as well for instance if
you're looking at houses let's say you
have a certain you know minimcriteria
and that criteria is is right on the
line of putting you in a certain class
of neighborhood that is kind of on the
more affordable end of the spectror a
more expensive neighborhood that's not
on the more affordable end of the
spectrthe house that you're looking
for is kind of you can see homes in both
types of neighborhoods that make sense
to you and and and let me let me say
it this way perhaps you see home that
would work for you that fit your
criteria that are in both production
built neighborhoods and in more
custombuilt neighborhoods if that makes
sense you in those instances you may
actually find that the most expensive
home in one neighborhood that is on the
more affordable end of things that fits
your
criteria is substantially cheaper than a
comparable home a very similar home in
another neighborhood that typically has
higher prices so if your primary goal is
simply moving to improve your lifestyle
and you're not as focused on the
investment aspects of your primary
residence and by the way this is true
for for ultra wealthy people I have
read multiple times over and over again
that the world's wealthiest people they
don't see homes as Investments they see
them as places where that can enrich
their lifestyle but they don't purchase
a house in order to have it as an
investment so it's not like this is some
very odd idea this is actually an idea
that even very wealthy people have you
don't have to view your home as a as an
investment tool necessarily okay there
there are other considerations and we've
talked about that on the show as well so
if you're primarily focused not on the
investment side of your Prim residents
but are more focused on having a house
that is an upgrade to your lifestyle you
want a nicer house you want a nicer
neighborhood you want to be closer to
work what closer to your kids school
whatever the case may be you might
actually get the most bang for your buck
by purchasing the most expensive home in
a cheaper neighborhood than a virtually
identical home that would be the the
cheapest or maybe middle of the road in
a more expensive neighborhood and I'm
not just talking theoretically I see
this Dynamic at play all the time and so
even though you may have limited upside
on the the home's long-term appreciation
if you purchase that most expensive home
in the cheaper neighborhood your initial
purchase is lower than it would be if
you went to the more expensive home and
then just purchased kind of a middle of
the road type of of option there that is
comparable to this other Home in the
cheaper neighborhood okay that's a lot
of words let me try to illustrate this
in in a way that hopefully will will
make sense in non-real estate terms
let's say that you're looking to
purchase an
SUV and you want something that has
you know a ton of features you know
massaging seats Apple
carplay you know level two
self-driving all these different things
and it needs to fit by the way if if
if I'm recording this in February of
2022 if people are listening and it's
like you know the year 2025 and you just
heard level two self-driving you're
probably laughing anyway right now
level two self-driving my understanding
is that's that's pretty good for for
the year
2022 anyway so you're looking for all
of those things but you don't just have
an unlimited budget right you you have
to operate within the constraints of
your budget and so you cast a really
wide net right you are willing to look
at Toyotas you're willing to look at Kia
you're willing to look at fordge you're
willing to look at BMWs at Range Rovers
Etc and to make sure that you're
comparing Apples to Apples you only look
at cars that have the same features and
that are highly rated by you know Motor
Trend Edmonds websites like that that
are popular and so you find something
interesting as you're doing this
research on on these different cars on
these different SUVs there are a handful
of fully loaded Toyota SUVs that exactly
meet what you are looking for all the
features you're looking for and you
know they're essentially the top of the
market for those Toyota
SUVs and they're essentially comparable
in terms of of features and space and
all of that to middleof the road BMWs or
or Range Rovers except that the Toyotas
are substantially cheaper so you're
getting the most expensive Toyota in
essence but it's comparable to a
middleof the road BMW your a Range Rover
but still a lot cheaper okay you get
that so you end up getting what
you're looking for and you end up paying
less on the front end by getting the
most expensive Toyota versus going with
a mid-range you know European Mak model
but eventually you get tired of the
Toyota after a few years and you decide
okay it's time to sell it's time to to
move on upgrade whatever and you realize
that there aren't as many people looking
for a Toyota with all of those features
that you have most people that are
looking for Toyotas are just looking for
a family vehicle they're not looking for
you know something that has all these
massaging seats and and you know all
this you know self-driving Automation
and now and by that by the time you sell
that that self-driving automation is so
much better that yours is actually you
