Choosing the right home is one of the biggest financial decisions you make – especially when you’re on the path to Financial Independence Retire Early (FIRE) . Should you stretch for a pricier property, hoping for big capital gains; or go for a more affordable option and invest the difference?
This question is at the heart of the latest Aussie FIRE episode, where Dave and Hayden tackle this common dilemma. Let’s break it all down to to help you figure out how to balance your home and FIRE dreams.
The big question: expensive home or affordable investment?
The debate kicks off with a listener’s question, one that many people relate to.
Dave lays out the scenario: “Basically, the question is, are you better off buying a more expensive home, or a cheaper home and then investing the difference? This is going to assume that you are open to downsizing your home later, and then investing the proceeds later on inside a share portfolio or something like that.”
Hayden adds: “For everyone’s context in this conversation, we will often be talking about house versus unit or apartment – the house is the expensive thing and the apartment’s cheaper. The same thing could apply to a small house versus a large house or a small apartment versus a big apartment.”
In short, this isn’t just about property. It’s about finding the right balance between homeownership and building long-term wealth.
Why Dave and Hayden believe a cheaper home + investing often wins
For some, the benefits of going for the affordable option stand out, and Hayden, who has navigated this decision himself, has plenty to share:
Lower stress and faster progress
“There’s a huge number of psychological benefits that come from having less leverage and therefore less debt obligations, which lowers your stress level,” Hayden explains. “Also, just the dopamine of paying it off sooner or seeing it more paid off sooner is pretty awesome."
Diversification and financial flexibility
Investing the difference gives you exposure to both the property and stock markets, reducing your reliance on any single asset. Hayden adds: “There is some benefit to being exposed to both the share market and the housing market at the same time. That, at a macro level, can help distribute your wealth around.”
Fewer hidden costs
A cheaper property can mean lower upfront expenses like stamp duty and a smaller chance of needing lenders’ mortgage insurance (LMI). Hayden observes: “These things cost money. People like to talk about: ‘I bought my house for X dollars and then I sold it for Y.’ And everyone likes to gloss over all the maintenance, all the stamp duty they paid at the start. Or, if they couldn’t afford it, they may have paid a lot for LMI, which for a lot of Australians is months of income.”
More liquidity and freedom
A smaller mortgage can free up cash for other investments, which are often easier to access than home equity. “You’re then reliant on one asset. In this case, the capital growth of that asset,” Dave points out. “But if you choose the cheaper place and then you create this lower mortgage , it gives you a much bigger cash surplus each month to invest with.”
The flip side: challenges of a cheaper home
Of course, the cheaper home path isn’t without its downsides.
Less capital growth in dollar terms
While not always the case, cheaper properties, especially apartments, tend to appreciate less in value than more expensive homes.
Dave explains: “Obviously, the main downside is that a cheaper home may have less capital growth just in pure dollars rather than the more expensive asset. As a general rule, the pricier asset is going to have the benefit of being at a higher asset base to compound.”
Strata fees and maintenance costs
Units or apartments often come with body corporate fees, which can be substantial. But Hayden highlights: “Sometimes a quick look into what the body corporate is saving you kind of helps. Often I think we look at body corp or strata fees as money we’re paying into the ether that we wish we didn’t have to pay, or shouldn’t have to pay.”
The case for buying a more expensive home
For some, a pricier property could make sense, especially if they plan to downsize later. Here’s why:
Bigger asset, bigger potential gains
A more expensive home has a higher base value, meaning its growth in percentage terms translates to more dollars.
“When you go for the more expensive home, you’re reliant more on the performance of that asset,” Dave explains.
Lifestyle perks
Depending on your goals, living in a larger home or a better location could potentially improve your quality of life.
Tax-free downsizing
Selling your primary residence later may allow you to realise those capital gains tax-free , which you can then invest.
A real-world comparison
Dave walks through a hypothetical scenario to put it all into perspective:
- Option 1: Buy a $900,000 home and pay it off over 30 years.
- Option 2: Buy a $500,000 home, invest the surplus, and pay it off over 30 years.
Assumptions:
- The $900,000 home grows at 5% per year; the $500,000 home grows at 4%.
- Shares return 7% annually after tax.
Results after 30 years:
- Option 1 (expensive home): $4 million in property value.
- Option 2 (cheaper home + shares): $1.65 million in property value + $2.9 million in shares = $4.55 million total.
“Going cheaper wins by a small margin,” Dave explains, “but it’s important to remember how sensitive these numbers are. Just a 1% difference in growth rates can swing the results by over $1 million.”
It’s also important to remember that these numbers are purely hypothetical and may not reflect real growth rates or returns. For some case studies that apply to your specific situation, speak to a licensed financial adviser.
Beyond the numbers: what really matters
While the maths may appear to favour cheaper homes and investing, the decision isn’t purely financial.
Hayden reflects: “When I was looking at purchasing, sometimes you just take a step back first and think: 'wow, this is an awesome spot to be in regardless of what happens.'”
Dave adds: “A lot of times listeners or readers of my blog are quite far along in their finances, and they’re tossing up between two equally good decisions. There’s not a right decision, just different trade-offs.”
So, what’s the right decision for you?
If you’re on the path to FIRE and grappling with this decision, here are a few takeaways:
- A cheaper home (while investing the difference) could lead to less stress, more diversification , and better financial flexibility.
- A more expensive home could deliver bigger lifestyle benefits and capital gains, but it may be riskier and rely heavily on the property market .
- There’s no one-size-fits-all solution. Choose what aligns with your goals, circumstances, and peace of mind.
At the end of the day, FIRE is about freedom. Your home should be a foundation for that, not a shackle. Choose wisely, stay flexible, and keep your eyes on the prize: a life that’s rich in every sense of the word.
We're always keen to hear your thoughts and topic suggestions, so hit us up at hello@aussiefirepod.com . Head over to Pearler for resources, calculators, and community insights that complement what we chat about on the show.
Until next time, keep dreaming big and living on your terms. Catch you on the next one, and happy long-term investing!
Dave and Hayden
