The Risks Of Upgrading Homes Nobody Really Thinks About

I currently have an opportunity of upgrading homes but am unsure whether it's the right move. Maybe you're going through this dilemma as well and need to talk things through.

The house I wanted to buy a year ago failed to sell because it was listed too high. Then the S&P 500 corrected by 19.6% and mortgage rates shot up.

Now the owner wants to try again. But this time, he's quietly shopping it as a “coming soon” private listing. This way, he won't have to go through the hassle and public embarrassment if he fails at selling again.

Using various tactics as a veteran real estate investor, I should be able to get the house for at least 10 percent below last year's price. 10 percent below would be about 3 – 4 percent below its estimated fair market price.

My “problem” is that I've pounced on every single deal I've ever seen in real estate. Largely due to FOMO, it's hard to let go of a potentially highly profitable investment. If I don't buy it, someone else will and I'll likely regret that years from now.

However, just because a property is a great deal doesn't mean you should always move forward. As I age, I also long to simplify life in order to be more present for my family.

I hope this article will not only help me find clarity in this home upgrade predicament but also help you. As you get wealthier, you will have more options, which may lead to more stress and uncertainty.

The Risks Of Upgrading Homes When Your Existing Home Is Fine

After a real estate market correction, you might find yourself wanting to upgrade homes. If your $500,000 home declines in value by 10 percent, you lose $50,000. However, if the nicer home you want that costs $1,000,000 also declines in value by 10 percent, you actually come out $50,000 ahead if you buy it!

This is a similar situation I find myself in. Buying a much nicer home after a real estate correction is one way to financially win. And during corrections, luxury homes tend to drop by a greater percentage than median-priced homes because nobody needs a Ferrari Enzo when a Toyota Corolla will do.

Let's discuss some risks of upgrading homes we might not think about.

1) Unknown neighbors, unknown tensions

If you're a regular person, you'll get to know some of your immediate neighbors. Over time, you should be able to develop a baseline level of comfortability where you chit-chat about random things every time you see each other. If your relationship gets better, you might ask your neighbor to hold your packages or water your yard while you're away.

If you upgrade homes, you lose your existing relationships. You must develop new harmonious relationships as the newcomer. Further, you might find yourself amidst unpleasant neighbors.

Given you'd be in a more expensive neighborhood, the old-timers might look down on you for being “new money.” You'll have to earn their trust. In addition, if you're a different race than the majority of your neighbors, maybe people will be more hesitant to talk to you.

Perhaps the neighbor immediately to your left has loud dogs that bark all night. You wouldn't know until you move in. Or maybe the neighbor to your right will pester you for not cutting your tree to his liking. The wealthier the neighborhood, sometimes, the more demanding the residents.

I've seen plenty of lawsuits between neighbors due to trees, easements, and noise. Wealthier homeowners sometimes use their financial resources to go nuclear rather than take the human route of talking things out.

Example of unforeseen neighbor tension:

A year after I bought a single-family home in the Marina district in San Francisco, a 27-year-old man bought the single-family home across the street. He started throwing drunken house parties every month that oftentimes lasted until 3 am. Given our bedroom faced the street, we would get woken up during each rager.

After the second disruption, I talked to him and asked if they could keep it down after midnight, or at least keep his guests from smoking and talking loudly outside. He agreed and eventually quieted down over the years.

It turns out his bank of mom and dad bought him the house for $1.7 million while he was still in law school. He eventually found a job, got a girlfriend, and chilled out.

2) Potentially more noisy remodeling projects in upscale neighborhoods

One of the biggest downsides of living in a nicer neighborhood is constant remodeling. Wealthier homeowners usually have more liquid cash so they tend to spend more on home remodeling.

As a result, you will hear construction noise all throughout the day. If you work from home and don't have great sound insulation, the sounds may drive you nuts. Thus, your upgrade home needs to have several rooms tucked away from the street that are sanctuaries.

In addition, the more remodeling there is, the more you'll need to zig-zag like Pacman through the streets due to double-parked trucks. Your driveway will also likely be blocked more often if your immediate neighbors are doing huge remodels. The blockage is always temporary, but it's annoying when you need to rush out for a meeting or are coming back after a long day.

Spend time driving around your potential new neighborhood during the weekdays and also at night. You may discover the atmosphere is very different than what you see during typical weekend open houses.

Example of noisy remodeling:

As I write this post, there are two homes currently being gut remodeled in my neighborhood. One is a block up the hill, where the contractors are ripping out the backside of the house that faces the ocean. The drilling and buzzsaws are operating nonstop. The other remodel is four homes away.

Drowning out the noise is easy to do with headphones. But occasionally, a truck will suddenly drop off heavy materials on the street, which sound like explosions. Luckily, the houses are far enough away that the trucks are not blocking the narrow roads in the hills.

Before buying your upgrade home, ask the listing agent about any planned remodels nearby. The last thing you want to do is move into your sanctuary only to discover your next-door neighbor plans to do a two-year remodel.

The only positive of neighborhood remodels is that they increase the value of your house. After going through a long remodel myself, I believe remodeled homes will sell for even bigger premiums going forward.