know kind of far behind in comparison to
those and so in the end you go to
sell your Toyota and you find that most
of the market for the the price that
your Toyota in theory should be worth
most of the market would rather just pay
a little bit more to get a comparable
BMW or Range Rover and so you end up not
selling it for as much as you think you
should in the end because most Toyota
owners aren't willing to pay extra to
have those unique upgrades that we have
that is the situation that is with cars
it is comparable in many ways to the
situation that we find with homes in
nicer neighborhoods versus not as nice
neighborhoods okay so to to go back to
that analogy for a second here did you
make the right decision or not that's
the question right was it the right
decision to buy the Toyota that was
cheaper on the front end but also didn't
sell for as much on the back end or
should you have gone with the more
expensive car on the front end that
would then sell for more money on the
back end I'm not going to answer that
question because it depends it depends
on your situation right everybody's
situation is unique and different and
there's a lot of factors that go into
buying a car just as there's a lot of
factors that go into buying a house now
I can't help you with buying a car I
can't help you with with buying a house
we talk through those situations and
again I encourage you to to have a team
of people that you talk to I sometimes I
have clients that that they want to go
back to their parents and talk to their
parents or talk to their and if it's
older people they might want to talk
to their children I always encourage
that type make sure that everyone is on
the same page make sure that you have
involvement from a from a team of people
that you're not just on an island trying
to make a decision as long as you
realize that it's a hot market and you
can't just pray you know for a week
and and asking for you know Gabriel
the Ang to come and and tell you whether
to to buy the house or not this is a
market where you kind of have to make a
decision quickly so I am as as long as
that is kept in mind I am firmly in the
camp of we need to make educated
decisions and have as many people
involved as possible to help you make
that decision don't feel bad about that
at the end of the
day because this is not an easy decision
to make right right you're you're
looking at all these different houses
and it's like okay do
I go ahead and jump up I can afford it
of course this is assuming you can
afford it I can jump up into that more
expensive Community or I can just sit
tight in this more affordable Community
but I'm buying a house that you know
most people might think I'm overspending
for but it is cheaper than the more
expensive neighborhood okay so what are
some of the
considerations to consider when we're
doing this outside of what we've already
talked about all right here's one most
people like to do a lot of improvements
to their homes and and that varies
from just simple painting to you know
full remodels of of kitchens bathrooms
Etc now if you've already bought the
most expensive home in a neighborhood
you have to be prepared that those
improvements are not going to add much
value to your house they're just not
why well this gets into neighborhood
Dynamics and and before I get into
the neighborhood Dynamics one thing
that you should know that most people
don't realize is that you very rarely
get one for one $1 for1 back for every
Improvement that you do very rarely and
if you go on you can Google this and
and there's a lot of information out
there but most improvements it it's
like a tremendous amount if you get back
seven 70% to or 60% back in a
value of what you put into something so
if you remodel a kitchen for you know a
really nice remodel
$100,000 if that adds $70,000 to the
value of your home that that would be
typically on the higher end of what type
of value you just added with that
Improvement most people don't realize
that they think oh if I improve my
kitchen if I put $100,000 into it I just
increase the value of my home by
$120,000 no it's actually the opposite
you have you have lost money more often
than not okay so let's reel it back in
here for a second and go back to the
neighborhood Dynamics at play the
reality is good or bad people put a lot
of stock in the neighborhood now
sometimes people make very poor
decisions based on the neighborhood
Dynamic they'll they'll take into
account things like ethnicity things
like you know the general income levels
of the neighborhood things like that
that me as a realtor I encourage people
not to focus on those types of things
those there are some great people in
great neighborhoods that don't
necessarily match that might not
necessarily match every single
demographic aspect or every single
demographic category that you fit
and so you should be very careful when
assessing a neighborhood on the basis of
those things I don't encourage people to
do that but at the end of the day you
need to consider okay what type of a
home what type of a neighborhood is this
as you're improving it because if you
for instance make improvements that
would be for instance to that mirror
Like a downtown Greenville type of
high-rise condo you make those types of
improvements to your home out in rural
