How Millionaires Buy Homes
Are you curious to know how millionaires buy homes? What kind of homes do they buy? What they prioritize when looking at homes. And how do they approach the whole buying process in itself? In this post, I’m going to review precisely how millionaires buy homes and, more specifically, the ten home-buying traits of a millionaire.
As a point of reference, all these traits are based on an actual survey of millionaires that Dr. Thomas Stanley lays out in his book The Millionaire Mind. So I’ll be primarily referencing this study when talking about the home-buying traits of millionaires.
01 - Stay Put
It could be considered old-fashioned, but the majority of the millionaires in the book The Millionaire Mind buy homes and tend to hold them for an extended period of time. More than one-half of the millionaires had not moved in ten or more years. And more than one in five were living in the same home they purchased at least twenty-five years ago.
Many of the millionaires in this survey stated the reason they seldom moved was that many of them were self-employed or business owners. So moving away from their customers or suppliers would have a significant negative influence on the productivity of their business.
Though now we are living in a time period where work and business can be done more remotely, we can’t deny the fact that moving is quite disruptive. Most often, just the process of moving requires so much energy and time.
So if we are in the market looking for a home right now, it is best to look at it with a long-term perspective. Can I see myself thriving in this environment for the next ten years? Or how about even 20? If that is hard to imagine because of our career aspirations or family circumstances, it might be better to rent than buy.
02 - Long Game
The millionaires in The Millionaire Mind survey never placed themselves in a position where they were forced to accept a substandard home. Like a lot of decisions in their lives, millionaires approached the home-buying process the same as they would any of their other investments. Carefully planning and studying their target before making their purchase and being very deliberate and calculating instead of being driven by emotion.
For the majority of Americans, home buying is the most significant financial decision of our lives. We are talking about tens, if not hundreds, of thousands of dollars in downpayment and hundreds, if not sometimes millions, of dollars in borrowed money.
But how many Americans slow down to take the time in their home purchasing decision? If the 2008 financial crisis showed anything, it was that not many of us.
Playing a long game requires a lot of patience and self-control. The willingness to not be swayed by the ‘salesy’ real estate agents and mortgage lenders. Buy when it works best for you. Not for everyone else who will make money from you.
03 - Bargain Shop
According to the survey, one in four millionaires reported searching for a “bargain” home that was part of a foreclosure, divorce settlement, or estate sale. And what was interesting was that the wealthier the millionaire was, the number increased. While a quarter of all millionaires bargain shopped, this number jumped to more than one in three (36%) when surveying deca-millionaires.
What this shows is that the wealthy became wealthy because they were constantly looking for deals. And we aren’t talking about two-for-one deals at Old Navy. But real deals are hard not only to come by but really hard to afford. Who wouldn’t want to buy a home that is being sold below price? However, most often, these are coming on the market during recessions, and significant market plunges.
A good chunk of homes on the market after the 2008 financial crisis was due to foreclosures. But the majority of people who are living month to month can’t afford to take advantage of these opportunities when they occur. Do you know who can? Millionaires and deca-millionaires.
We may not all follow the same strategies that these millionaires used, but the lesson here is that we want to have enough financial cushions in our lives to take advantage of the next new opportunities if and when they present themselves to us.
04 - Negotiate
It is easy to assume rich people look down on negotiating prices as an activity that is beneath them. I mean, I sure thought so when I had no money. Millionaires have so much money why do they need to degrade themselves into trivial activities like negotiation?
However, according to the millionaires in The Millionaire Mind, intelligent, wealthy individuals always negotiate. They hardly ever pay the initial asking price for any home. Eighty-six percent of millionaires surveyed said they always ask for a discount when negotiating.
Yes, when a genuine bargain presents itself, they do pay the asking price, so they can snatch up the deal before anyone else does. But negotiating the initial price is always their default. So next time we are looking at the home sticker price or even anything else for that matter, don’t be afraid to ask for a discount. It’s not something that poor people do. It is actually what the rich do.
