Property Investment

7 min read14 Nov 2024

Should I upgrade my home for my growing family?

I explain the pros and cons as honestly as possible. Then I’ll take a step back so you can make the best decision for you.

Author: Derry Brown

Financial Adviser in industry since 2007. Investor in Auckland & Christchurch. Previous COO of Global Brand

Book a free session with Derry

Reviewed by: Kathy Faulkner

Kathy Faulkner, Financial Adviser and property investor

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If you have a growing family, or if you’re about to have a baby, one of the big questions you’re going to ask is: “Should I upgrade my home to accommodate my growing family, or should I invest in property?”

It’s a question close to my heart, because my family recently welcomed twins.

You might think, because I’m a financial adviser with Opes, I’m biased towards investing or that I’m going to tell you to invest every single time.

But I’m not going to do that because, as a dad and an investor, I understand the dilemma parents face.

On one hand, upgrading your home might solve the immediate issue of needing space and comfort. But investing could help secure your (and your kids’) financial future.

It’s not an easy decision.

That’s why in this article I’ll explain the pros and cons as honestly as possible. Then I’ll take a step back so you can make the best decision for you.

Why can’t I do both – buy a house and invest in property?

Many would-be investors find themselves torn between two competing priorities:

preparing for retirement and investing or
upgrading their home to accommodate a growing family.

In both scenarios you’re going to be spending money. Whether you invest or buy a bigger home, you’ll likely take on a bigger mortgage.

There is only so much debt you can take on, so you might not be able to do both, especially if you’re about to have a baby.

Often one parent is at home on parental leave, so your household income may drop for a while.

So the bank might not lend you the money to invest and buy a new house. That’s why some people need to make a decision. It’s one way or the other.

What are the pros and cons of buying a bigger home?

The benefits of buying a bigger house is that you’ve got more space for your family. If you’re about to have another child, they will take up space. Maybe you need an extra bedroom, or maybe you will after a few years.

That more expensive house might also be in a better school zone. That could mean that once your child grows up they’re able to go to the specific school you want them to attend.

But there’s an emotional element too. Often when you think about your life you probably see yourself moving into bigger and better houses, so buying a more luxurious house can give you a sense of accomplishment by achieving a goal for your family.

So there are definite pros.

However, when you choose to upgrade, you may need to delay investing for the future … and that creates a risk.

One big issue I see with investors is that they get to retirement with no assets outside the family home.

The risk is that you get to 65 and have a mortgage-free home, but not much else. That can mean either living just off the pension, or needing to sell that home so you can afford to live.

So, it’s often a trade-off. Sacrifice now, or later:

Pass on the bigger house now, but have a higher passive income in retirement
Or go for the bigger home now, but retire with less money.

So how do you figure out which one to do? Here are three scenarios of people who had to make this choice:

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Scenario #1 – Upgrade home through a renovation

Sometimes, upgrading your home isn’t just about comfort — it can also help build wealth.

I recently spoke to a couple who were stuck in a familiar dilemma. The husband was keen to invest in property, but his wife insisted on upgrading their home. Their children were getting older, and she wanted more space.

Neither was willing to compromise. After running the numbers, they discovered they couldn’t afford to invest just yet. But, instead of selling their current house and buying something bigger, they decided to renovate.

They gave their house a facelift, upgraded the kitchen and bathroom, and added an extra bedroom.

They spent less money renovating compared with buying a bigger house, and through the renovation they increased the property’s value.

This means in the future, when they do invest, they will have more equity to use.

This example tells us that sometimes your financial situation will decide for you and upgrading your home can still be a smart move if done strategically.

The husband thought the best thing they could do was invest, but it wasn’t an option. But that didn’t mean they had to sell up and buy a different house. A home upgrade was the fastest way to build their wealth.

Scenario #2 – “We decided to upgrade the family home”

Another couple I met decided to upgrade their family home rather than invest.

Why? This couple already owned 4 investment properties, so their retirement plan was sorted.

They wanted to buy a fifth rental property, but for years they had promised their eldest daughter that once she turned 17 they’d build her a sleep-out.

The sleep-out cost money. It meant they didn’t buy their next investment, but it was the right decision for their family.

We often see this with teenagers; they need more space. So, if you have 2 teenage boys sharing a room, you probably want to put them first. Upgrade your own home and give them their own rooms (if you can).

It makes sense to make that a priority over buying an investment property, but if your kids were younger, maybe they could share a room for a few more years.

Scenario #3 – Invest first and upgrade later

Generally speaking, investing in property generates higher long-term returns. So, most financial advisers will tell you that sacrificing now can help build wealth for your future.

But with family, it can be different.

For example, if you’re expecting twins (as we were) you’ll need a bigger house sooner rather than later. But if it’s just about getting more storage space or a pool, you should seriously consider holding off.

The ages of your children are crucial here.

It’s easier to make compromises around space in your home when your children are young because they don’t mind.

I’ve got twins and they wouldn’t know the difference between a house, a mansion or a 2-bedroom unit.

This is why the ages of your children will heavily influence your decision.

If they’re still young, delaying the upgrade might be more manageable because they won’t notice or care about space. But as your children become teenagers, as mentioned, the need for space becomes pressing.

Generally, you’re going to make more money with an investment property. So, usually our advice is to invest in your future first, then indulge in a bit of luxury later.

Scenario #4 – Rent where you live and invest somewhere else

Sometimes the house you want to live in isn’t a good investment. If that’s the case, you might want to try rent-vesting.

This is where you rent the house you want to … and turn your current home into an investment property.

That might allow you to buy another investment property while still getting the house you want.

This is what I did for years. Renting gave my family the freedom to move easily, without the hassle of buying and selling.

And at the same time we knew we were building our future by owning investment property.

Renting can also let you live in nicer areas you couldn’t afford to buy in, like those with better school zones.

But there are a few downsides. In particular, borrowing rules are tougher for investment properties.

You can usually borrow 80% of the value of your own home, but only 70% of a rental. This means it might take longer to use the equity from your rental to buy your next property.

On top of that, you don't get the same security that comes with owning your own home. Especially if you have kids, it can feel safer to own the roof over your head.

What’s the right decision for me?

When you have a baby there is a real incentive not to do anything – because there is so much going on.

But ultimately, this boils down to a trade-off: sacrifice now or later. By delaying the bigger home you can build wealth through property investment. This may give you more passive income in retirement.

Upgrading now could mean retiring with less wealth, but enjoying comfort and convenience today.

When making your decision, consider:

How much money you have and what’s do-able for you
The ages and needs of your children
The long-term implications for your family (like school zones and keeping your partner happy)

The decision to upgrade your home or invest isn’t just about numbers: it’s also about your family’s current needs … as well as in the future.

Derry Brown

Financial Adviser in industry since 2007. Investor in Auckland & Christchurch. Previous COO of Global Brand

Derry has been in finance and property since 2007 and was at the coal face through the Global Financial Crisis. I have helped Opes clients invest in over 140 Million Dollar’s worth of residential property. In investing my passion is for data and demographics.

Book a free session with Derry View Profile

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