Hello everybody, it's Sam from Financial Samurai and in this episode I want to talk about the best time to own the nicest house you can afford. And with me I have my wife Sydney. Say hello. Hello everybody. So it hit me the other day and it should have hit me four and a half years ago, but we only have about a 20-year window to buy the nicest house that we can afford.

And why do we only have this 20-year window? Well, because our children are born from age zero to 18 and then they leave the house, most of them. And after that, it's like, why do you need a really nice house? So I was thinking to myself, even though we bought a really nice house in 2020, right after the lockdowns occurred, I was thinking, hmm, maybe, maybe we should buy another house.

What do you think about this idea? No, thanks. Why do you say no, thanks? Because we just moved and I'm still getting things organized. Right. So this is kind of like the bummer regarding this epiphany. And it's so weird when I'm telling you about this 18 to 22-year window while our children are still at home, it sounds obvious that, yeah, we should buy a really nice house that we can afford.

Everybody should because we have the most number of bodies in the house. After our children leave, even if our net worth grows by, let's say, 50%, 100%, whatever it is, it's not like we were going to buy a bigger house because we have less people, right? Yeah. I mean, I think the house that we're living in now is the perfect size for us.

It's nicer than where we were before. It has all of the things that were on our list of checkboxes, whatever, however you want to describe it. So I am just so happy here. So I don't feel any kind of desire to move. I understand where you're coming from with your logic, but I just don't feel like we need something nicer.

I feel like we already have something really nice. Okay. Well, regardless of the logic, actually, no, the logic is obviously important, but let's talk about the math. Okay. And so one of my new home buying guides is the primary residence as a percentage of net worth guide. And that guide states that you should ultimately try to have your primary residence be no more than about 30% of your net worth.

So if you have a $1 million net worth, try to have a primary residence equal to about $300,000 or less, and ultimately have that figure be around 20%. And ultimately, as in, you know, when you're older and wealthier, and you don't want to deal with any kind of money, worries and hassles.

So I think a lot of people who read the article agrees with this philosophy 30% sounds about right, you have enough exposure to your primary residence where your long real estate, it's large enough as a percentage of net worth. So you are living in a nice house, right? Because what's the point of having money, making money working hard if you don't live in a nice area, and given millions more people post pandemic are spending many more hours at home, it just makes more logical sense to own a nicer home.

You know, when we were working, I would get out of the house by sometimes 5am 6am. And I wouldn't get back until 7pm, sometimes 10pm because I'd have to go out with clients. So I was in the house maybe six to eight hours a day, right? And mostly sleeping, eating, all this stuff, right?

And you you know, you were out probably 12 hours a day. Yeah, something like that. So on average, you're home maybe 10 hours, 12 hours. But now we're home all the time. Yes. You know, so we armed up our house. If any robber wants to come in, we got our softball bats, we got our security security system weapons, you know, you don't want to be robbing our house.

And I don't know, I think most robbers don't want to be robbing people's houses now because people are generally more at home. Right? So that's interesting. And that's kind of a tangent. But the point is, when we bought our new house, our new quote forever house, which is not going to be forever.

In 2020, right after the lockdowns happened, it was about 18% of our net worth. 18%. So that's 12% below my recommended target of 30%. And that's 2% below my recommended long term target of 20% or less. But as we all know, since the pandemic began, there was a huge rebound in the stock market, right?

It went down 32% in March. And then it's just roared back to all time highs. S&P 500 is back to about 4500. And so as a result, our primary residence is now about 15% of our overall net worth, and would be even less, but then obviously real estate has done very well as well.

And we're not unique here. I'm sure the majority of people who have invested in stocks and real estate, which is hopefully a majority of financial readers and listeners have seen their net worth increase as well. Yeah, I think so. Therefore, it's only logical that the wealthier you become, especially over the past couple years, given it's been so difficult, the more we should spend to help make our lives better.

And one of the key components to making our lives better is living in a nicer home. Right, since we spend so much time there as well. All right. So since you agree, then it should only be logical that we buy a nicer house at some point in the future.

Possibly. The thing is, for for us, I think our houses is great. And we've looked at other houses in San Francisco in particular in a larger price range. And frankly, I'm not that impressed. I don't see I haven't seen anything out there that would make me excited to move.

And maybe if we were to relocate to somewhere like Hawaii, then yeah, I could see moving to a more expensive house just based on what's there, right? If we actually want to live next to the ocean or have a nice view, it's going to cost more there. Actually, it wouldn't cost more because Honolulu is cheaper than San Francisco by about 20%.

So we would actually end up with a bigger house. Well, yes, possibly. But I feel like the houses that we've looked at the ones that were like, oh, yeah, I want to move into that house. Those are like the really, really expensive ones in Hawaii. That's true. That's true.