3) Unfamiliarity with the potential new home's problems

Every home you will ever own will have some type of problem. Maybe the HVAC unit only blows hot air up to 72 degrees. Perhaps there will be a water hammer sound every time you flush a particular toilet. Or maybe the dryer will rattle loud enough to keep you awake at night.

Over time, despite your home's issues, you learn to adapt. Due to the dryer rattle, you start to dry your clothes only before 9 pm. Before every winter, you learn to check the light well drain to ensure it's not plugged with leaves and dirt.

If you upgrade homes, you will face unknown quirks for an unknown period of time. For example, you might only discover your roof leaks in the fourth winter because the previous three weren't rainy enough.

You might even start hearing strange noises in the middle of the night as my tenant discovered. Nine months after moving in, they started hearing a fire alarm beep every 30 seconds. They couldn't figure out where it was coming from until I determined the noise was coming from inside the walls.

You certainly hope the seller will provide a complete, detailed disclosure package. But even the seller won't know all the problems of the house. Hence, make sure you conduct a thorough inspection before buying and leave a financial buffer for future problems.

Examples of unknown problems after we upgraded homes:

One of the reasons why I wanted to buy our home in 2020 was because it went through a ~$200,000 remodel in late 2019 and early 2020. Given I am a remodeling veteran, I probably appreciate a well-remodeled home more than the average person. Remodeling is a royal PITA.

Despite carefully inspecting the house over multiple hours, I was still unaware of some small issues until after I moved in. They included several rotten deck planks, a moldy washer that couldn't be defunked, and an improperly sealed window that had a small leak.

I missed some of the rotten deck planks because there were so many and they were hidden under fresh paint. We didn't open the moldy washer to check inside. And after we discovered the issue, we thought running the washer through multiple rinse cycles with bleach would fix the smell. It did not. Finally, it took a record-breaking storm with ~80 mpg winds to discover the window leak.

All these issues were fixed. However, they did require time and some money. At least the contractor who remodeled our home provided a one-year warranty.

Over my home buying years, I put together 10 warning signs to look out for before buying a home. Use it as a checklist so you aren't blindsided by too many surprises.

4) Busier-than-expected road traffic or louder-than-expected general noise

You might want to upgrade homes because it's in a quieter neighborhood. However, unless you live in the home or park outside the home for several days and nights, you might not get a good sense of the real traffic.

Maybe your street is used as a shortcut by motorists during traffic jams on the main street close by. Or maybe every Saturday morning a motorcycle crew likes to rumble through by the dozens.

Example of busier-than-expected road noise:

One person I know decided to buy a house across from a public park. He figured it was a good location because he could easily bring his kids to the playground. Unfortunately, it turns out that every Saturday and Sunday morning there were Zumba and Taichi classes with loud music! The classes would go from 8 am until 12 noon and then start again at 3 pm.

Another person I know decided to buy a fixer near a public park. He put in millions of dollars to build his dream home. Unfortunately, the city parks department decided to convert some of the tennis courts into pickleball courts. Now, he hears the “pop pops” of pickleballs from 8 am to 2 pm, and then again starting at 4:30 pm until sunset.

I love pickleball. However, the constant popping sound would drive me nuts if I was trying to write my next great personal finance book! Living two or three blocks away from a park is better.

5) Not as good of a layout as you originally thought

I've written about the ideal house layout to raise a family and/or work from home. Kids are noisy and if you work from home, it's very difficult to concentrate if you don't have your own quiet space. Thankfully, post-pandemic, more of us are getting out of the house more often. However, a great layout is important for comfortable living.

One of the fears my wife brings up if we upgrade homes is that the new home is two levels without any stairwell doors to block sound. Given our children are louder than hungry hyenas, she fears I won't be able to write or record my podcasts in peace. Although the upgrade home is 50 percent larger, it doesn't have a buffer floor level like our current home has.

We tried a “scream test” where my wife told the kids to shout and play as loud as possible downstairs while I was in the upstairs bedroom. I could barely hear them, but she said the test was too short. Ultimately, I won't really know if sound will be an issue until we move in.

Example of a suboptimal layout:

I bought a fixer in 2019 because it had expansion potential. We were expecting our second child and our existing home at the time only had two bedrooms on the main floor. We wanted three bedrooms on one floor to make childcare more convenient.

However, as it turns out, having three bedrooms on the top floor was not ideal. We didn't want my wife going up and down the stairs to the kitchen in the middle of the night as she could trip. And we also didn't want to constantly carry our baby up and down a large flight of stairs either.

As a result, she slept with our baby daughter on the first floor, which had two bedrooms. Our son slept in the next room and I slept upstairs, where I turned one room into an office.

I still tripped twice coming downstairs because I missed a step during my night shifts. If I was holding my daughter, she would have been flung to the wall! I'm also glad I didn't tear an ACL during one of the mishaps.

6) Your financials could take a turn for the worse

Everybody thinks about this risk, but do they do so with enough intention?

Upgrading homes means you're confident in your financial future. You've followed my 30/30/3 home buying guide or my net worth primary residence guide. By following these two guides, you have a high probability of not losing your home during an economic downturn.

