If there’s one thing I love, it’s living in a fabulous house. Nowadays, I spend between 18 – 20 hours at home on average. Robbers beware! Therefore, it’s only logical to own the nicest house I can comfortably afford.
For those who went from being outside the house for 12 hours a day to now working from home and not having to commute, the desire to live in a nicer house has likely also gone up. I’m assuming millions of people started to feel this way since the pandemic began.
My wife and I have been living the majority of our hours at home since we left our day jobs years ago. Spending more time at home is why I wanted to buy a house with an ocean view and build a big deck in 2014. Mai Tai’s while feeling the sea breeze during sunset, check!
Given we’ve been homebodies for a while, our incremental desire to own a nicer house since the pandemic began probably wasn’t as strong as most people’s. That said, we still had enough urge to buy our “forever home” soon after initial lockdowns began in 2020.
Curiously, after only one year in our new house, my desire to own an even nicer home has increased! Talk about lifestyle creep and not being satisfied with what I already have.
For those of you looking to buy the nicest house you can afford, let me share a recent epiphany. Once I tell you what it is, it may seem stupidly obvious. But I also bet plenty of homebuyers haven’t thought about this logic yet.
Reconciling The Two Home Buying Guides
You have about a 20-year window to own the nicest house you can afford. After this window closes, it is likely shut forever. Before I get more into the details, let’s review my two home-buying guides.
I’m always trying to help you live your best life in a responsible way. I’ve seen way too many people blow up their finances since 1997 because they got too greedy or didn’t properly assess their risk tolerance.
Therefore, I came up with a Primary Residence As A Percentage Of Net Worth guide to help you buy responsibly throughout your financial journey. This guide is conservative. However, it is also based on my almost 20-year homeownership journey to give you an idea of what works.
Savvy readers immediately pointed out that my Primary Residence Guide wasn’t entirely congruent to my 30/30/3 home buying guide, which is slightly more aggressive. They pointed out that most first-time homebuyers usually don’t have a net worth greater than the home they want to buy. That’s logical.
As a result, I adjusted the percentages from 80% – 90% to 80% – 200%. In other words, first-time homebuyers can now buy a home up to 200% of their net worth.
If you buy your first home responsibly and eventually get your primary residence to equal 30% or less of your net worth, you will be in great financial harmony. For example, owning a $600,000 home with a $2 million net worth or a $3 million home with a $10 million net worth is a good ratio.
Being able to “comfortably afford” a home is somewhat subjective. We all have different financial requirements for how well we can sleep at night. Therefore, follow what works for you. Our lives are constantly changing.
Own A Nicer House As Your Wealth Grows
Ideally, you want your net worth to grow much faster than the value of your home. This way, you are organically decreasing your home’s value as a percentage of overall net worth by increasing the overall pie. As a result, you’re always living the same lifestyle or better, while increasing your wealth.
If you don’t continuously improve your lifestyle in a responsible way, that’s fine too. You’re just taking unnecessary investment risks and spending too much time on work if you’re not spending your money.
There may come a point where your net worth grows so fast and so much that you want to continue upgrading your primary residence to equal 30% of your net worth.
For example, you might have spent 125% of your $400,000 net worth to buy a $500,000 home. But after 10 years, your net worth has risen to $3 million while your primary residence has only appreciated to $600,000 (20% of net worth). Given you’ve done so well, you feel like you should at least own a $900,000 home (30% of net worth) and live it up more.
Continuously buying a nicer house as your net worth grows is reasonable. However, it only makes sense if you have the same number of people in the home!
In other words, let’s say in 12 years, both of your two kids will go off to college. Does it make to buy an even bigger home with fewer people? Probably not.
The Best Time To Own The Nicest House You Can Afford
In other words, the best time to own the nicest house you can afford is during the 18 years your children are at home. If you plan to have your children live at home past age 18, then your window is even longer.
Plenty of high school graduates end up not going to college or going to community college for a couple of years. Therefore, perhaps the window to own the nicest house you can afford is between 18 – 22 years.
After 18-22 years, even if your net worth continues to increase drastically once your kids leave home, there’s no need to get a larger house. Large homes with unused rooms may eventually start to feel lonely, if not downright creepy.
Instead, after the kids leave home, you may want to downsize. And most of the time, downsizing means saving money and owning a cheaper home or condominium.
If you don’t want to downsize, given moving is a PITA and you appreciate the sentimental value of your home, then you can logically just remain in your home. Over time, it should become a smaller and smaller percentage of your net worth. And if you pay off your mortgage, even better.
Moving To A Nicer Home That Is Smaller
I’m sure some of you who continue to get richer will want to spend more of your wealth on better living arrangements. Therefore, here are some suggestions on how to spend more money on a right-sized home.
- Ocean-view property
- Beachfront property
- Penthouse condo with amenities
- A new home in a different city or state
- A new home in a nicer neighborhood in your city
The nicest house doesn’t necessarily have to be the biggest. For me, I put a premium on views, decks, and outdoor space. The ideal house size for me is around 800 sqft per person.