So it all comes down to individual preference. But my logic is, if your net worth is growing, and you're still spending time making money, and you're not doing absolutely everything possible that you enjoy only the things you enjoy, then you might as well spend money more on living a better life, which includes your house, your car, your food, your clothes, travel, everything.

And if you're not spending more money on yourself, then you should definitely spend more money on your loved ones and people in need. Right. All right. So now that everyone agrees that the best time to spend money on the nicest house you can afford is in a 20 year period when your children are living with you.

What happens after your children leave and your net worth continues to grow? Well, nicer doesn't always mean bigger. So here are some suggestions on how to spend more money on quote right sized homes after your children leave the nest. One, you can buy an ocean view property to you can buy a beachfront property.

Three, you can buy a penthouse condo with amenities like a swimming pool, bowling alley, dark room, whatever it is. Or you can buy a new home in a different city or state. Maybe you live in Des Moines, Iowa, and you've always wanted to be next to the ocean. So you buy a house in Santa Monica, in Los Angeles, that's an idea.

Or maybe you want to buy a really nice condo in New York City, where you can go out to shows and eat at the finest restaurants every single evening if you want to. And then of course, you can buy a nicer home in a nicer neighborhood in the city.

Back in 2014, we decided to relocate from the more expensive side of San Francisco, the north side to the west side because there was more space, better value, more parks, and just less people overall, we just wanted to write in peace and just go look at the ocean. And so now post pandemic, you're seeing this demographic shift west because of more space, better value, and less people.

And there's another solution to downsizing. And that's to not sell your home because you love your home. You've lived in it for 10 2030 years. Why would you want to sell your home? Personally, I'm a sentimental guy. I enjoy keeping my homes and renting them out for income. So that's actually a great, great alternative.

As your net worth grows, you just own your home, you rent it out, earn more rental income for retirement, and just repeat that cycle three to five times over your working life. And you're going to build a pretty good passive income portfolio. And the other solution is to keep your primary residence and buy a vacation property.

Don't do what we did and buy at the wrong time. And also by way before we had children, because we bought a place that frankly is not large enough for our entire family. It's large enough, but it's not the ideal that we want. I would wait to buy vacation property after you have kids after they're about five years old, because before five years old, they don't really remember much.

You know, the studies have shown under three years old, most memories are gone, sadly. And under five, it gets better, but they still don't remember much. So there you have it, folks. I think for those of us who have been saving and investing diligently, we've really seen this nice windfall.

And if you're not feeling that great, you should spend more of your money to improve the quality of your life. And I think our home, our homes is one of the best ways we could spend our money to make our lives better. Although I do believe that 10 years is the ideal amount of time to live in a home until you consider upgrading.

I think if your wealth has grown by 20 30 40 50% over the past couple of years, I think it's worth upgrading. But I've decided we should compromise. What do you think about instead of moving to a new home next year in 2022? We wait until 2025. So that's five good years of living in our homes enjoying every minute of it.

And if our net worth grows in five years, let's say it grows by 15% a year for five years. That's a doubling of net worth in five years. So to live in our current home in five years would mean that our primary residence would be like 7% of our net worth.

Maybe I just think it's okay. I the classic example is Warren Buffett, right? Who's lived in the same house. I know you're rolling your ass. But he's lived in the same house for what decades. And we all know that he's worth way more than you know, this very small percentage that houses of his net worth.

But at the end of the day, I think we just have to see where life takes us. And okay, yeah, I mean, Warren Buffett lives in a mega mansion for San Francisco. His house is like 66500 7000 square feet. It's more than double our house. I mean, he probably has like an underground pool.

And like home theater amenities that nobody knows. Yeah, nobody knows about I mean, if I was Warren Buffett, you know, 100 billion or whatever his net worth is, I would dig deep, like 100 feet down under my house, have like secret laboratory. Yeah. 50,000 square foot mega mansion down there.

You know, with the secret, like, airplane submarine shooting out when nobody's, you know, you know, he's probably spending way more money than he makes it out because he's stealth wealth. He's classic stealth wealth. All right, well, our journey continues. And if you've been on the fence regarding spending money on a nicer house, it's something to think about.

I really didn't think about this until this year, but better late than never, I'd rather be driving a Porsche 911 turbo in my 20s and 30s and 40s, instead of in my 70s or 80s. So this is a topic we're going to talk about a lot on financial samurai going forward, how are we going to better spend our money?

Because if you're not going to spend your money, and then you might as well quit working and dropping every single thing you don't want to do. Thanks so much, everyone for listening. If you enjoyed this podcast, we'd love a positive five star review and we'll read all the comments.

And I'll see you guys around. Talk to you guys later.