However, unexpected events can still hurt you financially. Here are some potential negatives: job loss, theft, bear market, forced business shutdown, non-paying client, natural disasters destroying your home, accidents.

One of the reasons why I'm more excited about upgrading homes is because our investments have rebounded. Taking some profits to live in a nicer home always feels good to me. However, the economy could easily go back into a recession due to aggressive Fed rate hikes.

Given my concern about a potential recession, I'm trying to negotiate as big of a discount as possible. This way, I'll be better protected in case of a decline in passive investment income.

Example of finances turning for the worst post upgrade:

In high school, my buddy's parents built a mega-mansion in Langley, Virginia. It was just a half mile away from the CIA. The house was over 8,500 square feet and had a separate house for an indoor pool.

Unfortunately, his father's architecture business suffered as his government clients, who promised a big contract, failed to come through. The cost of owning and maintaining the house because too much for his family to bear. As a result, they sold the house for a big loss and had to start their financial journey over.

It Can Be Hard To Be Happy With The Home That You Have

Imagine leaving your perfectly comfortable home, spending a lot more money on a nicer home, only to find out you don't like living in your new upgrade home! What a disaster.

One solution would be to offer to rent the upgrade home with the option to buy after a certain date. However, what a pain to move. And if you discover you enjoy the new home, you will feel bad paying rent for all those months instead of buying it from the very beginning.

We all like to fantasize about what life could be like in a new home. However, sometimes, our dreams don't come true. Plus, if we spend too much, our upgrade home might turn into a nightmare home instead.

As a result, make sure to buy a home with contingencies. If you do, you can thoroughly inspect every detail of the home and have an out if something is wrong.

Comparison Is A Thief Of Gratitude

When I see my friends buy nicer homes, I can't help but want to buy a nicer home as well. For example, one friend is building a home that costs $1.1 million more than my home, and he's nine years younger. Yet, my net worth is at least four times greater.

Why shouldn't I deserve to live in a nicer home too? I think to myself. Further, the best time to own the nicest house you can afford is when you have kids. I don't think I'll regret giving my family the nicest and most stable living environment before the kids leave us.

That said, I'm also happy living in our current home we bought in 2020. It has everything we need, nothing we don't. It is an affordable forever home, which may be the best type of home yet!

The lightness of owning a home well within my 30/30/3 home-buying rule also feels amazing, especially during downturns. I never want to feel the stress again of having a huge mortgage like I did during the 2008 financial crisis again.

Here are some income and net worth levels you need to buy a home.

If I didn't know the housing situation of any of my friends and acquaintances, I'd be perfectly happy!

Going For The Upgrade Home!

After writing this post, I plan to pursue this upgrade home with a low-ball offer that's not insulting.

My main strategy is to try and convince the listing agent to also represent me so the seller can save 2.5% on commission. In return, I'll ask for a purchase price discount. With a lower purchase price, the seller will also get to pay less in capital gains tax as well.

Of course, I will write the most amazing real estate love letter to convince the seller that I'm the ideal buyer. My letter will alleviate all his worries. Ah, it's nice to know my work of writing 2,500+ articles since 2009 can come in handy!

The worst-case scenario is the seller refuses my offer. In this case, we'll just continue living our lives in a home we enjoy. We won't have to sell any investments to raise funds. Nor will there be any tax liabilities. We'll just keep trying to grow our investment portfolio to generate more passive income.

At the end of the day, I don't want to regret not having tried to go for this nicer home. There is a price for everything. And at a low-enough price, I think the risk of upgrading homes will be worth it!

Reader Questions and Suggestions

Have you ever upgraded homes only to discover it wasn't as great as you had imagined? If so, what were some disappointments you had in your new home? What are some other potential disappointments upgrade homebuyers should be aware of that are not mentioned in this article?

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53 thoughts on “The Risks Of Upgrading Homes Nobody Really Thinks About”

  1. Hi Sam,

    I’m a regular reader of FS and have to thank you for making me more financially educated. Love the depth, analysis and transparency you bring to your posts. Would love your take on the situation I currently find myself in ( THE SELLER’S PERSPECTIVE) particularly because we both live in San Francisco. In fact, I shared your advice on purchasing real estate in Golden Gate Heights with my brother and he went on to buy a home there in 2020, which has turned out to be a great investment. Thanks for the foresight! So on to my story…..

    I purchased my first home, a 1 BR condo in NOPA in 2016 ( $815K). I was able to secure a great 7/1 ARM at 2.87%. My loan term ends in Sept of this year, and the concern of course is that my mortgage will almost double (~6%). Given the situation, I’m trying to assess whether I should sell ASAP and cut my losses OR hold off on the sale till 2024-2025 and be willing to pay a higher interest rate in the near term.

