If you want to raise better adjusted kids, you probably want to practice some level of stealth wealth. Stealth wealth helps so that they don’t grow up spoiled and unable to recognize prosperity. This article provides a stealth wealth solution for real estate investors with kids.
A couple readers have pointed out that I was raised rich given I had two parents with stable jobs. Instead of having to walk, I got to ride a bicycle to school. I even got a 486 desktop computer my junior year.
Yet, I wasn’t unable to recognize I grew up rich because my parents drove an 8-year old Toyota Camry and we lived in a modest townhouse for the four of us.
Thanks to my parent’s frugal ways, I was highly motivated NOT to mess up my life by slacking off in high school and college. My parents simply did not have a large enough financial buffer to overcome a deadbeat son.
Being unable to recognize their wealth also pushed me to attend a public university, which turned out to be a financially sound choice. If I had attended a private university, I would have felt too much guilt and pressure to prove the expense was worth it.
I still wonder to this day whether my parents are actually much richer than they’ve led me to believe.
My dad still drives a Toyota he bought in 1997. My parents still live in the same old house since 1980. They also never buy any new clothes or luxury items. If there is an early bird special at 4:30pm, my parents are first to get in line!
The Easiest Ways To Stealth Wealth
The easiest ways to stealth wealth are to drive an old economy car and never wear anything expensive. By doing so, you can still send your kids to private school. You can join country clubs without people looking at you funny. You can also go on nice vacations without raising too much suspicion from the outside world.
But what if you are a strong believer in real estate as an investment? What if you don’t like stocks or any other type of asset class as much? Further, what if you want to protect your children from spoiling? Screw what the outside world thinks. You’ve also got enough capital to buy a luxury home.
The answer is simple: own a modest primary residence that is no larger than the median-sized home in your city. With your excess capital, buy a second residence as a rental home, second home, or office.
For example, let’s say you live in Austin, Texas where the median home price is ~$370,000. You have the ability to buy with cash one very nice $800,000 home to live in a better neighborhood and gain more real estate exposure. After all, you believe Austin is going to be the next San Francisco.
But if you buy a 6,000 square foot mansion, your kids will obviously know you are rich. Your kids will start asking for larger allowances and nicer things since they’re rational. They’ll probably stop doing chores too. Most of all, they will lose their motivation to work hard. They’ll assume someone will always take care of them.
A Better Stealth Wealth Solution For Real Estate Investors With Kids
Instead of buying the $800,000 mansion, buy the average three bedroom, two bathroom, $370,000 home. With your surplus capital, then buy another $370,000 – $430,000 home and turn it into a rental.
This way, you’ll not only increase your child’s chances of having a normal sense of money, you will also better allocate your capital for potentially higher returns and less cash drag.
When your children grow up to be well-adjusted adults, you can then surprise them with a modest home of their own to live. Or, you can give them the home to manage.
You won’t have to go through what a couple of my neighbors go through. They both had their adult children live back at home with them for many years. I swear, my adult kid neighbors will never leave. They don’t have the FIRE within them to stand on their own.
The only “downside” is that you are living in a smaller or less ideal location than you can comfortably afford. But I strongly believe large homes with unused rooms are a waste of money. They are purchased more for ego purposes rather than utility.
Further, if you buy two median priced homes, you own property that is affordable to more people. There is less risk of being stuck with an unsellable property if you one day decide to sell.
There are plenty of luxury properties I toured in Honolulu in 2014 that are still on the market today.
A House Is The Most Obvious Wealth Indicator
If your kids return to a luxurious home every day, it doesn’t matter if you dress like a hobo and drive a beater, your cover is blown.
Further, there are plenty of poor people who wear nice clothes and drive nice cars. The reason is because credit is readily available for such things. Therefore, not everybody will automatically think you’re rich if you have a penchant for Gucci and BMW.
But with your primary residence, it’s just too hard to explain away a mansion. Unlike buying a $200 t-shirt with a credit card, getting a mortgage has much more stringent requirements given the dollar amount and leverage.
With my latest mortgage refinance, even though I’ve showed them liquid assets equal to 3X my refinance amount, I still feel like I’m under interrogation by the CIA. My mortgage officer said he hasn’t worked with anybody with under an 800 credit score over the past 24 months.
