In the debate between real estate or stocks as a way to get rich and live happily ever after, I failed to emphasize one critical point. The value of real estate goes way up once you have children. The more children you have, the higher the value of your real estate goes.
After scanning more than 200 hundred comments that debated between stocks and real estate, I realized something interesting. Those who choose stocks over real state tend not to have children. Real estate naysayers either don’t have children or have adult children who have left the nest.
This inferior view of real estate as a way to build wealth from people without children makes complete sense. Let’s discuss.
The Value Of Real Estate Before Kids
When you don’t have kids, you’re mainly focused on improving the quality of your life. You are selfish, in a good way! The value you place on real estate before having kids isn’t high.
Here are some attributes you may value most as a childless individual:
- Building wealth – You’ve gone to school forever and are focused on making your education worth it by doing anything and everything possible.
- Climbing the corporate ladder – You’re looking for a company you can call home for several years.
- Mobility – You’re open to going where the opportunities are and don’t want to be wedded to one place.
- Flexibility – You’re dating, traveling, and always on the lookout for new opportunities.
- Freedom – Nothing beats the feeling of freedom once you taste it after graduating or after the kids have left the house.
Given these desired attributes when you don’t have kids, owning lots of real estate isn’t ideal. Real estate feels like an anchor when all you want to do is be on the go.
Therefore, it is clear that owning stocks is preferred over real estate. No matter where you go, stocks are hassle-free. The only thing you have to deal with is stock volatility.
Real Estate Before Kids For Me
Before 2003, I only owned stocks because I was completely unsure about my career prospects in New York City and San Francisco. I also didn’t have enough money to comfortably come up with a down payment without asking my parents for help.
After only two years in NYC, I wasn’t offered a third-year analyst position at my firm. Luckily, I was able to land a new job as an Associate with a competing firm in San Francisco before my two years was up.
If I found a way to leverage up and buy NYC real estate, I probably would have rejected the great role I was offered in San Francisco. Perhaps I could have made things work by finding a property manager. However, leaving a property right after you buy it isn’t ideal.
In my 20s, my primary focus was on finding a great firm that enabled me to climb the ranks. I loved real estate as a way to build wealth, but I felt that finding a seat at a good firm was by far a bigger wealth driver.
The Desire To Buy
After two years at my new firm, I started feeling like I belonged. Getting laid off wasn’t a worry anymore as we slowly rebounded from the 2000 dotcom collapse. Then, one extraordinary weekend in 2003 made me want to live in San Francisco for the next 10+ years.
It was raining heavily on a Friday in January, which meant that it was snowing in Lake Tahoe three hours away. My girlfriend and I decided to take a day trip to Sugar Bowl on Saturday to ride the two feet of powder. We had a blast!
The very next day in San Francisco I found myself playing tennis in 74-degree weather. That was the moment where I thought the west coast was indeed the best coast. I had lived on the east coast for 10 years prior and never had this type of wonderful life moment.
In June 2003, I bought my first property. It was a 1,000 sqft, two-bedroom, two-bathroom condo overlooking the park. It felt great to turn some of the funny money stock gains into a real asset. Before buying, my girlfriend and I lived in a run down one-bedroom apartment.
Once you’ve found a firm who respects you and a city you love, your desire to own real estate goes way up. You no longer have the great desire to keep looking for something better. It’s much the same once you’ve found your life partner.
The Value Of Real Estate After Kids
Once you have kids, your attitude about money and life should change. Instead of only focusing on how you can improve your life, you become much more focused on providing for your children. Therefore, the value you place on real estate is much higher.
For example, after having kids, you are likely less willing to work 60+ hours a week to get paid and promoted. Your response time for weekend e-mails goes way down. Happy hours over eating dinner with your kids? Nah. The opportunity cost of missing out on your children’s lives simply becomes too great because they are growing up so fast.
Here are some attributes you may value once you have children:
- Stability and consistency – Children thrive on routine.
- Community – Having a wonderful support network is great. Imagine having neighbors you can text while you are away to pick up a package left at your front door. Or imagine having neighbors with older age children who can babysit while you go out for a date night.
- Safety – You might have been willing to sacrifice your safety for a cheaper apartment when you didn’t have kids. But once you have kids, living in a safe environment is non-negotiable.
- Schools – School is to children as work is to adults. Real estate in a great public school district or near highly-ranked private schools is more valuable than real estate that isn’t.
- Being a provider – As a parent, your main driver is to be the best provider possible for your family. It’s the reason why there’s the saying, “Have children and the money will come.” You will feel much more satisfied owning a house your spouse and children enjoy every day than owning stocks.
To Be A Parent Is To Be Selfless
The day you become a mother or father, life is no longer about you. Almost everything you do is about making sure your kids survive and grow up to be well-adjusted adults long after you’re gone.
