The best time to own the nicest house you can afford is when you have the most number of people living in it at one time. This way, your house is providing for the most number of people, the most number of people are enjoying it, and the cost is spread out and provides better value.
Therefore, the best time to own the best house is when your kids are at home. If you are taking care of elderly parents or other relatives, all the more reason to own the nicest house you can afford too.
When we’re all spending more time at home, the intrinsic value of our homes have gone way up!
More People Are Appreciating Their Homes Today
Given we are all spending more time at home, more people are remodeling their homes to make them more comfortable. Homeowners are building decks, installing hot tubs, creating amazing landscaped gardens and so forth.
The best time of the year to buy a house to get a deal are usually the summer months when school is out and people have already decided on where to live. Finally, my favorite time to buy a house is during the winter holidays. The weather is generally the worst and fewer people are looking.
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. It’s also why we built multiple large decks. 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 increased! Talk about real estate FOMO 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.
The Original Home Buyers Guide
Savvy readers immediately pointed out that my Primary Residence Guide wasn’t entirely congruent to my 30/30/3 home buying guide. My 30/30/3 home buying guide 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 dramatically 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 recorded, and is still up after the 2022 bear market. Therefore, our primary residence is only about 15% of our net worth. I’m excited to upgrade our home in one or two years if luxury home prices come down more.
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.
Waiting until 2030 to upgrade seems like too long. Why not live our best lives now since tomorrow is never guaranteed?
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 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 when you have kids 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. 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.
Fundrise: A way for all investors to diversify into real estate through private eFunds. Fundrise has been around since 2012 and has historically generated steady returns, especially during difficult years in the stock market. For most people, investing in a diversified real estate fund 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.
I’ve personally invested $810,000 in private real estate since 2016. It’s been great to earn more passive income and a less volatile way. Diversifying across the Sunbelt, where there is a demographic boom is also the long-term trend I want to invest in.
For more real estate content, join 50,000+ others and sign up for my free newsletter. We’ll talk about real estate, the stock market, and how to live our best lives. The Best Time To Own The Nicest House You Can Afford is a FS original post.
Payton Reid says
Dunno man–I don’t see us upgrading our home anytime soon. I’m 33 with two kids (4 and 2) and we live in paid for home with no mortgage. Our net worth is roughly $2M and we purchased our home for $370k. I make $600k a year. Currently, we’re totally content with a “modest” home because it allows us to focus more time on the kids (not as much maintenance, no stress about messing up a nice house, etc.). I also really like the idea of “tricking” our kids into thinking we’re not as well-off as we actually are. If they see us comfortably living below our means for a large part of their lives—seems logical that may increase the probability of them being “contenters” as well.
I could use your opinion/advice on this. I read almost all of your articles on buying a house, as I’m looking to buy. The situation is I’m currently renting but my landlord is thinking of selling the place. He said he hasn’t made up his mind yet. However, actions speak louder than words. He’s still cleaning and throwing out a bunch of junk, so it looks like he’s leaning towards selling. Even if he decides to keep the place, I’ll have eventually think about moving as he’s approaching his 70s. If there’s one thing I’ve learned, it’s that life is unpredictable. For example, he may have no choice but to sell the place and move into a nursing home. As such, I’m protecting myself by starting to look. If I do this, then at least I won’t be forced to do something out of necessity. There’s nothing worse in my book than to be forced to accept a place because I have no other options.
With some background information in place, here’s my conundrum. Is a house the best thing for me? You mentioned that “the best time to own the nicest house you can afford is during the 18 years your children are at home.” I don’t have kids, approaching my mid 40s, and the prospect of having kids or a spouse looks dim. Basically, it looks like it will just me a (single occupancy) in a house. What’s a guy like me to do in a situation like mine? Should I even consider a house or just go back to renting?
I’m making $155 K, with a net worth of $600 K+, and live in the Bay Area. I ran through your 30/30/3 formula for the numbers the realtor gave me. Because houses are so stinking expensive here, he’s looking for ones at $800,000. He is asking if I would feel comfortable pushing out the housing costs to 37% of my income, after calculating the available cash on hand. This 37% includes property taxes and potentially PMI as I don’t feel comfortable giving up all my cash on hand, in case I lose my job. This obviously violates your 30% rule. The other option is to take a securities loan on my investments to come up with the down payment and bring down the numbers to 30% or less.
(Wishing to Remain Anonymous but hopeful you’ll be able to answer my question.)