    Here’s some additional information on the property and my situation

    UNIT DETAILS

    -1 BR condo in a 3 unit Victorian home in NOPA purchased in 2015 for 815K. More recent pics available here (https://docs.google.com/document/d/1iCRUnyeIBdXL-uoS9KT2yT3Icmv9Qyf5DNbpFUoSfic/edit#heading=h.fxoczc5mn1hm)
    -Well maintained classic Victorian home ( built 1890) with a lot of original details.
    -Area = 825 sq ft
    -Leased parking available in the neighborhood. No parking spot in the building.
    -One of the great selling points for me was the large ( 20’ x 150’ )beautiful backyard which has mature plants, landscaping and a large cedar tree.
    -I am single and will soon hit the big 4-0! This is my primary residence,but was also purchased as an investment that will have good returns in a 7 year timeframe.

    CONSIDERATIONS

    -Demand for 1 BR condos are lower now than pre-pandemic, with more people working from home. Only 2 1BR condo sales in Nopa in the last 6 mos.
    -My agent says prices for 1 BR condos ( across SF) are back at 2015 prices.
    -My agent says Avg price per sq ft for condos down to 2016 levels. Very few condo listings in NOPA
    -Price peaked at 1M during 2019, but my agent recommends listing at 899K. Redfin estimate is 940K ( range $890 K- 1M). Given where inflation is at,and that supply is still low in SF, do you think that this is too low?

    OPTIONS

    -The main question here is should I list in Summer 2023 OR Fall 2023 OR wait till 2024 -2025
    -Timing the sale is about understanding where you are in the real estate cycle ( read your post on this topic) . —
    -Obviously as a seller, the worst case scenario is to sell at the bottom of the market. To wrap my head around the risk/reward ratio, below I’m listing pros and cons for selling in the near term vs holding off till 2024-2025. You’re post does a fantastic analysis of this.

    Reasons to not sell in Summer/Fall 2023

    Real estate cycle
    Summer/Fall 2023 is the bottom of the real estate cycle. Real estate lags the stock market by 6 months. Stock market bottomed in Oct 2022. 6 months out from Oct 2022 is Mar 2023. We are now at the bottom, things should move up from now on. The question is the rate of appreciation in 6 mo, 1 year, 2 years. Do you have any indicator for this?

    Rates
    Rates peaked in 2022 and will continue to go down. May down to 4% at the end of 2023.

    Stock market
    Stock market performing better than expected.

    Pent up demand
    Fewer buyers in the market right now because rates are still high and they are waiting for a strong signal that rates will go down. Once rates start to go down and buyers feel confident in this, they will start looking for homes again. Additionally, there is pent up demand ( from a lack of activity from 2020-2022), so when buyers come back, there will come back in bigger numbers.

    Reasons to sell in Summer/Fall 2023

    -Paying double my current interest rate ( 6%) until rates go down
    -Opportunity cost of using the proceeds from the sale to invest in another asset class ( like Treasuries that will give a guaranteed return of 5%)
    -Deep and long recession at the end of 2023 will cause housing prices to fall further (Gov rasing the debt celing is a positive sign though).
    -Appreciation in the price ( best case is 10%) is not sufficient to justify paying a higher interest rate for 6+ months unti the next season ( Spring 2024)
    -Stock market crash
    -Upgrade to another home – buy a upgrade home at the bottom of the market and come out on top. If this were an investment, how long would it take make a decent return?

    Would very much appreciate your advise (and of the FS community) for sellers during these uncertain times.

    Thank you,
    Manasa

  2. Hi Sam,

    Thanks for everything you post, we appreciate it. I’ve noticed a couple of cases when you analyze real estate costs for insurance. I don’t see earthquake insurance. What’s your take on earthquake insurance in California? Same with umbrella liability insurance. Have you done any analysis on those topics? Thanks again

  3. Sam, you mentioned dual agency as a method to save on commissions as a buyer. There is another option, a concept, unknown to many buyer’s, where the buyer’s agent rebates a portion of their commission to the buyer at closing. For example, on a 1 million dollar home, with a 5% total commission split 50/50, the listing agent gets $25,000 and the buyers agent keeps $12,500 and rebates $12,500 to the buyer. That surely tops the nice bottle of wine we got from our agent in 1986 buying our first home. This isn’t better than “dual agency”, it’s just another way to achieve similar results.

    We have a brokerage in Southwest Florida offering a buyer’s discount of 2 – 2.5% off most new construction homes. The buyers agent keeps 1/2% and rebates 2-2.5% to the buyer. This is the perfect situation for this concept since the buyer signs into the builder’s open house as already having a buyer’s agent. This is a great savings for even a novice first time buyers accurately reflecting the amount of work for an efficient buyer’s agent. On existing home sales, the largest discounts I’ve seen is where the buyer’s agent keeps 1%, rebating 1-2%, depending on the amount of buyer’s agent commission offered on the sale.

    While this is legal in most states, it’s not everywhere. For buyers needing maximum financing, there are potential issues with the rebate. Lots to unpack if considering this approach, probably enough for an entire posting.

  4. Larry the Crocodile

    We just made a big housing upgrade. It is well within the 30/30/3 rule, but it is still difficult wrapping my head around the jump in lifestyle cost. Owning a business that is booming but could have more variable income in the future is part of the worry. The numbers make sense though even if business declines and we just will not have as outrageous of a savings rate. Never thought I would say it, but YOLO, I guess?

