The_best_time_to_own_the_nicest_house
00:00:00.000 | Hello everybody, it's Sam from Financial Samurai and in this episode I want to talk about the best
00:00:04.240 | time to own the nicest house you can afford. And with me I have my wife Sydney. Say hello.
00:00:09.920 | Hello everybody.
00:00:10.880 | So it hit me the other day and it should have hit me four and a half years ago,
00:00:14.960 | but we only have about a 20-year window to buy the nicest house that we can afford.
00:00:22.240 | And why do we only have this 20-year window? Well, because our children are born from age
00:00:29.600 | zero to 18 and then they leave the house, most of them. And after that, it's like,
00:00:34.400 | why do you need a really nice house? So I was thinking to myself, even though we bought a
00:00:39.280 | really nice house in 2020, right after the lockdowns occurred, I was thinking, hmm,
00:00:44.640 | maybe, maybe we should buy another house. What do you think about this idea?
00:00:49.200 | No, thanks.
00:00:50.720 | Why do you say no, thanks?
00:00:52.720 | Because we just moved and I'm still getting things organized.
00:00:58.720 | Right. So this is kind of like the bummer regarding this epiphany. And it's so weird
00:01:03.600 | when I'm telling you about this 18 to 22-year window while our children are still at home,
00:01:09.760 | it sounds obvious that, yeah, we should buy a really nice house that we can afford.
00:01:15.280 | Everybody should because we have the most number of bodies in the house.
00:01:19.760 | After our children leave, even if our net worth grows by, let's say, 50%, 100%,
00:01:28.160 | whatever it is, it's not like we were going to buy a bigger house because we have less people,
00:01:32.880 | right? Yeah. I mean, I think the house that we're living in now is the perfect size for us. It's
00:01:39.440 | nicer than where we were before. It has all of the things that were on our list of checkboxes,
00:01:46.400 | whatever, however you want to describe it. So I am just so happy here. So I don't feel any
00:01:54.320 | kind of desire to move. I understand where you're coming from with your logic, but I just don't
00:02:02.160 | feel like we need something nicer. I feel like we already have something really nice.
00:02:06.800 | Okay. Well, regardless of the logic, actually, no, the logic is obviously important,
00:02:12.640 | but let's talk about the math. Okay. And so one of my new home buying guides is the primary
00:02:19.520 | residence as a percentage of net worth guide. And that guide states that you should ultimately try
00:02:25.920 | to have your primary residence be no more than about 30% of your net worth. So if you have a
00:02:32.720 | $1 million net worth, try to have a primary residence equal to about $300,000 or less,
00:02:39.440 | and ultimately have that figure be around 20%. And ultimately, as in, you know, when you're older
00:02:46.080 | and wealthier, and you don't want to deal with any kind of money, worries and hassles. So I think a
00:02:50.800 | lot of people who read the article agrees with this philosophy 30% sounds about right, you have
00:02:57.520 | enough exposure to your primary residence where your long real estate, it's large enough as a
00:03:02.960 | percentage of net worth. So you are living in a nice house, right? Because what's the point of
00:03:07.920 | having money, making money working hard if you don't live in a nice area, and given millions
00:03:13.600 | more people post pandemic are spending many more hours at home, it just makes more logical sense
00:03:20.240 | to own a nicer home. You know, when we were working, I would get out of the house by sometimes
00:03:26.160 | 5am 6am. And I wouldn't get back until 7pm, sometimes 10pm because I'd have to go out with
00:03:32.560 | clients. So I was in the house maybe six to eight hours a day, right? And mostly sleeping, eating,
00:03:41.200 | all this stuff, right? And you you know, you were out probably 12 hours a day. Yeah, something like
00:03:46.080 | that. So on average, you're home maybe 10 hours, 12 hours. But now we're home all the time. Yes.
00:03:54.000 | You know, so we armed up our house. If any robber wants to come in, we got our softball bats, we got
00:03:59.200 | our security security system weapons, you know, you don't want to be robbing our house. And I
00:04:04.160 | don't know, I think most robbers don't want to be robbing people's houses now because people are
00:04:09.200 | generally more at home. Right? So that's interesting. And that's kind of a tangent.
