If you’re thinking about upgrading your home, let me share my experience. I recently bought a new house, which was a step up on the property ladder for me. But five months in, I’m not feeling any happier. Every time someone congratulates me, I can’t help but think about the extra bills I now have to pay.
I do appreciate the extra space, but I’ve had moments of doubt. My family was perfectly happy in our smaller house. Why did I trade my financial independence for this? My liquidity is now drained due to unexpected expenses, and I’m living paycheck-to-paycheck. I’m now striving to regain my financial independence by 2029.
Despite my home purchase not necessarily making me happier, there’s been a shift in one aspect. This newfound element might hold even more value than mere happiness.
Since 2003, I’ve owned multiple homes and documented my feelings after each purchase to help others. Despite expecting increased happiness with my recent home purchase, I’m not as content as I thought I’d be. This has led me to reevaluate my home buying guides.
My 30/30/3-5 home buying rule states:
- Spend no more than 30% of your gross income on a mortgage
- Put down 20% and have a 10% buffer in savings
- Pay no more than 3X your household gross annual salary for a home, although I’ve stretched the multiple to 5X when rates were lower
If you follow at least two out of the three rules, you should be financially fine. But after my latest purchase, I’ve realized that it’s important to fulfill ALL three rules, not just two.
For my recent purchase, I paid cash and didn’t have a mortgage. I also paid within the 3X – 5X of gross annual household income for the house. However, I don’t have a 10% buffer in terms of liquidity, which is causing me stress. As a result, I’m trying to save as much money as possible over the next three years to build back my liquidity.
If you want to climb to the top of the property ladder and feel great, I strongly recommend you fulfill all three rules before buying.
My other home buying guide is to ideally keep your primary residence purchase equal to 30% or less of your total net worth. This is mostly for older and experienced homebuyers looking to buy their forever home.
However, because I used ~70% of my taxable stock and bond portfolio to pay cash for the house, I have compromised my passive income generation. As a result, I want to find a job again to make up for the shortfall.
To feel great about your new forever home purchase, you may want to keep its purchase value equal to 25% of your net worth or less.
For first-time homebuyers, you will most likely spend way more than 100% of your net worth on the purchase price of a home. That’s fine if you follow my 30/30/3 home buying rule and have income upside, as most first-time homebuyers do.
As you can tell from my home buying guides, getting to the top of the property ladder is both subjective and objective. They are based on my experience owning multiple homes since 2003, meticulously recording my journey, and financial logic.
If you believe that purchasing a luxurious house will bring you happiness, that feeling is unlikely to last for more than six months. Hedonic adaptation occurs swiftly with homeownership, just as it does with buying anything nice or getting a raise or a promotion.
Despite not experiencing increased happiness with my new home, I do have one positive emotion: a heightened sense of satisfaction.
Since my middle school days, the dream of owning a hillside abode had my heart. Fast forward 30 years, and voila I’ve got one—a testament to the grind paying off, filling me with an undeniable sense of satisfaction.
So, perhaps the main objective when upgrading to a nicer house isn’t about pursuing happiness. It’s about finding satisfaction. When you can return to a wonderful home after a hard day’s work, it’s reassuring to know you’ve done everything possible to provide for your family.
If you’re looking to invest in real estate passively, check out Fundrise. Fundrise manages private real estate funds that predominantly invests in the Sunbelt region where valuations are lower and yields are higher. Its focus is on residential and industrial commercial real estate to help investors diversify and earn passive returns.
Fundrise currently manages over $3.5 billion for over 500,000 investors. I’ve invested $954,000 in several private real estate funds since 2016 to diversify my investments and make more money passively. After I had children, I no longer wanted to manage as many rental properties.