  5. Charles Dart

    As a new first-time home-buyer I enjoyed the post. Good list. Especially like the examples to make things clear. We certainly discovered a few surprises lol.

    Dunno if you have a post about this already, but one could be “Is your house really an investment?” I have come to conclude, “No. A residential house is an expense.”

    Sure, a house can increase in value. But in most cases the capital allocated to a house would generate a higher return somewhere else. A larger house means more tax and more upkeep expense too. I’d been a renter for 25 years, putting excess capital into the markets and have done pretty well not being a homeowner.

    To me, an “investment” is an asset that generates cash and/or appreciates. Your house eats cash. That’s not an “investment.”

    We bought a house under our means for these reasons. It’s a nice house in a good neighborhood, but more a “cookie-cutter cheap construction developer house” than the “custom high-quality house” we had in mind. I struggle with it just like you do lol. If we have the financial runway we may upgrade in a few years.

    Another post topic might be “Are real estate agents worth it?” Granted I have a sample size of just one, but in our experience the answer is a resounding “NO.” Our agent added zero value, and in some cases worked against our interests. It makes perfect sense considering her interest — she prioritized her commission which meant getting a transaction done. She had zero financial incentive to help us get a good price or the right house or uncover problems. One house obviously needed a new roof as flagged by the home inspector. Once I learned about roofs I knew she would have known that instantly in once glance but she didn’t tell me. Agent behavior is guided by getting their commission as fast as possible, I don’t care what they tell you about their “fiduciary responsibility” lol.

    If you have some business experience and can hire/handle a good lawyer and professionals I really don’t see the need for an agent on the buy or sell sides. When buying, get a good lawyer in advance. For selling you’d also hire a home-stager and professional photographer. As a seller you can get list your house on the MLS through a discount broker. As a buyer you don’t need access to the MLS, just use Redfin etc.

    The only reason I can think of to use an agent as a buyer is that seller agents have an interest to steer their clients away from you and towards an agent-repped buyer who will “control” her client better and/or with whom they may have a relationship. Our experience showed clearly that everything about the buy/sell process is created by agents, for agents. Home buyer and seller interests are not the priority to say the least lol.

  6. Great post and one I am using to consider our budget to purchase our next home. Should age be a consideration? I could foresee an increasing risk for those in later stages of their career especially in a corporate job.

  7. This happened to me with my new home. Thought we had a nice quiet road but quickly found that our road connects two busy routes. A guy with no muffler fly’s up our hill every morning around 5:30am and wakes up our toddler who is ready to get his day started! Trying to think of a nice way to tell him to slow down, without annoying him and making it worse.

  8. Simple Money Man

    I’m somewhat fortunate and extremely grateful. We upgraded our kitchen January 2022 – sanded and painted the cabinets myself, bought a discontinued waterproof vinyl flooring planks and had a friend/contractor install them all over the main level, upgraded countertops to quartz at a discounter store with an added farmhouse sink. Came in underbudget by about 3k. :-)

  9. Good luck, Sam! Hope you can score a good deal. I’m sure this new upgrade home would be worth it because you’d be spending the next 15+ years with your kids in the home. Lots of memories will be created and you’ll feel great providing the best for your family. Like you said, the best time to upgrade would be when the kids are living there.

    I was wondering if you plan to turn your current home into another rental if this home upgrade purchase goes through.

    1. Thanks. We shall see. The seller isn’t budging. But I am supposedly $270,000 below the next offer, which has an ask for the seller to redo something that would cost them $60,000.

      I will probably test the rental market out for our current house if we buy the new one. Cash flow is so important. I’ve come to realize that maybe I am a good landlord who just doesn’t like to landlord.

      I haven’t had a vacancy in my rentals for years. And I found a great tenant for my latest property rather quickly who just automatically bumped up the rent by a couple hundred dollars without me asking, because it was in the contract they signed a year ago.

      Ideally, I would like to buy this house in one or two years from now. I grt to save more cash and enjoy our current house for longer as the kids are still small.

  10. What would be your take on, not necesarily upgrading, but adding units? in this particular case we can move out and get 5 units out of the house. The investment is heavy but so are the rents in the zone. The conservative cash on cash return would be around 14-17%

  11. Moving is really swapping out a set of defaults that you are aware of for ones that you aren’t.

    Always painful and the “wrong decision” till you adapt.

  12. Thanks for being so open. I’m sure your children are and will be really happy with the sibling they have!

  13. I just went under contract on a new construction home in a historic neighborhood in Kansas City. The thought of buying a semi-luxury home in this environment is a bit scary – I didn’t get any discount on the list price (in fact I’m paying $8k more for upgrades) but I pulled the trigger because:

    1) I’m getting tax abatement for 10yrs – so that brings my monthly payment down significantly.

    2) I’m paying $244/sqft for a new construction home with luxury finishes in a walkable neighborhood that’s close to hospitals, downtown, and lots of restaurants.. which seems reasonable in Kansas City and other parts of the US – so I can live the lifestyle that’s difficult in other markets in this house.