Before you eat, you must ensure there’s enough food for your children first. Before you get to enjoy some free time, you must ensure your children have already had enough time playing with you. Instead of watching what you want on TV, you may have to give into watching cartoons instead.
Obviously, some parents handle being selfless for their children better than others. After a lifetime of being selfish for yourself, it’s often hard to make such a big change. Children can easily make a bad marriage worse. Beware!
However, being selfless for your children usually feels amazing when they are young and still appreciative. When you finally buy a property for your family, you will feel a wonderful sense of accomplishment. All that hard work to save for them paid off.
More Children, More Value In Real Estate
The more children you have, the more valuable your real estate becomes because it is providing that much more utility.
If there are only two of you living in a five-bedroom, three-bathroom house, you may feel like your house is a waste. This is why so many empty nesters downsize once their children leave.
However, if the five-bedroom house is sheltering two adults and three children, the house is providing much more value. Therefore, its value goes up.
In a pandemic, larger homes have become more valuable because more people are working from home. A room for each child and an office room for each spouse has become a popular demand.
Finally, you may find that more children will make you more confident in paying more for a larger home. No longer do you just see the price tag. You start dividing the price of the home by the number of heartbeats to find its true value.
Real Estate After Kids For Me
When we brought our son home from the hospital one evening, the value of our cozy home shot way up. The roof not only protected my wife and I, but also the most precious little human.
What’s great is that our housing cost stayed the same, even though it was providing utility to one more person. The same cannot be said if you want to add a tenant to your lease. It may either be impossible or the landlord may end up charging you more per month.
The emotion I had after I brought home our son was so strong that I decided I would keep the house, even if we decided to get a new house later on. I wanted him to have the same home throughout most of his childhood.
I moved around every 2-4 years until I was 14. Before I graduated from college, my parents sold the high school townhouse I grew up in. Therefore, I never had a consistent childhood home to go back to. As parents, I think we tend to want to give our children what we didn’t have.
Although my son’s first home became a rental after 2.5 years, the downstairs portion where he had his bedroom is still free. I’ve left the downstairs area empty as a place for work and our long-term guests. It’s also a place I regularly take him to for some father-son time in the hot tub.
From the third day of my son’s life onward, real estate has provided shelter for my son and passive income for our family. In contrast, stocks have only provided dividend income and a couple mini-heart attacks given the volatility. Therefore, I feel a greater sense of appreciation for real estate.
Real Estate As A Business And Insurance Policy
The final reason why real estate values go way up once you have children is because a real estate portfolio also acts as an insurance policy for your children.
Just in case your children get rejected from their target school and can’t get a job they want to do, managing a real estate portfolio gives your children something meaningful to do.
If your children grew up in some of the rental properties, there will be a stronger affinity for managing the portfolio. Your children will care more because the real estate has been a part of their lives for so long.
Ask yourself how much an insurance policy is worth to prevent your children from ending up directionless, depressed, and struggling to make ends meet. Maybe $100,000? Or maybe more than $1 million each because our children’s happiness is priceless.
While you wait for your children to become adults, you can use your rental properties to build passive income. Further, if you can buy these properties before they are born or while they are still very young, the value of your rental properties will likely be higher by the time your children are adults.
Real Estate: The Preferred Asset Class For Parents
To recap, real estate increases in value once you have children because it:
- Helps boost wealth and generate income to afford children
- Will shelter your children until they leave for college
- May give your children purpose after they graduate
- Provides shelter for your adult children if needed
- Builds wealth for your children if the real estate is passed down
I still enjoy owning stocks. However, for immediate utility, real estate cannot be beat. Therefore, real estate takes up roughly 40% of my net worth and stocks take up only 25% of my net worth.
Given the value of real estate goes up after having children, as a real estate investor, it’s worth paying attention to birth rates by city, county, state, and country. The higher the birth rates, the greater the desire for real estate.
Real Estate Investing Suggestions
Once you’ve purchased your primary residence you are considered neutral real estate. Since you have to live somewhere, you will simply ride the real estate cycle. To be long real estate you must own investment property in addition to your primary resident.
If you’re interested in a hands off approach to real estate investing, consider investing in a publicly traded REIT or in real estate crowdfunding. Once I had my son in 2017, I decided to sell my PITA rental house and reinvest $550,000 of the proceeds into real estate crowdfunding. My favorite two real estate crowdfunding platforms are:
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.
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, higher rental yields, and potentially higher growth due to job growth and demographic trends.
Both platforms are free to sign up and explore.
Readers, do you believe the value of real estate goes way up once you have children? What other asset provides so many benefits to a person? What asset is even more valuable than real estate once you become a parent?