Gotta laugh, Gerard. This is so my universe at the moment. First, let me reiterate that we are talking about a primary home here, not an investment property.
We're basically doing the same thing at the other end of the price spectrum. We are about to buy a house that we never dreamed of living in. One, because of the price (close to 1M), and two, because of the level of finishes in the house. It is a six-year-old, custom built house. Much fancier than our tastes require.
We came across this house in our search for a home where my MIL, who has Alzheimer's, can live with us. She is very healthy and we expect her to last for at least another ten years. Yes, there is long-term care insurance, but she's not at that stage yet. We were searching for a 4BD, 3BA (no grandmother should have to share a bath with a 21-yo male college student) home with no pool (In CA, pools are very common.) and this one came up.
The home is a short sale, in part because it is overimproved for the neighborhood. Fortunately, it does not look as fancy as it really is from the exterior. It is a single story, has a good layout for our situation and best of all, is three blocks from DH's work.
We've decided to make this our home for the next decade. By then my MIL will require long-term care if she is still alive, the college student will be up and out and DH will be ready to retire. We will meticulously maintain the home so it will be easy to sell, but we do not expect to make anything but the rate of inflation on the house. DH and I (we're newlyweds) have both done well in the real estate market, so we're not looking to make a killing on this property. We're buying the overimproved house with little room for upside appreciation, because it fits our family's needs for a relatively long time period.
It's been a surprisingly hard decision (especially since it's a short sale and we've been in escrow for six months). Technically we can "afford" this house, but it goes against everything Mustachian that we believe in. I guess all I can say is that I feel your pain, Gerard. Good luck, whatever you decide.