    3) I’m living solo in a 5-bedroom house. If I faced financial setback in the future, I could rent out 2 of the bedrooms in the basement.

    I didn’t negotiate the closing cost which in the hindsight I should have. But I tried to negotiate it back in March for another house and lost to another buyer while negotiating… so didn’t want that happening again.

    1. Oops, typo! Baby #3 has been on my mind though! Alas, we are too old and two of us need to be fully on board.

      I wish we tried having kids sooner. The older I get, the more I wish I created more life and have more loved ones around me.

        1. I agree. I’m a selfish person. But I think adopting is great as every kid deserves love.

          How many children do you have? And what were the ways in which you found a satisfactory amount of love?

          I think you’ll enjoy this post.

          1. I don’t have any kids. I enjoy playing a lot of video games and don’t need much love. My dad left me when I was 14.

            1. Don’t forgo children because you were wronged as a child. As a previous video game addict and now father of 4, nothing compares to teaching little people the wonders of the world, and helping to mold them into the best versions of themselves!

              Just my $0.02! I love being a father!

  14. I’m amazed at how often people move. The stress, the transaction and moving costs, the upheaval to the social circle, the kid’s friends and school, etc. Ugh. One of my least favorite activities.

    From your excellent list, for me the big one is the neighbors. A real estate agent can tell you all about the home, its history, the financials, and all the rest. But the neighbors are always a HUGE question mark. I’ve seen bad neighbors turn what should be the perfect house into a torture chamber.

    One of the reasons I love where we live is because we have wonderful neighbors. We look out for each other, hang out together on weekends or holidays, and people who live here never seem to move away. A couple doors down is a family where the mother grew up in the house and they later ended up buying it from her parents. On the other side is a widower who recently moved out (due to her age) after being in the house since it was built in 1953. Before we moved in back in 2016, the previous “new kids” on the block had been there since the early 1990s.

    I guess that’s what a stable neighborhood of mid century ranch homes and large lots will do for you.

    1. That’s great you have great neighbors. It would be much harder for me to leave if I had such close relationships as well. Especially true if I have neighbors with similar age children.

      I think the world is changing where we are all spending more time insulated at home. Hence, partly the desire for bigger homes.

  15. Its real estate mate, from down under all I can say is, if its a good area, a decent price that makes it worth while then why not.

    I’m 34, have 3 sons all double digits (Yes wife and I started early) and even with a big family we always make the shift if value comes up.

    My wife will bring a property to me (we are both passionate property people and Australia loves its real estate) I will say no way “Cant’ afford it” not interested. She knows me too well and says what price woould you afford it at and I will always make a 3-5% low ball, makes it worth while with stamp duty and property transaction costs. She will ask the agent and they can eithier tell us to bugger off or they will take it to the owner. I always find the money if it goes through. 13 times now we have done it. Average property price $1.1m

    Last year upgraded again, big water front property, mooring all the bells and whistles, big double storey home, more space then we need even with growing boys. However they needed to sell and we swooped in purchased UNSEEN, knew there were issues but did not phase us. Know property in the area well (Like you know San Fran) and we purchased it, moved in within a week as new family home. In 12 months with a few repairs and fixes here and there (Being directly on the sea, lot of maintenance) we have it valued and even an offer for $600k more than what we paid. So no regrets.

    So if it is a good deal bank on it. You have younger kids then me and I can tell you now its great having a bigger home, the kids grow quickly and need a lot of zones as we call them, lots of space so they can all come into there own. I have 3 sons 1 teen the others doubel digits and that age they need space. You will appreciate it when they hit older years.

    My wife has always said she would rather have a bigger home and the palce for there friends to come and hang out than her boys go to other places, so we have set our home up for the boys to enjoy and grow into with friends to hang out if they want to. At least we know what they are doing :)

    Thats my 2 cents but is bias as I love property and also cant go past a good deal when we see it. I was nervous about havign too big a home as we live quite minimal after traveling so many years, but I like the space, does;nt mean we fill it with junk. I have one room with a chair in it, didnt know what else to do with it so left it empty.

    I dont care about what the neighborhood is like, being upper end, there is bound to be grumps everywhere, our area is full of yachts, retirees… we have not had any issues, people have stopped and asked how we afforded to move here, by rolling the dice and taking a lot of risk young…we also have a big local business so my wife is well known with a good business reputation.

    Besides if I found a loud annoying neighbor I have 3 sons all fanatics about basketball, it is amazing how much noise and sound pollution 3 boys make in a driveway and a basketball ring, luckily it has not come to that

    1. Hi Mitch, thanks for sharing! I don’t think I’d have any regrets either if a property I purchased was worth $600,000 more just one year later.

      Can you share how big is your property? I totally believe you on kids needing more space and zones as they get older.

      Also, what is your home’s value as a percentage of your net worth? My max limit is 30%. Thx!

  16. Christine Minasian

    You don’t mention if your payment is a lot more or if you are cashing out a lot of your investments to pay for it. My opinion is if you think it’s a better neighborhood/house…go for it! Your kids are young. Why not LOVE where you raise them?!?! Although it does go fast and do you really need a big house when they go to college/move away??
    I say if it’s meant to be- it will be.

