Let me tell you a story of when I was smart.
Lori was pregnant with kids #2 and #3 (simultaneously, yes twins) and decided we needed a bigger house. I said we couldn’t afford it, and felt perfectly happy in our 3 bed/3 bath Silver Lake duplex.
Long story short, I listened to her (smart move!) and started shopping for “research." We ended up buying our current 5 bedroom house in the Los Feliz Hills, and I’m glad we did. Our best real estate investment to date. It’s nice being married for various reasons, not the least of which is that your partner is there to push you through your blind spots.
One of mine is being overly cautious. As I’ve said before, my biggest real estate mistake is that I should have traded up faster. I should have sold my homes and investment properties and laddered into bigger ones much earlier.
Lori is good at growth and thinks big. I mostly say okay, close my eyes, and hold on for dear life. I call it riding the LoriCoaster.
Here’s why you always want to trade up: Every property is an escalator. They go up at different angles and speeds, but they all go up. So it’s easy to get on one and never get off, thinking, “This is going up - I’m fine.”
And you are fine - no one has to trade up their home. But if you’re looking to maximize your life’s wealth, either to fund your retirement or leave to your heirs, you’ll want to get on the fastest, steepest escalator you can.
And generally speaking, the biggest homes in the poshest neighborhoods appreciate the most. You’re better off (if you can afford it) being in a $3mil home than a $1.5mil home because if both double, which they will, you’ll be glad you’re in the bigger one. It’s an obvious point, but you can forget.
And another thing - the bigger ones appreciate faster than the smaller ones. So you’ll double a bigger number, and you’ll do it sooner. Like everything in real estate, exponential growth is the gasoline on the real estate fire.
And yes, you’ll want to keep your first home as a rental if you can, but if you can’t and have to sell it to trade up, sell it, and don’t look back.
This is not new advice. We’ve all heard the real estate truisms: Buy the biggest house you can afford. Buy the worst house on the best block. Conventional wisdom says stretch to buy.
I was surprised to learn that the average Angeleno stays in their home for 18 years. We are the most stuck city in America.
Eighteen years is too long, especially if you want to trade up. By year 5, you can’t afford to move anywhere in your own neighborhood. By year 10, you probably can’t afford to move anywhere in LA. And by year 15, you’re priced out of Southern California.