When you want to disconnect compute from storage.

If you have more than one compute node you can reboot one without taking any services down. Or you can add more nodes and they share the storage.

I have two proxmox servers, but I don't run separate storage. Small services use zfs and replication. My big media server VM stays put and has to be shut down if I reboot its host.

When you run out of local storage...

If you have a single node, external USB storage is 100% fine. Even if you have more machines, if you don't actually need a massive amount of storage, you can share that external drive as NFS.

For me it was when I noticed that some of my photos had been affected by bitrot.

Instarted building my NAS last year, and got caught up in the increased HDD cost, I need two more 8TB drives to get my 32TB Zraid2 going.

I was going to use TrueNAS, but now that they have turned their back on opensource, I am not so sure anymore

I won't comment on the when of it, you have a lot of good answers here already.

But I'd like to add that "performant" is a much lower bar than you think. Gigabit has been fine for my nearly 25 containers to use NFS as their storage, video streaming included.

when you can't add more local storage, or networked storage gets cheaper

networked storage is slower and eats up the bandwidth, so not really a great option on a small scale

I have always used small, cheap devices for the servers and NAS storage. I actually had a NAS for a long time to backup my personal devices, too, even before self-hosting. The NAS uses cheaper, slower drives but larger anf more of them and in RAID configuration for redundancy because I've had too many drives die on me over the years. And I then use NFS to cache the data locally on the servers which benefit from faster drives which can then be much smaller because they are more expensive per GB.

Acronyms, initialisms, abbreviations, contractions, and other phrases which expand to something larger, that I've seen in this thread:

6 acronyms in this thread; the most compressed thread commented on today has 14 acronyms.

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When you need the data on more than one machine.

My NAS is in the case with my server (its just a desktop case with tons of drive slots). I'm not a fan of pre-built NAS as they're insanely expensive and can't be expanded without buying a whole other NAS. Plus now I don't have to worry about network issues causing my files to be unavailable nor tons of traffic over the LAN for reads/writes

It's all about tradeoffs and maximizing the useful qualities of each.

NVMe storage is extremely fast, but expensive and wears quickly. For a homelab, those drives are usually not easily accessible or replaceable without powering the system off. Internal SSDs are similar with the caveat that they're more likely to be hot swappable when using more server-grade equipment (even older equipment, which more homelabs will have) - HDDs are obviously slower but have higher capacity and wear less quickly. SAS drives will have higher DWPD and more speed for roughly the same (used) cost but you need to make sure the backplane you're using supports them.

External USBs are much cheaper and higher capacity, depending on what you get, but are usually limited to USB-C or even USB3 speeds. Additionally, they can be disconnected physically or via software.

A SAN or vSAN requires either special equipment and cables or a dedicated high speed (10Gbit+) network to function well. There's various free software that can create a vSAN-like thing for you, such as ceph. A "proper" vSAN will be marginally slower than an internal drive array but usually still plenty fast for "big data" which is what it's good for - big chunks of data that don't require the world's fastest drive access speeds. Note that, while unlikely if set up properly, this storage can also be disconnected both physically and via software. Usually this is more recoverable more quickly than USB since common vSAN software will work around this.

For my homelab, I use NAS storage for data that's large, "infinitely" growing, and doesn't need extremely fast access like a database would require. vSAN for most other operations. I should keep local storage or use an actual SAN fabric of some kind but homelabs aren't professional datacenters

Look into hyperconverged, e.g. Proxmox with a local zfs pool.