At the end of the day, it’s best to own a modest home. A modest home is one that can comfortably house your family without a single wasted room. Use the capital you saved by your modest purchase and invest it in another property or asset class of choice.
Being able to grow your wealth in a low key manner and raise grounded kids is a wonderful combination.
Eventually your kids will realize you’ve been a stealth wealth grandmaster for decades. By then, they’ll be so inspired they’ll follow your lead. They will instill in your grandkids a healthy relationship with money as well.
Real Estate Recommendations
Invest in real estate crowdfunding. You can buy other physical properties in your city or you can diversify your real estate investments by buying commercial real estate around the country with Fundrise. They are the creators of the eREIT and have some of the most thoroughly vetted deals to choose from. Fundrise manages over $2.5 billion in assets under management.
Another favorite platform is CrowdStreet. CrowdStreet focuses mainly on individual real estate deals in 18-hour cities. 18-hour cities tend to have lower valuations, higher growth, and higher yields.
I’ve personally diversified my SF real estate holdings by investing in 18 different commercial properties around the country since 2016. I’ve invested $810,000 so far and plan to invest even more in this inflationary environment.
Refinance your mortgage: Check out Credible, my favorite mortgage marketplace where prequalified lenders compete for your business. You can get competitive, real quotes in under three minutes for free. When banks compete, you win.
Related posts:
The Ideal House Size And Layout To Raise A Family
Don’t Let Ego Make You Buy A Bigger House Than You Need
A Stealth Wealth Solution For Real Estate Investors With Kids is a FS original post.
This idea that stealth wealth equates to hard working responsible kids is insane. Teach your kids the relationship between hard work, discipline and planning and success via any means you see fit. The parents have worked hard, assumingly, for all they can responsibly afford and have a right to it should they desire to spend the money. I believe firmly in educated children in terms of personal finance, and I believe in doing all I can to set them up for success on their own… Clear the path… Now they have to travel it. If they choose not to, well… I also believe in consequences.
Why work 20-30 years and not enjoy your success to it’s fullest degree because your too lazy to parent in other respects?
Sam, used to love your site because it was full of well thought out, fact based analysis. Now it appears to be a (somewhat) I personal manifesto on parenting kids as a wealthy adult. You retired in your 30s bro! Your kid is going to notice. Stop recommending strategies that largely miss the overall point.
I’m curious to know what else you think is insane if trying to stay frugal and modest with your wealth is considered insane.
How many kids do you have and what are some ways you go about managing your wealth and trying to keep your kids’ head on straight.
What I’ve noticed is that so many people who dislike post about kids or who have advice about parenting are not parents themselves. I hope this is not the case with you. And I’m wondering why this is. Thanks
Have you read The Millionaire Next Door by Thomas Stanley (recently updated by his daughter after 20+ years or Everyday Millionaires by Chris Hogan? Sounds like your parents were simply living by the standards discussed in these books, which allowed them to slowly build wealth.
Most definitely. I’m assuming they are now millionaires because they own a house free and clear in Honolulu and I’m looking at the valley right now and it’s over $1 million. I strongly believe that Financial Samurai readers will become millionaires after at least 20 years of discipline savings and investing.
At 69, I finally figured out why certain vehicles are considered “luxury vehicles.” It can be a sedan, a truck or a suv. When we buy these, the owner of the dealership lives in luxury. Not us.
I don’t know Sam. You are implying that anyone with a mansion will have unmotivated kids. That’s simply not true. Raising financially minded highly motivated kids goes much much deeper than the house you own. I grew up really poor and lived in an apartment most of my life and there are still a ton of people I knew around me that lacked the motivation and FIRE to be financially secure. To me, the reason you hear the story of stealth wealth working is because more than likely those parents are teaching their kids at an early age the value of money. And showing them how to amass wealth the right way. There are plenty of rich families that continue to raise highly motivated kids that in turn create their own wealth. Why? Because their parents probably teach them the value of wealth.
There are no absolutes. Just different levels of probabilities and we take action to do what we think is best.
I believe in modest home and raising kids to appreciate the value of money.