Downgrading dream home for faster financial independence?

Question

Have you ever downgraded the home you wanted to buy in order to reach financial independence (FI) faster?

For example, I’d love to own a $1.5 million home, but taking on that level of debt alone feels stressful and limiting. Currently, I live in an affordable home that could work as a rental, but it’s not where I want to stay long-term. Selling it would only cover a small portion of the cost of a $1.5 million home.

I’d love to hear your thoughts on choosing a primary residence (PPOR) and strategies for affording a more expensive home without pushing back your FI goals, particularly for those who are single.

Answer

Choosing a primary place of residence (PPOR) is a significant decision that impacts both your financial status and lifestyle. When considering upgrading to a more expensive home, like the $1.5 million property you mentioned, it’s crucial to balance your desire for a dream home with your financial independence (FI) goals.

One strategy to consider is continuing to live in your current affordable home while using it as a stepping stone towards your ideal home. Since you mentioned your current home could work as a rental, this could be a viable option to generate additional income. Renting out your current home can provide a steady stream of revenue that can help cover some expenses related to the more expensive home or be reinvested to accelerate your savings for a larger down payment.

Another approach is to look for ways to increase your income, which could involve advancing in your current career, seeking higher-paying job opportunities, or even starting a side business. Higher income can make loan approval easier and more manageable, and it can also speed up the accumulation of savings for a larger down payment.

You might also consider buying a less expensive home than your ideal $1.5 million property but in an area with high growth potential. This could serve as an intermediate step, allowing you to build equity as the property appreciates, and later sell it to fund the purchase of your dream home.

It’s also worth exploring different types of mortgage products and payment plans. Some loan arrangements offer more flexibility, such as interest-only loans or loans with the option of making extra payments without penalties, which can be beneficial if your financial situation improves unexpectedly.

Regarding your FI goals, as highlighted in the additional content, achieving financial independence can often be easier with a paid-off home, as it significantly reduces your living expenses. Therefore, it’s important to consider how taking on a large mortgage will impact your ability to meet other financial goals and maintain financial flexibility.

At Pearler, we understand the importance of aligning investment decisions with personal goals, whether it’s semi-retirement or complete financial independence. Our platform can assist in tracking your financial goals and investments, helping you make informed decisions that align with your long-term objectives, including the strategic purchase of a home that fits both your lifestyle aspirations and financial plans.

Answer

Hi Amir.

Great question.

It’s a difficult conversation because wanting to live in a more expensive home directly contributes to a longer FI journey – there’s no way around it.

Everything comes at a cost, so it’s up to you whether it’s worth it.

We actually have an episode around this topic «Optimising your home price for FI» coming out in a couple of weeks on the Aussie FIRE podcast.   Hope you can wait for that since the discussion might be useful in helping you think about this tradeoff.

Cheers, Dave

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FINANCIAL INDEPENDENCE

Amir Ibrahim.

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Dave Gow - Strong Money Australia

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