    1. I would have to cash out on same securities and bonds, which might not be a bad thing after the rally YTD. I would try to manage the sales with tax loss selling to minimize tax liability.

      I definitely won’t need a big house after our kids go off to college/move away. I basically have 12-15 years to live in a “max house.”

      I just don’t know whether I will love raising them there, hence the post. I think it could be great, but maybe not!

      1. I feel like people overstate the need to downsize after kids move out. It’s easy to look past the adult family growing with spouses and grandchildren. Do we not still need the room for growing families to visit? Also, it’s all relative, meaning you don’t see a lot of wealthy people with grown children downsizing to <2,000 sf homes simply because their children are gone. I feel like I want to upgrade when the kids move out, not downgrade. Of course, that is also probably due to finances improving as kids get older and start dropping off the payroll. It’s a shame we don’t typically reach our max earning potential when our kids are young unless we are pro athletes.

        1. I think in most cases, people just keep their homes when the kids move out. They neither upgrade or downgrade.

          Good point on the kids coming back to visit and the grandkids. If you downsize too much, where will they live? But sadly, some grandparents I know are unwelcoming.

        2. Christine Minasian

          Great point David. Old people are not moving from their larger homes in our upper-middle-income neighborhood. This makes us, now empty nesters, rethink our plan to sell our big home. It would be nice to have the memories with our grandchildren here as well.

      2. Tax loss selling? I’m super curious what stocks didn’t work out. FYI, I’m down in AT@T, Moderna and Devon Energy.

  17. Laura White McAughan

    Housing prices are not coming down in Houston. I’d love to buy my neighbor’s townhome, which he bought in 2016 for $775,000. He told me based on comps he plans to price it at $1,100,000 this fall. Wow. No thanks.

    1. There is a price for everything. We need to find that clearing price where we feel good. So if $1.1 million is way too much, then you’ll feel not buying it at the price. Even if it sells at that price, you’re good, b/c you would never pay it.

      Market discovery + mixing emotions is a powerful exercise.

  18. I did it last year – and would do it again. Went through all the thoughts you did and realized I was overthinking the situation and that my finances were good, ticklers checked, and that the max drawdown of this investment even if was my bear case wouldn’t be the most I ever lost lol.

    Even with job uncertainty (I work at bulge bracket) the upside for quality of life was too much to pass.

    1. Good to hear things have worked out. I’m not sure it’s possible to overthink a situation where spending huge money is involved. Better to overthink than under think I say.

      There’s a reason why lots of people experience a lot of regret. They failed to plan for and understand various scenarios.

      How were 2022 bonuses?

      1. For me flat, which wasn’t optimal for the businesses I built grew – but sometimes time in the seat means more in the long run…

  19. Great insight, Sam. As I’ve mentioned previously, long time reader and purchaser of our forever home in October 2020. We upgraded to a much larger home, in a gated community, with quiet, private streets and really fantastic neighbors. At 2.5% interest rate, you’d have to physically drag me out of our dream home to get me to move.

    There was one thing that I was not anticipating, however. That is Lucy, the neighbor dog. We absolutely love our neighbors, but one set, has a dog that incessantly barks when she sees anything. It is really a rather small price to pay given the entire pro v. con of our ‘hood IMHO.

    But I have a plan! We recently undertook a backyard restoration project that included a 16×25 stamped concrete patio with pergola seating area. Walking paths to garden boxes and mulch/breeze/ stone and flowering garden. My last chess move will be to contract out a mason to construct a large stone fireplace wall backing to Lucy’s yard (submitted and approved by HOA). We will enjoy having a glass of wine or an IPA while we soak in our gas fireplace warmth on cool summer/fall/spring nights. Hopefully, Lucy will tire of barking at a brick (stone actually) wall!

    1. Sounds like a plan! I thought you were going to say you are installing a huge waterfall to drown out Lucy’s barking! :)

      It’s hard to beat buying a forever home in 2020 with a 2.5% interest rate.

      I guess in retrospect, it would have been even better if this new home I’m eyeing was available in 2020. But we take what we can get sometimes! And our current home was ideal.

  20. “Comparison Is A Thief Of Gratitude” – truer words have never been spoken! Having some very successful friends, I find myself falling into this trap all the time. Usually the calmer, more rational part of my brain prevails but man, it can be tough. At end of day, our 2.8% mortgage is probably what will keep us put…

  21. Great post. I wish there was a better way to determine what type of neighborhood you’re getting yourself into.

    1. In CA there is one rule of thumb: buy as much as you can afford in the highest scoring school district possible, which will always have a high percentage of Asians. Look up and down the state – from Torrey Pines to Irvine to Palos Verdes to San Marino to Arcadia to Saratoga/Cupertino/Palo Alto – it is the most trusted rule of thumb for RE appreciation in CA. Given the doom loop SF finds itself in, now without a Whole Foods or a Nordstrom (mandatory for any upscale CA city/town), and the public schools are largely cr*p, SF RE is the most speculative and unpredictable market and one where over the next 5 years as rates stay high and venture funding dries up one stands a high risk of substantial equity loss.