00:04:14.080 | But the point is, when we bought our new house, our new quote forever house, which is not going
00:04:20.000 | to be forever. In 2020, right after the lockdowns happened, it was about 18% of our net worth.
00:04:27.680 | 18%. So that's 12% below my recommended target of 30%. And that's 2% below my recommended long term
00:04:35.760 | target of 20% or less. But as we all know, since the pandemic began, there was a huge rebound in
00:04:42.800 | the stock market, right? It went down 32% in March. And then it's just roared back to all time
00:04:48.400 | highs. S&P 500 is back to about 4500. And so as a result, our primary residence is now about 15%
00:04:57.920 | of our overall net worth, and would be even less, but then obviously real estate has done very well
00:05:03.920 | as well. And we're not unique here. I'm sure the majority of people who have invested in stocks and
00:05:09.280 | real estate, which is hopefully a majority of financial readers and listeners have seen their
00:05:14.480 | net worth increase as well. Yeah, I think so. Therefore, it's only logical that the wealthier
00:05:22.560 | you become, especially over the past couple years, given it's been so difficult, the more we should
00:05:28.800 | spend to help make our lives better. And one of the key components to making our lives better
00:05:34.640 | is living in a nicer home. Right, since we spend so much time there as well.
00:05:39.840 | All right. So since you agree, then it should only be logical that we buy a nicer house at some point
00:05:47.920 | in the future. Possibly. The thing is, for for us, I think our houses is great. And we've looked at
00:05:56.720 | other houses in San Francisco in particular in a larger price range. And frankly, I'm not that
00:06:03.040 | impressed. I don't see I haven't seen anything out there that would make me excited to move. And
00:06:10.480 | maybe if we were to relocate to somewhere like Hawaii, then yeah, I could see moving to a more
00:06:17.760 | expensive house just based on what's there, right? If we actually want to live next to the ocean or
00:06:25.040 | have a nice view, it's going to cost more there. Actually, it wouldn't cost more because Honolulu
00:06:31.200 | is cheaper than San Francisco by about 20%. So we would actually end up with a bigger house.
00:06:35.360 | Well, yes, possibly. But I feel like the houses that we've looked at the ones that were like,
00:06:40.880 | oh, yeah, I want to move into that house. Those are like the really, really expensive ones in
00:06:46.080 | Hawaii. That's true. That's true. So it all comes down to individual preference. But my logic is,
00:06:53.520 | if your net worth is growing, and you're still spending time making money, and you're not doing
00:07:00.960 | absolutely everything possible that you enjoy only the things you enjoy, then you might as well spend
00:07:06.480 | money more on living a better life, which includes your house, your car, your food, your clothes,
00:07:12.720 | travel, everything. And if you're not spending more money on yourself, then you should definitely
00:07:17.440 | spend more money on your loved ones and people in need. Right. All right. So now that everyone
00:07:23.520 | agrees that the best time to spend money on the nicest house you can afford is in a 20 year period
00:07:29.120 | when your children are living with you. What happens after your children leave and your net
00:07:34.480 | worth continues to grow? Well, nicer doesn't always mean bigger. So here are some suggestions
00:07:41.840 | on how to spend more money on quote right sized homes after your children leave the nest. One,
00:07:48.000 | you can buy an ocean view property to you can buy a beachfront property. Three, you can buy a penthouse
00:07:53.920 | condo with amenities like a swimming pool, bowling alley, dark room, whatever it is. Or you can buy a
00:08:01.760 | new home in a different city or state. Maybe you live in Des Moines, Iowa, and you've always wanted
00:08:07.120 | to be next to the ocean. So you buy a house in Santa Monica, in Los Angeles, that's an idea. Or
00:08:13.520 | maybe you want to buy a really nice condo in New York City, where you can go out to shows and eat
00:08:18.720 | at the finest restaurants every single evening if you want to. And then of course, you can buy a
00:08:24.000 | nicer home in a nicer neighborhood in the city. Back in 2014, we decided to relocate from the
00:08:30.400 | more expensive side of San Francisco, the north side to the west side because there was more space,
00:08:36.000 | better value, more parks, and just less people overall, we just wanted to write in peace and
00:08:41.520 | just go look at the ocean. And so now post pandemic, you're seeing this demographic shift west
00:08:46.640 | because of more space, better value, and less people. And there's another solution to downsizing.