I like your plan of keeping homes and renting them out as opposed to just selling. My wife and I are thinking of moving up in homes sometime in the next five years and I have been thinking about how nice it would be to keep the current home and rent it out. I was wondering if you would consider an article based around this theme? I’m curious if you strive for a certain percentage of equity in the current home before moving and renting it out or if there are any other factors that play into that decision.
Long time reader, appreciate your insights into what often feels like another world, since I am really much below your target audience in terms of earnings/net worth. Just wanted to offer a perspective on this post and the topic at hand; ie, what constitutes being wealthy.
We are early forties, three children, live in the Northeast and I make a median salary ($60k/yr). My wife brings hope an additional $25k/yr as a very part time RN. No debt, net worth around $1.2 million including aprox $450,000 in equity in our paid off house (bought 7 years ago, 1950’s, 4bd/3ba, 1/2 acre of land in desirable suburban location).
My wife left a six figure FT salaried management position four years ago so we could homeschool our children, despite living in one of the top school districts in the state. It was one of the best decisions we have made. We essentially live on my income, and we max out her 403b, both our Roth IRAs, and I contribute 9% of my salary as well to my state-sponsored pension plan. My wife plans to retire at age 55, and I plan to retire at age 59. We should have a $4M net worth by that time, though our respective pensions would cover all our living expenses so we wouldn’t necessarily have to take distributions unless we wanted to.
We are essentially middle class, but as a matter of trained perception, I feel incredibly wealthy. In fact, there is little we want or need. Our home is nothing fancy but is truly a home, as we spend most of our time there by choice (I work 37.5 hrs a week, and work from home 2 days/wk (in office 3 days), my wife and kids are home almost all the time). I have a small garden and orchard in the back yard. I have a 1 car garage where I can tinker with all my bikes and things. We are 30 minutes from world class medical care should we need it. We have 10+ year old cars which are paid off and well maintained. We got this way through careful frugality, but not being cheap. We give to families in need and our church. Our 2,000 sq ft house feels just right in terms of size, though we wish we could have more kids to ‘fill it up’ a little more but alas, nature seems to be closing that door.
My father is/was a stealth millionaire, so a lot of those frugality muscles were exercised under his tutelage. He was not an especially generous person though, so that has been learned behavior for our family. Our wealth has come from the ‘human capital’ of our community (friends, faith community, other homeschoolers), being in good health, and not having to worry about how will pay for this or that bill, having the option to just write a check for whatever expenses come up. Paying off our home early did not make much sense financially, but we sleep well at night and the increased cash flow allowed my wife to stay home with our kids. Our idea of living it up is renting a small cottage on the cape each summer and treating the kids to ice cream and little things like that.
Mostly, we actively work on cultivating a spirit of intentional gratefulness for everything we are given, living within our means as a deferment to greater freedom, taking joy in the little things, and being generous as a family in time talent and treasure, to the degree we are able. We do not feel any need to upgrade, as 2,000sq feet in a well designed, well maintained 70 year old house near family and friends suits our needs just fine. We feel truly wealthy!
Thanks for the good practical, nuts and bolts articles on a wide berth of topics; although some I can’t relate to, I appreciate what you write, and wanted to ‘pay back’ in a small way with this comment for offer what may be a different perspective from an average-earning family. Take care!
Financial Samurai says
Hi Peter, nice to hear from you. You sound which to me! If you’re happy with your income in your lifestyle, that’s all that matters. This post really is a bad went to optimize spending the most money on your primary residence if people want to. And that’s when there are the most heartbeats in the house.
Having a pension pay enough to cover all your living expenses is huge. You are one of the lucky ones as most people don’t have the same opportunities to receive one today.
One thing I’m curious about though is your desire to homeschool while living in a great school district. What were the reasons and how many hours a day do you teach your kids? I’m interested in doing the same.
We intentionally moved to our area for the good public schools, but after our oldest attended kindergarten for one year, we decided to try homeschooling, taking things “year by year, and kid by kid.” To be honest, I would never have considered it were my wife not friends with people we knew whose children were thriving while homeschooled. They were the living example that made us curious: well mannered and polite, well adjusted, socially engaged, active in sports and other activities, etc.
My wife spends about four hours total for both the 9 and 10 year old per day (6 hours if you include breaks, etc). The 4 year old just plays. We use an established curriculum. In our state, homeschooled children have to take state standardized tests in grades 3, 5, and 8. Since our son was in 3rd grade last year he took those tests, and we were pleased that he scored at grade level for math, 5th grade for reading comprehension and vocabulary, and 7th grade level for language and structure. It was helpful in the sense that it assured us we weren’t too far off track in terms of metrics.
