More home or more homes?

“Donny, I can’t decide if I should buy a bigger home or buy an income property. Help me decide!”

I hear this all the time. My advice (in general, not for you, specifically) is to consider impact on your life. Do you need more space? Why? Is this a permanent need or a temporary need? How does this larger expense fit in with what else you have planned?

Having kids, or providing space for your parents or in-laws definitely increases the need for space. That makes sense. Lifestyle and happiness are the drivers here. This is not a business decision. This is a lifestyle decision in that case. 

If you’re finding yourself working from home more and more and have recognized that you need a dedicated space where you can focus and be free from distraction, that, too, can create a need for some more space. Again, this is not really an investment decision, it’s a lifestyle decision.

In instances like this where the need for space is strongest AND you have the ability to afford the extra charges, the need for a larger home is certainly justified or warranted. No question about it.

It’s when clients start asking about buying more home (more space) or buying more homes (investment properties) that things aren’t as clear.

First off, I’ve said this before and I’ll say it again: your home is not really an asset. I classify assets and liabilities the way that Robert Kiyosaki (Rich Dad, Poor Dad) sees them: an asset is something that gives you money each month, a liability is something that takes money from you each month.

Your home when viewed through that lens is not an asset. When moving up and owning a more expensive home, that’s amplified as it will take more of your money each month and it will not generate any money for you.

If you’re asking for advice and the ask is rooted in a financial option, the choice is super clear: of course you shouldn’t buy more home home. You’re buying more liability. You are buying more of what takes money from you and your lifestyle will suffer. It means fewer trips and less savings. 

When looking at a spreadsheet, it is super clear that you should buy more homes. Income properties will generate more wealth. Bottom line.

The trouble is borne in the idea that each of these options are actually options. They are not. They achieve different goals.

It’s the same thing I often discuss when a client brings up buying a place they may want to live in later, though want to keep as investment property until then. It’s certainly a natural thought. It’s developed through rational thinking. When you dig deeper though and assess how it works, it’s a difficult task.

For example, when you’re buying as an investment property, your focus is on return on investment. So a north facing condo for a tenant is probably the better choice than the more expensive south facer that won’t see a rent increase in line with the purchase price increase. In your retirement, sure, you want to see the lake. It’ll cost you many years of subsidizing someone else’s view in exchange. 

The goals work against each other, so it certainly makes your life more difficult when trying to hit two birds with one stone here.

All in all, it’s far more lucrative to focus on one goal.

The decision on acquiring more home should be considered as taking on more liability (not more asset) while buying investment properties - ones that bring in money every month - can be added to your asset column in your net worth statement. 

Just a matter of what you want from life! Choose your own adventure, friends.