Therefore, if you want to continue living it up as you get wealthier, you will always have options to spend more money on the nicest house if you want to. When it comes to real estate, there are endless ways to spend more money.
Another Solution To Downsizing Without Selling
Given I’m a sentimental guy, I enjoy keeping my homes and renting them out for income. This is actually my favorite way for the average person to build wealth in real estate. Repeat this cycle every 3-5 years and you’ll develop a hefty real estate passive income portfolio in no time.
Personally, I find it very hard to ever sell the home where we raised our first child. I still remember the very first evening we took him home and laid him down on our bed all swaddled and sleepy. There were so many amazing memories!
Further, I think our children will appreciate feeling the warmth of coming back to their childhood homes as they get older. I’ve felt this warmth every time I go back to Honolulu to visit my parents for the past 40+ years.
Therefore, in addition to building a rental property portfolio for retirement, another solution is to simply buy a nice vacation property. Buying a vacation property you seldom use is a total luxury and suboptimal use of funds. However, it serves the purpose of utilizing your wealth for a better lifestyle.
My children enjoyed the two times we went up to our vacation property so far. I just didn’t buy the vacation property at the right time or the right size. I bought our vacation property when I was 30, nine years before we had our first child. Since then, so much has changed.
Therefore, buying a vacation property after you have children is a more optimal move. Here’s my vacation property buying rule to follow.
My Wakeup Call To Buy The Nicest House We Can Afford
Upon realizing I only have a ~20-year window to buy the nicest house I can afford, I immediately started searching online for a price point 100% – 150% higher than the home we purchased in 2020.
When we purchased our house in 2020, it equaled about 18% of our net worth. But as we all know, the economy and the stock market quickly roared back quickly. Therefore, our primary residence is only about 15% of our net worth. Without the gains in real estate, the percentage would be less.
Being way below my own 30% guideline and realizing both our kids will be out of the house by 2038 has created a sense of urgency to buy a nicer home.
This uptick in desire is somewhat disappointing, especially since I believe the ideal time to live in a home is 10 years before upgrading. It’s also great to appreciate what we have. However, there’s nothing like having young children to make you realize how short life really is.
Researchers have calculated that roughly 80% of the time we will ever spend with our children is when they are between the ages of 1-18. Therefore, we might as well own the nicest house we can comfortably afford during this most important time.
Further, we’ll have four or five bodies in the house maximizing the home’s usage. In other words, a more expensive house’s cost gets amortized/appreciated by more people.
Compromising On When To Buy A New Home
I brought up my logic of buying a nicer home to my wife and she gave me the thumbs down. She said, “There is no way we are moving homes again so soon! You promised we wouldn’t move for at least two years after buying our current home.“
I get it. Moving is a royal pain in the butt. Further, our son’s elementary school will be closer to our current location by 2023. The only neighborhoods where we could buy a home 100% – 150% more expensive than our existing one are farther away. And given they are more expensive neighborhoods, we might only be getting 30-40% more space.
Therefore, we’ve decided to compromise. We’ve agreed that in 2025 (five years since we purchased our current home and half the ideal length of time to live in a home), we will look for a nicer home equal to 20% – 30% of our net worth at the time. Maybe the new home will be in Hawaii.
In five years, our children will be 9 and 7, the prime of their young lives. This will also be the time when they remember things the most. Kids have a difficult time remembering things from before the ages of 3-5 by the time they become adults.
Once we buy a nicer home in four years, we will then live in this new forever home for 10 years. After 10 years, we will then consider downsizing to a nicer home given our youngest will hopefully be heading off to a great public university.
There’s just one problem. I haven’t told my wife about this awesome compromise just yet. So wish me luck!
Real Estate Investing Recommendations
Owning the nicest house you can afford is optimal spending. However, you also want to focus on real estate investment returns as well so you can keep living well.
Real estate is my favorite way to achieving financial freedom because it is a tangible asset that is less volatile, provides utility, and generates income. By the time I was 30, I had bought two properties in San Francisco and one property in Lake Tahoe. These properties now generate a significant amount of mostly passive income.
Take a look at my two favorite real estate crowdfunding platforms. Both are free to sign up and explore:
Fundrise: A way for accredited and non-accredited investors to diversify into real estate through private eFunds. Fundrise has been around since 2012 and has consistently generated steady returns, no matter what the stock market is doing. For most people, investing in a diversified eREIT is the way to go.
CrowdStreet: A way for accredited investors to invest in individual real estate opportunities mostly in 18-hour cities. 18-hour cities are secondary cities with lower valuations and higher rental yields. Growth rates tends to be higher as well due to job growth and demographic trends. If you have a lot more capital, you can build you own diversified real estate portfolio.
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Readers, when do you think is the best time to own the nicest house you can afford? Just like driving a nice car when you’re young and on the prowl, isn’t it best to own the nicest house when you’ve got the most number of heartbeats to care for?
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