00:08:53.040 | And that's to not sell your home because you love your home. You've lived in it for 10 2030 years.
00:08:58.640 | Why would you want to sell your home? Personally, I'm a sentimental guy. I enjoy keeping my homes
00:09:03.360 | and renting them out for income. So that's actually a great, great alternative. As your
00:09:08.880 | net worth grows, you just own your home, you rent it out, earn more rental income for retirement,
00:09:15.360 | and just repeat that cycle three to five times over your working life. And you're going to build
00:09:19.840 | a pretty good passive income portfolio. And the other solution is to keep your primary residence
00:09:25.120 | and buy a vacation property. Don't do what we did and buy at the wrong time. And also by way before
00:09:31.840 | we had children, because we bought a place that frankly is not large enough for our entire family.
00:09:37.920 | It's large enough, but it's not the ideal that we want. I would wait to buy vacation property
00:09:43.760 | after you have kids after they're about five years old, because before five years old,
00:09:49.040 | they don't really remember much. You know, the studies have shown under three years old,
00:09:53.920 | most memories are gone, sadly. And under five, it gets better, but they still don't remember much.
00:09:59.680 | So there you have it, folks. I think for those of us who have been saving and investing diligently,
00:10:05.200 | we've really seen this nice windfall. And if you're not feeling that great,
00:10:10.320 | you should spend more of your money to improve the quality of your life. And I think our home,
00:10:15.120 | our homes is one of the best ways we could spend our money to make our lives better. Although I
00:10:21.520 | do believe that 10 years is the ideal amount of time to live in a home until you consider upgrading.
00:10:28.400 | I think if your wealth has grown by 20 30 40 50% over the past couple of years,
00:10:33.920 | I think it's worth upgrading. But I've decided we should compromise. What do you think about
00:10:40.160 | instead of moving to a new home next year in 2022? We wait until 2025. So that's five good years of
00:10:49.680 | living in our homes enjoying every minute of it. And if our net worth grows in five years,
00:10:55.520 | let's say it grows by 15% a year for five years. That's a doubling of net worth in five years. So
00:11:02.400 | to live in our current home in five years would mean that our primary residence would be like
00:11:07.360 | 7% of our net worth. Maybe I just think it's okay. I the classic example is Warren Buffett,
00:11:15.280 | right? Who's lived in the same house. I know you're rolling your ass. But he's lived in the
00:11:20.160 | same house for what decades. And we all know that he's worth way more than you know, this very small
00:11:28.320 | percentage that houses of his net worth. But at the end of the day, I think we just have to see
00:11:33.760 | where life takes us. And okay, yeah, I mean, Warren Buffett lives in a mega mansion for San Francisco.
00:11:39.680 | His house is like 66500 7000 square feet. It's more than double our house. I mean,
00:11:47.840 | he probably has like an underground pool. And like home theater amenities that nobody knows.
00:11:54.080 | Yeah, nobody knows about I mean, if I was Warren Buffett, you know, 100 billion or whatever his
00:11:58.160 | net worth is, I would dig deep, like 100 feet down under my house, have like secret laboratory.
00:12:05.360 | Yeah. 50,000 square foot mega mansion down there. You know, with the secret, like, airplane submarine
00:12:12.880 | shooting out when nobody's, you know, you know, he's probably spending way more money than he
00:12:17.360 | makes it out because he's stealth wealth. He's classic stealth wealth. All right, well, our
00:12:22.160 | journey continues. And if you've been on the fence regarding spending money on a nicer house,
00:12:27.200 | it's something to think about. I really didn't think about this until this year, but better late
00:12:32.320 | than never, I'd rather be driving a Porsche 911 turbo in my 20s and 30s and 40s, instead of in my
00:12:39.040 | 70s or 80s. So this is a topic we're going to talk about a lot on financial samurai going forward,
00:12:45.680 | how are we going to better spend our money? Because if you're not going to spend your money,
00:12:50.480 | and then you might as well quit working and dropping every single thing you don't want to do.
00:12:55.600 | Thanks so much, everyone for listening. If you enjoyed this podcast, we'd love a positive five
00:13:00.640 | star review and we'll read all the comments. And I'll see you guys around. Talk to you guys later.