Honestly, it is an incredible efficient method of educating in terms of time and effort, tailored to each student (kid) who gets loads of individualized attention, as well as independent time to work/read if desired. We do a lot of read-a-louds and try to instill a love of learning and develop a natural curiosity for how things work (for myself as a public school educated person, I never had that, school was always something I “had” to do). Many of the families we are friends with (who have 4-9 kids each) find it works well for family dynamics and cohesion as well as scheduling and efficiency. The family time is invaluable, and we often get comments on how articulate, polite, etc our kids are (which is pretty common for homeschooled children, assuming the parents are well-adjusted themselves). Our kids get an incredible amount of socialization (all of the homeschool families we know laugh when the question of “how do your kids gets socialized?” comes up) through co-ops, sports, etc, as well as moral formation. We almost have to scale back sometimes because of the abundance of opportunities for them to socialize!
Our evaluator (whose children are grown) homeschooled all five of her children–a few PhDs, musicians, nurses, etc. All went to college, some on scholarship, all doing well. That was reassuring. We figured as we get into the older grades, we can always hire additional subject tutors, if necessary.
I was dead set against homeschooling initially, but now in our fourth year I am a true believer, since we have seen so much good fruit not just in our family but all the families we know. I am very grateful to have the freedom and opportunity for our family to do so. You seem to care about your kids very much, are well educated yourself, and enjoy spending time with them–a good combination! Maybe give it a try…kid by kid, year by year ;)
Financial Samurai says
Very cool. Yeah, I am very interested in homeschooling and can easily spend 2-3 hours a day teaching them. Add on my wife spending 2-3 hours a day and we should have things covered. Other homeschooled parents say it only takes about 3 hours a day to cover an entire’s day of normal school.
You mention your wife spends 4 hours a day. How about you? I had a lot of fun teaching my son soccer and Mandarin for the 15 months while he was at home after the pandemic began.
I’m thinking of homeschooling when both are over 5-6 so we can travel abroad for long durations. This way, they will REMEMBER their travels. Should be fun for all of us!
Related: Homeschool And The Decision To Teach Our Own Children
Well done! You have the secret sauce. We did this too and it led to an early retirement and stress free/debt free /live free lifestyle. Love to read peoples stories that just follow simple “Dave Ramsey”/ Fin. Samurai advice and knock the cover off the ball. congrats.
We upgraded in January, and we are thinking of upgrading again, mostly because inventory was trending thinner by the month when we bought and wanted to remain in the market. We like the home we are in, and completely fixed it up to increase it’s worth. However, we want something larger as we will start a family soon and my wife just received her Master’s.
The major issue when we upgrade after we live here two years (for capital gains tax reasons), is that interest rates won’t be the super low rate we have now (2.5%, 30 years fixed, no points). It may keep people from ever selling again me thinks! Although Sam, if I’m not mistaken, I see you believe the general interest rate will remain trending low over time in the future. I suppose a re-finance down the road is possible if we upgrade in early 2023?
Financial Samurai says
Yes, although rates have moved up since 2020, and may go up further, I still think mortgage rates overall will stay low for a loooong time. I don’t see rates going up more than 0.5% from current levels.
Mortgage rates may go up, but if income and home prices are up much further, higher rates is not a big deal. And I think rents, incomes, and property prices are going higher.
Food For Thought: I see the point of your wife not inclined to move again so quickly, but I’d suggest relooking at moving to your “forever home” before your oldest hits Kindergarten or Grade 1 (sooner than 5 years). With the amount that you’ve shared prior, it seems you can afford it. Perhaps it doesn’t fit perfectly with your ratios, but as a mom who just had one graduate high school and another in Grade 11, it has been extremely nice to have the kids settled into the same public school line of elementary and high school with their friends – many from Kindergarten onwards. The side benefit is the richness of community and history it creates for your family with people that become lifelong friends – kids and their parents. I love your articles and blogs, and have learned so much from you. I pass this tidbit on to you hoping that you’ll take off the finance glasses and instead look at this situation in light of a different currency :).
Financial Samurai says
I agree with you and thanks for sharing your insights!
My son will be going to kindergarten next year, so moving again would be too early. But if we move, it would be within the city, so nobody is really too far away. Best of luck to your kids!