The Case for Being House Poor

The Case for Being House Poor

Every once in a while, I like to throw a controversial blog out there to noodle on.  Unlike many of these financial talk show “experts” I don’t think financial planning is black or white.  For the purpose of this article let’s call it a bit grey.  Additionally, let me define what house-poor means for today’s debate.  It simply means that you are spending a higher percentage of your monthly take-home on mortgages than is typically recommended, so much so, that your lifestyle is altered with your inability to do other lifestyle things.

Now let me be clear that being house-poor can certainly not be fun, and if I had a nickel every time a client said “I don’t want to be house-poor”, well you get the point.  Also worth noting that being house-poor is not the default recommendation, quite the opposite to be honest.  In any event, what are the circumstances in which being house-poor isn’t the most unadvisable thing?

An Example

Let me paint a picture for you.  Mr. and Mrs. Johnson are 35 years old and a dual-working couple.  Mrs. Johnson is an executive on the fast route to being a highflyer in the corporate world.  Mr. Johnson is a doctor who recently graduated from medical school and is finally starting to make a good income.  Additionally, their second child is on the way, and it is time to buy their first family home together. 

Option A: They buy a home well within their limits.  Max out 401(k)’s, drive luxury cars, have a solid emergency fund, do 3 solid family vacations a year, and eat out 4-5 times a week (kinda sounds awesome right).  However, they recognize that in 5 years or so their current home is certainly going to be too small for them and they have every intention of moving to a bigger home in a nicer neighborhood. 

Option B: The Johnson’s instead go for that bigger home today.  Still able to maintain a solid emergency fund and max out their 401(k)’s but likely not much else.  They will be eating in much more, have more muted vacations, and yup they are driving used cars (the horror). 

Option A seems to be the clear better option, and I’m not saying it isn’t.  However, when you start to look at option B there are some appealing traits to it.  For starters, the assumption is that both of their careers in 5 years from now will be much better off than they are today.  This means that each year their lifestyle will get better and better, meaning can slowly start to add accretive lifestyle luxuries. 

Additionally, they have locked in the cost of their dream home as unlike basically everything else, once you buy a home inflation doesn’t impact your ability to pay for said home.  Finally, buying and selling a home is expensive.  If the Johnsons waited 5 years not only would the home likely cost them more, but the amount of money lost in moving, closing costs, buying costs can be substantial and much of which would have been avoided if only buying once.

On A Personal Note

Personally, I’ve purchased two homes in my life that I’ve gone back and said darn wish I wasn’t so conservative as I could have afforded that bigger house I was considering.  Instead, not only will it cost me much more to move and upgrade than it would have if I bought it originally, but honestly, I am not inclined to ever do so.  Thus, the opportunity has passed me by. 

I guess if I had to summarize my argument it would be as follows.  It isn’t always the most prudent thing to not reach a little for that dream home.  Especially if you are in the upward earning years of your life.  I see all too often people’s incomes shoot up and they are stuck spending a lot of extra money on something they could have afforded from the get-go, albeit maybe with some sacrifices.

I would also summarize things by saying this isn’t me advocating everyone to be house-poor and not exercise financial prudence.  Rather, there are circumstances where the aggressive side of you may make more sense than the conservative side.  Oh, and guess what, we are here to help guide you through these decisions and much more.

Make 2025 the best year yet and stay wealthy, healthy, and happy!