      1. Kevin’s comment has nothing to do with SF. Have you visited SF recently? It’s nothing like some of the media portrays. Why do you always attack SF?

        This is the opportunity I’ve been waiting for, as I look to upgrade homes again. The amount of tech wealth that has rebounded or gone to all-time highs this year (Apple, Nvidia, etc) and the AI boom is here. And I’m confident it will drive up real estate prices.

        The vast majority of my friends are much, much wealthier this year and the population is growing again.

        Based on your previous comments, I now realize you’ve been bagging on SF for a while now. But you’ll be pleased to know SF is doing better than what you’re reading in social media. Election years are in full steam and SF is always the biggest punching bag b/c it is one of the greatest success stories.

        And if you are feeling afraid for your safety, I highly recommend a course in self defense. It will boost your confidence and give you more skills to protect yourself.

        And if you can’t afford SF, it’s no big deal. There are plenty of other cities to enjoy. No need to constantly bash my city. Where do you live?

        1. Why do you think OC2SV is so obsessed with San Francisco? I’ve read his comments in the past in he takes whatever chance he can get to bash the city. Pretty amusing.

          I think this obsession with San Francisco from people who can’t afford to live in San Francisco or from the right is actually really healthy for San Francisco real estate prices. The attention brings more and more capital to the city, creating more and more economic success.

          There’s a natural dislike about things we don’t know or can’t afford to have. So I hope OC2SV actually keeps his commentary up!

        2. I could easily afford to live there but my wife would think I am insane for wanting to. I’m honestly fascinated by adults with kids who choose to live there and their decsion criteria. It almost seems selfish for people that love living in a city to deprove their children of the joy of a suburban environment and walking to school with their friends. And it is as bad as the local news reports else they wouldn’t be reporting the bad news about SF on channels 2/3/5/7! And on a real estate fundamental level it breaks the public school/RE pricing duality in CA which I feel is great fodder for debate that you don’t see to want to engage in.

          I sincerely hope neither you nor your family are ever touched by property and/or violent crime that seems to only be getting worse in SF. London Breed even had to “re-fund” the police – side splitter!! I grew up going to integrated public schools in L.A. that were majority black so I’m probably more comfortable than you are strolling through the projects.

          1. Thank you. I hope you are safe too. I’m on the bus with my boy now coming home from school. Lots of different types of people from different socioeconomic backgrounds.

            I’m sorry if you feel a heightened amount of fear. It must be difficult to feel like you’ve always got to watch your back. Hopefully you can find the source of your anxiety and live more peacefully going forward.

            1. Speaking of the bus Lyanne Melendez on local ABC News this week rode a Muni bus all day to count how many people paid – exactly one person, a tourist. Did you use your Clipper card to pay or did you elect to not pay like all the other riders interviewed for the story? Seems like SF residents em masse have decided they don’t need to pay transit fares, especially with no enforcement and the bus drivers unwilling to challenge non payers after several violent assaults. The culture of SF is rapidly deteriorating.

              1. Yep, paid. It’s great you are so focused on San Francisco despite not living here.

                When was the last time you took a bus in SF?

                Based on your focus, I’m wondering if I should start writing more negative stories on Financial samurai to generate more traffic and revenue?

                I understand that focusing on the negatives is how to make more money, but it’s not my personality. Would you enjoy more negative stories and share more of them with your friends and colleagues?

                1. I commend you for being willing to engage in what you perceive to be negative comments, and I feel engaging commenters like me that come to debate elements of your investing thesis, specifically around RE, with data instead of just sentiment or personal experience is very interesting for your readers. Issues that interest me are the impact of a sustained higher rate environment due to persistent inflation on syndicated/private REIT cash flow investments as these properties grapple with refinancing challenges, and the impact of highly ranked public schools on real estate values and why you choose to live in an area with less-than-stellar public schools (an anomaly for coastal CA shared perhaps only with Santa Cruz) . Thanks.

          2. OC2SV, I’m going to presume you are a woman? If so, taking self defense class, not listening to music, and being aware of your surroundings will definitely help your anxiety.

            Obviously, don’t go to the one block or neighborhood the media highlights over and over again that has the most crime.

            You’ll be fine. And carry mace in your purse to help you feel better.

            1. There is no anxiety other than that felt by SF property owners due to the deterioration in the city you call home and the potential impact on property values. Did you see the value of downtown SF commercial real estate has declined 70%? From the sale of 305 CA street at $60M with a $300M “prior value” to the SF Hilton and Parc 55 hotels falling into default the city is in a crisis driven by political leadership. It’s amazing to see how San Jose, run by generations of Bellarmine grads, is run so successfully while SF is the poster child for civic govt dysfunction. Do you think residential values will be unaffected by the plague afflicting SF commercial RE? Most of those empty office towers were populated by people commuting into the city with some choosing to live there. Without needing to be in SF how will that affect demand for SF housing?

              Also Janice, I’ll try to make my misogyny come through more clearly in my writing style. Luckily my wife is beautiful and submissive. I hope you take care of your man as well as she does me.

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