Fountain Inn something like that is that
going to be the right type of
improvement for that type of house is
that going to be an improvement
that's going to attract a buyer down the
road when you come when you go to sell
the house is the buyer that's looking
for that type of kitchen or that type of
style of House are they going to want to
be moving out to rural fountain in or
are they going to be looking for that
type of of property in Downtown
Greenville that is a a part of the
consideration not that's not the entire
consideration but that is something to
consider that's part of the neighborhood
Dynamic if you put something in your
house if you do something in the home
that is some inappropriate for lack
of a better word inappropriate for that
area it's not going to be attractive to
a buyer for that area then that is where
you're going to run into problems and so
you you have to also consider okay as
I'm moving into a neighborhood I'm
looking for this type of house you might
say you know what I can make this house
fit what I want to do I can make all
these improvements that I want to make
but just as I said before you're not
going to get dollar for dooll back if
that if those improvements are really
really non-conforming to the rest of the
neighborhood then no matter what the
dollar spent is it's going to be
something that's going to cause problems
for you in terms of the home value down
the road but even an aside from let's
say that you're putting a more downtown
style kitchen into a house that's in
a more rural subdivision even aside from
that okay let's say that you don't do
some kind of weird modern type of
type of style that would kind of be more
unique to a downtown type of condo
let's say that you just sink a lot of
money in general into just a really nice
a really nice kitchen really nice
master bathroom whatever the case may be
you go with the modern you know Magnolia
Trends the farmhouse style that's
really popular around here and pretty
much any types of home let's just assume
that you do that and again this is for a
house that is the most expensive house
you purchased it as the most expensive
house in the neighborhood already
so keep that in mind that is an
important backdrop to this and then you
took that home that was the most
expensive home in the neighborhood and
then you sunk another $100,000 or so
into making these really nice but really
expensive improvements to get the full
value back for those improvements you
would have to find a buyer that's
willing to pay an even bigger premium
than you did in a neighborhood that may
not be their first choice
and at that price point that they would
have to buy at for you to get that money
back they're going to have to they're
most likely going to have nicer
neighborhoods to choose from let's just
be honest right you have you have sunk
$100,000 into
Remodeling and you're hoping to get okay
maybe I get 50,000 of that back well
even that even adding you know in in our
Greenville Market here even adding
$50,000 let's say that you paid $400,000
for a house that's in a neighborhood
with an with a median price point of 290
300 something like that you paid
400,000 now you're You're Expecting
someone to pay
450,000 in a neighborhood that has a
median price point of
300,000 that's going to be a hard sale
because there are going to be other
neighborhoods where the median price
point is 400 50,000 or maybe 500,000 or
maybe even 400,000 were just the
neighborhood it might not be a
production built neighborhood it might
have you know those established trees
and and you know more custombuilt homes
they're now at that higher price point
going to have more
options and and probably your house is
going to suffer from it even with that
really nice remodel that you
did oh and I haven't even mentioned yet
we've talked about this in previous
episodes I haven't even mentioned yet
that most appraisers will penalize you
for what they call over improving a home
and that is those are two words well I
guess it's it's technically one word
because it's kind of hyp it's like a
hyphenated compound word but over
improving your home that is those are
words that you never want to hear from
appraiser and guess what you know how I
feel about appraisers if you if you
listen to the show appraisers are
constantly on the hunt for over improved
homes they do not like to see a home
that has improvements that do not
conform to the rest of the neighborhood
does the rest of the neighborhood
typically have renovated kitchens then
they're going to want to see your
kitchen renovated does the rest of the
neighborhood not have renovated kitchens
then you're not doing yourself very many
favors by having a renovated kitchen
they're only going to give you they
might give you 25% value for that in an
instance like that and so that's a
whole another element if even if you
have a buyer that's like yes I will pay
$450,000 for this house in this
neighborhood in this condition now we
need the appraiser to also agree that
it's that it's worth that and the
appraiser is is really going to struggle
with a home that was already the most
expensive home in the neighborhood when
you bought it then you did a whole bunch
of improvements on top of it good luck
that you're you're going to find
yourself in a bind in that situation
