How Much House Does a Typical Multi-Millionaire Own?

According to Michael Masterson in Automatic Wealth the average person with a net worth of $6.8 million owns a primary residence worth $545,000. Wow! That’s a lot lower than I would have guessed.

He argues that owning an inexpensive home is conducive to wealth-building. Lower taxes, utilities, maintenance, furnishings etc. allows you to the opportunity to invest the money otherwise spent on more profitable things. I tend to agree although I apparently like to dream big. I have always dreamed of owning a $300-$400k house in the area I live (that should be a 2800-3500 sq ft house in a nice neighborhood in my area).

Michael Masterson's statistic certainly gives some perspective. If my goal is a net worth of $2 million then $250k for my primary house sounds very appropriate. Something to think about.

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Comments (23)


Interesting point. Even if I went out and won $1 million in the lottery tomorrow, I don't know if I would want a bigger house. There is just too much to maintain and it would spoil the kids even more than they are now. A $200K house in Central PA is pretty nice and about what I want to handle.

Oops, I messed that one up. About half of my net worth is tied up in my house right now. The house is more expensive than this recommendation says I should own. However, I guess once I own the entire house I predict a net worth of $800k, I hope.

The other difference is my house having a basement apartment that pays my mortgage. That helps a lot.

NG

This is a great point. The old rules for buying a house (that many realtors will still tell you) is to buy as much house as you can afford because a) your income will grow into it, and b) it gives you the greatest opportunity for growth.

What it doesn't tell you is the increased costs that you mentioned, utilities, upkeep, insurance, taxes, furnishings... That stuff adds up in a big way.

hmm thats quite intersting data, considering a $545k house is not that much more than the average house in many areas.

Yes - I wonder if I can read through the lines a bit and surmise that many wealthy folks live in low cost areas??

A 3000 sq. ft house sounds about right for an average sized family. the $500K figure is much more modest than what I would expect.
In fact it kind of makes a point that those guys have the bulk of their money somewhere else...not in the house. :)
Also, I would think that the $500K figure will not change much for richer (net worth much more than $6.8 million) but sensible guys who think "need" based.

I just read (again) "The Millionaire Next Door" during a road trip. Masterson's observation fits perfectly with what that book says; basically, people who buy expensive things with the intention of someday becoming wealthy, frequently do not become wealthy. The majority of people with large houses and nice cars are high income, low net worth. This is not at all what I would like to be. I (and I think 2mil) would like to be moderate/high income, high net worth.

That sounds about right with what I've been reading in the Millionaire Next Door. If you can lower your cost of living and in turn invest more then you will undoubtably have a larger net worth, year over year.

as kiyosaki says, a home is a liability not an asset.

better to keep it small and have your wealth in assets that pay you.

I've always wondered why people say they want a huge house. There's no way I would want a huge house. The upkeep of it alone would be so costly, and the monthly utilities...there's just no way. I'd much rather buy a small little comfortable house with 3 bedrooms and save my money. I think a lot of people out there don't think about the property taxes and monthly costs when they buy a big house or even a house in general. You have to consider all of that.

I guess I'm a bit conflicted on this. Many of the people that I know that are actually wealthy(not debt hounds) have significant holdings in real estate. I do agree that large houses have higher expenses. We bought a 2700 square foot house and any time I need to repair something, it is significantly more expensive than a smaller one story house would be. We had to put new siding on the house and that cost a fortune. The roof will be next. I've often thought about how much cheaper a smaller house would be, but that isn't the only consideration. I like raising my daughter in an area of people with higher education and higher incomes to keep her out of the lower income problems that can arise. I also have seen a higher appreciation rate on this house. 4% of $400K is more than 4% of $200K.

Anyway, I can completely appreciate the point that smaller less expensive housing is a solid strategy assuming that you invest the additional funds in another investment. I'm trying to build both a stock portfolio and real estate portfolio. (Moderate exposure to both)

hmm.. 250k from 2 mill sounds pretty good yes.

i agree with you thats its quite low ( $ 550k )

i thought they would have a 1 - 2 million dollar house at least..

damn.. maybe 1 of my neighbours is a millionaire to :P

This is about wealth and wealth perspective. I can say, without providing any more details, that my situation is similar to the example.
And, my own house (2100 SQ FT) is only worth about $465,000 firm. I paid $179,900 in November of 2001. The house is perfect for a family of three, although very modest indeed.

Most lower middle class people have most of their wealth tied up in owner-occupied housing - as you go up the wealth scale less and less wealth is tied up in this asset. Owner occupied homes are tax advantaged but that means that people are willing to pay more for them than they otherwise would and as income rises the deductions phase out. I disagree with Kiyosaki that houses are not assets - owning a house means that you don't have to pay rent which is an implicit income you earn from the asset. You have to live somewhere. But as soon as you are buying a house that is bigger than you would want if you weren't thinking "investment" then the excess size of the that house probably can be considered a liability. I don't own a house or condo. My mother has about 5% of her net worth ($2.4million) in her apartment.