05 - Walk Away
A self-made deca-millionaire responded in a survey that we should never even start negotiating to buy anything that we would have difficulty ‘walking away from.’ Most often, we buy with our emotions rather than with our heads. We love the beautiful lawn and the tall oak tree—or the pastel paint color of the house. And before we know it, we are willing to pay whatever the seller is asking for because we’ve already given our hearts away to this house.
However, just like we mentioned earlier, millionaires approach their home purchase with their investment vetting hat on. Careful, analytical, and deliberate. But this is hard to do if we are emotionally tied to a home.
We are all humans, so we can’t be complete robots. But think about this trait next time you are looking at a home. Because if you enter into a negotiation without the ability to quickly walk away, you’ve already given away your advantage.
06 - No Custom Home
According to The Millionaire Mind survey, only a small percentage of millionaires have ever had a home custom-built for them. And the primary reason was because of the arduous task associated with managing a custom home build. For those of us who’ve never built a custom home, we could easily assume that building a custom home is similar to buying a home. We get to pick and choose exactly what we want.
However, what many of us don’t understand is that building a custom home is akin to building a business. You will not only need to finance the whole endeavor but manage contractors and every other logistics related to building a home. And what happens if something goes wrong with the contractor you are working with? Or the project falls behind the timeline or is over budget. All of that would be on us. There is a good reason the majority of millionaires shy away from custom homes.
07 - Understand Affordability
Essentially how much home can we afford, and is that number reasonable and realistic? And if we are honest with ourselves we all tend to skew this number this way and that until it meets our own personal satisfaction, right?
Can I afford this new car? Well, yes, because I can afford the monthly payment.
Can I afford this new laptop? Well, yes, because the credit card just extended my credit.
Can I afford this wedding? Well, yes, because all the cash gifts from guests should pay for the majority of it.
Some of these smaller justifications might not have significant consequences, but when we start to skew the affordability of a house, it can have some devastating impact. An excellent way to assess our affordability is this. If my annual income was cut in half, can I still make the mortgage and related payments? If my investments also declined by 50%, could I still make ends meet for several years? If our answers to these scenarios are shaky, we might be overstretching our affordability calculation.
08 - Buy After Stability
Buying a home before we are financially ready is so tempting. We want to show the world how independent and successful we are, and nothing says that better than a lovely home we can invite our parents and friends to. But know that the world isn’t a kind place to anyone.
All our future is full of uncertainty and unknowns. So when we buy a home without reaching a level of financial stability, we are really putting our whole financial future at risk. Even millionaires only bought a home when they felt they were fully qualified to do so. Let’s follow suit and bide our time.
09 - Buy Enough
Based on social media, all millionaires live in mansions with 14 rooms and 17 bathrooms. However, these are just mythological fantasies created by just a select few wanting to show off their wealth. In reality, more than half of the millionaires (52%) lived in a home that had four or fewer bedrooms. A good chunk had three bedrooms or less.
Not quite what we imagine social media millionaires to be living in, right?
Not All Millionaires Live Like This
Many of these stable millionaires became wealthy because they understood the concept of enough. Enough to keep them satisfied but nothing more. They recognized that additional bedrooms and bathrooms just came with additional cost and additional work that didn’t add to their overall wealth. So next time we imagine ourselves wanting to live in a 12-bedroom mansion, let’s ask ourselves what our enough is.
10 - Excellent Public School
The average cost of private schools ranges anywhere from $10,000 to $30,000 annually, based on where we live. And I know this too well because before they entered 1st grade, both of my kids were at a private preschool for many years. And as any parent who sends their children to private preschool knows - they are expensive.
I couldn’t imagine continuing this trend for their K-12 education. I would not only be significantly poorer but might never have gotten to a financial position where I could dedicate my time to making these youtube videos.
I know a lot of the traits that I went over might not be completely relevant to all of us, but I hope they provide some additional information to our own home-buying decision-making. If you like to learn more about home buying, please check out my post here.
