If you want to raise better adjusted kids, you probably want to practice some level of stealth wealth so that they don’t grow up spoiled and unable to recognize prosperity.
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, join country clubs, and 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, don’t like stocks or any other type of asset class as much, and 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 because they’ll assume someone will always take care of them.
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 in or manage one day while also getting to stay in your primary residence.
You won’t have to go through what a couple of my neighbors go through and have your adult children live back at home with you for many years. I swear, my adult kid neighbors will never leave because 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 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 that comfortably houses 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 to build your net worth over the long term.
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 and instill in your grandkids a healthy relationship with money as well.
Check out 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. They are free to sign up and explore. I’ve personally diversified my SF real estate holdings by investing in 18 different commercial properties around the country since 2016.