more often than not again to use the car
analogy all right to go back to this if
you already bought the nicest Toyota
available and then you added a bunch of
custom features to it you know lights
underneath the car and you know new rims
and I don't
know I'm not a car guy you you you you
lowered it you know and and made it look
cool cooler you know you're trying to
emulate like the Fast and the Furious or
something you're you've done all of
these custom features and up upgraded it
and now in your mind it's like okay this
is like nicer than a Range Rover you're
not going to be able to get Range Rover
pricing you you you're if you're lucky
you will find a buyer that just really
wants that souped up vehicle but you're
never going to get the money back that
you put into it you would have been
better off just buying the nice car at
the beginning more often than
not so at the end of the day is it a bad
decision to purchase the most expensive
home in a
neighborhood again it is neither yes nor
no it is It ultimately comes down to
your short short-term and your long-term
plans if you don't again have much by
way of retirement other Investments Etc
my personal opinion which isn't
financial advice is that you should
probably consider that the most
expensive home in a neighborhood is
rarely a good investment okay it that's
rarely going
to to be something that you look back
and are like wow that was such a great
investment but there are exceptions to
that right there are exceptions but you
need to keep that in the back of your
mind usually it's not going to be the
best investment now if you aren't
sure you're going to be in the house for
several years
and you need a certain bit of
flexibility again it's risky to
assume that the neighborhood will catch
up to your home and drive up your home's
value in a year or two if you're in that
most expensive home in the neighborhood
and so so you have to consider that as
well that's that's a another part of
this investment
consideration you it's safer if you're
definitely thinking that you'll be in
the home for a longer period of time
again as we've already discussed you
also have to consider how much you like
the neighborhood is this a neighborhood
you could see yourself being in for a
long time if you feel like you would
just be a fish out of water in that
neighborhood or you're just you know you
just see that there are so many rental
properties in that neighborhood you're
you're not interested in being around a
bunch of rental properties that aren't
being kept up by their landlords etc etc
that might be something that is a
major consideration you may really
regret that purchase down the road and
so that is something and and that's
something you need to consider
regardless of whether you're buying the
most expensive home in the neighborhood
you need to get a read on just kind of
the neighborhood in general I always
encourage people you know drive by a few
times look around see see what it's like
in the daytime see what it's like at
night don't just assume during when you
do a showing don't just automatically
assume okay this is the way it always is
it it might not always be that way and
you can't you can't get every variable
handled in your mind you can't account
for every single variable but you can
account for for many of them however
all of that to say if you're finding
yourself out priced in other nicer more
established neighborhoods more custom
neighborhoods
looking for what you need your your
criteria cannot be met within your price
point at these more custom neighborhoods
and at the end of the day you're
comfortable with a neighborhood that
isn't quite as nice as those and you're
able to find a house that's at the top
of the market for that neighborhood that
fits what you're looking for you can
find Great Value in purchasing the most
expensive home in a neighborhood like
that you may actually find yourself
buying a much nicer home than you ever
thought that you could because you're
sacrificing a little bit on you know
again living in a production built
neighborhood versus living in a more
custom neighborhood there is some great
value to be find to to be found if
you're willing to to make some of
those sacrifices and and at the end of
the day you're comfortable with that and
so it really comes down to your specific
situation again it's not a black and
white it's not a yes or no
what are your short-term and long-term
plans what are you trying to accomplish
with this real estate purchase how much
of an investment do you personally
consider your primary residence you have
to look at all these things holistically
and I'm happy to help you with the real
estate part of it I know financial
planners and accountants and whatnot who
can help you with the other aspects of
it to make sure that you take a a
holistic perspective on all of this and
and between all of those things we
can determine if you're making the right
decision or Not by purchasing
potentially the most expensive home in a
neighborhood thank you guys for
listening that is all I have for this
week all of my contact information again
is in the show notes please leave a
fstar rating please leave a review and I
will talk to you guys once again here
next week
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