Our net worth is just about $1 million. We live in a 1200 sq. ft., 3/2, w/10 years to go on a 15-year mortgage. We bought a new car this year, cash. Usually, we buy used cars. We pay off our credit cards every month. We live in Northern California - our house skyrocketed with the rest of them, and we're struggling to justify moving into a bigger house.

Truth is, all we need is a roof over our heads, a kitchen, a bathroom, and a place to sit together. Everything else is luxury. We're working towards the luxury of retiring with enough assets to cover our expenses. No state-funded nursing homes for us.

We "can't afford" designer clothes and new cars every year and luxury vacations. Sure, we could cover those costs on our annual cashflow, but we'd sacrifice our savings and retirement goals. When expenses rise, we cut back. Our budget is tight, but it covers the essentials, covers some small luxuries, covers our ~50% combined tax rate (state, federal, social security and medicare), and allows 20% for investing - 10% to retirement, 10% to savings. Our income is higher than median, but not exceptionally high. Most of our net worth was built on median income or below.

I don't believe the stat. People worth $6M or more don't predominantly live in low cost areas. They live in high cost areas because that's where the high paying jobs are. Suburbs of NYC, Boston, Philadelphia, Chicago, and most of CA are littered with people worth $6M living in $1-3M houses. Take a look around these areas; $1M houses really aren't that big anymore (and I'm not just talking about CA). These people work in the cities and suburbs and earn large incomes. You don't accumulate $6M by saving even $50k per year. You do it by saving large pieces of 6 figure bonuses or owning part of a company.
When you're worth $6M, paying cash for a million dollar house isn't a big deal. Then you get to live for free.

Why anyone would want to live in a 2800 square foot house or larger is sort of beyond me (unless you have a large family). I understand that some people want to live in areas where the public schools are better. But this bidding war to live in the best school district just drives up the price or real estate in these areas creating a few "winners" who can actually afford these houses. The next tier is the "house poor" crowd who, by the bank's standards, qualified for the house, but can't really afford it. Then you have the rest who can't afford to live in the house. The average household size in the US is something like 2.6 or 2.7 people. You can only live in one room at a time. What do people need with 2800 square feet?

John---

According to the "Millionaire Next Door" book, a disproportionate number of millionaires live in the Midwest & South, where the cost of living is generally cheaper than on the Coasts. The Coasts tend to attract a disproportionate number of the high income / high consumption folks (all hat & no cattle).

Believe the stat. Bootstrapping, self-financed entrepreneurs learn to be frugal by necessity. Millionaire Next Door says a disproportionate number of millionaires own their own business. Also says most are frugal.

A few years ago, our net worth was around $3 Million, and our house was worth $200k (before the dot-bomb). Now we're around a million - only half our retirement goal. Our household income is over $100k now, but most of our wealth was built long ago at much lower wages.

Want to be a millionaire by 65? Start saving $7k/yr. at 5% interest by age 25, and buy a house before you're 35. Seriously - that's all it takes.

We're planning to buy a house. We plugged our savings into the projected budget first, worked the housing figures around that. Most folks do the opposite (I used to). We're planning to spend about half what the bank approved us for. I'd love 2800 sq. ft., but we don't NEED it. Savings comes before luxuries - especially 30-year payments on luxuries.

When things don't make sense, question the statistics. The median home value was probably derived from property tax rolls, which would have assessed values that are likely way out of date, at least they are in California. Assessed values for many homes in my area are 100-200k while market values are 900k-1.5m.

I totally agree that the average person with a net worth of 6 million plus lives in home of 500k. I am living proof of that. I have always believed in no debt and keep the expenses as low as possible. This enables me to have more disposable income in which for me to invest. I invest in all real estate which is single family homes that only gives me a 6 percent return in rental income cash flow of course after taxes and homeowners insurance. However, real estate also gives off a 4 percent return in appreciation of the asset. So, the true return is 10 percent per year. With keeping my living expenses low and my cash flow at max lets me by 1 to two homes each year that will throw off 17k per year per home. So, each year I add 17k to 30k in disposable annual income. Hard to beleive that I started out with only 14k 17 years ago!!!

Richer peoples do lean towards zero debt lifestyle and low mortgage payments. investing to grow the money. hence the rich stay richer and the poor stay poor.

I understand the 10% of wealth but no one mentioned if their house is paid for?

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A personal finance weblog of my journey to reach my goal of $2 million + the value of my primary residence.
Current Net Worth: $1,266,600

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