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 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 immediate issues of having enough space and comfort. But investing will secure your 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 are just 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 do both. That’s why some people need to make a decision one way or the other.

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

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

Those nicer houses might also be in better school zones. That might mean that once your child grows up they’re able to go to the specific school you want them to attend.

But, there’s also 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, achieving a goal for your family.

So there are definite pros.

However, when you choose to upgrade, you may delay your investment goals, and that creates a risk.

One big issue we 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:

More from Opes:

• Dream home vs invest – What should I do? (Article)
• Are holiday homes a good investment in 2024? (Article)
• New vs existing - Which is the better investment? (Article)

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 sleepout.

This was quite costly, but it was the right decision for their family to spend this money on renovating right now.

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

It makes sense to make that a priority over buying an investment property. I understand that, and as long as you do have a plan for your financial future, this could easily be the best choice for your family right now.

Scenario #3 – Invest first and upgrade later

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-bed 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 the space.

But as your children become teenagers, the need for more space becomes more 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.

Investing first could help you build wealth more quickly, leaving you in a stronger financial position to upgrade your home down the line.

We’ve covered this in other articles, such as buying a holiday home or your dream home vs investing. But when it comes to your family, it’s a little bit different.

If you have a one-bedroom house and you get pregnant, you will need a bigger house sooner rather than later. But if you want a bigger garage for more storage, you could delay that more easily.

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 it comes 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.

On the other hand, upgrading now could mean retiring with less wealth, but enjoying comfort and convenience today.

When making your decision, consider:

• Your financial position
• The ages and needs of your children
• The long-term implications for your family.

The decision to upgrade your home or invest isn’t just about numbers — it’s also about your family’s current needs.

Whatever you choose, make sure it aligns with your financial goals and your family’s immediate needs.