November MinDrench: Should You Rent or Buy a House?
Welcome to MinDrenchTM, our monthly spotlight section that features some of the best content to enrich your mind and help you on your journey to true happiness, fueled by financial independence. This content could be in the form of a blog post, podcast, documentary, book or any other format.
Has buying a house been on your mind lately? If yes, then you’ve come to the right place. In this edition of MinDrench, we want to cover the topic of renting vs. buying a house. We believe that no one size fits all when it comes to this topic. You need to do your own numbers and see what works for your situation. Many bloggers have covered this topic in depth. They provide enough ammunition for anyone to be able to make up their minds when it comes to making such a big purchase decision. Without any further ado, here are our picks of the month.
MinDrench for November 2016
1. Housing Choices in Early Retirement: Rent vs. Own
ERN provides an in-depth analysis on how much it would cost to either rent, pay for a home with cash or mortgage it, under different scenarios.
The financial aspect of the rent vs. buy decision in early retirement (or any other time, for that matter) boils down to how long we want to stay in one location and what’s the prevailing rental yield.
One of the idiosyncrasies of the ERN family early retirement plan is that it involves a relocation. It’s not that we don’t like our current location. But even with our nest egg solidly in the seven figures we likely couldn’t afford to retire here comfortably because of the insanely high housing costs.
2. Renters For Life
GoCurryCracker makes a very compelling case for renting. After owning a home, they’re set on being renters for life.
Stability is one of those intangible concepts that Realtors love to talk about. “You’ll want to provide your children with some stability,” they say. But kids don’t come home and ask whose name is on the Title. They just come home.
“Beep you, you beeping beep!! I’ll kick your beepity beep!!!” Hmmm, who is that? I don’t recognize her voice “I ain’t lying, I can’t have you be talking to my Momma like that” That’s Carl. Good for him standing up for his mother.
3. Rent vs. Buy: If You Have to Ask, You Should Probably Rent
MMM conducts case studies including living in an apartment building close to work vs. buying a house in the suburbs. He advises folks to factor in commuting cost and put a high value on their spare time when making this life decision.
The implication of this is that an amazing majority of the traffic jams, car dealerships and SUV pileups and harried lifestyles and stress-related diseases and obesity that come with a car commuting lifestyle are completely stupid, optional, irrelevant byproducts of our choices. Almost every expensive suburb should not even exist.
Four years into writing this blog, I thought I had seen almost everything when it comes to the most common financial suicides committed by the middle class. But today I was hit in the head by a shocking realization: When choosing between buying versus renting a house or apartment, people are making much, much worse choices than I would have thought possible.
4. Renting is Throwing Money Away … Right?
Paula attempts to answer the rent vs. buy question by using logic, math and reason. It’s a long article (it took her about 30 hours to write) but Paula keeps it entertaining and it’s a must read!
Home values historically keep pace with inflation. Nothing more. When people say, “my home increased in value,” they’re really saying, “yay, inflation rose!”
I’ve heard a lot of ridiculous statements: ‘I’m sure we’ll find parking.’ ‘I’ll just check Facebook for five minutes.’ ‘I’ll skip dessert.’ But perhaps the most absurd is the adage: ‘If you’re a renter, you’re throwing money away.’ Bulls**t. You’ve heard those statements, right? ‘I’m sick of throwing money away on rent.’
5. Renting vs. Buying: The True Cost of Home Ownership
Darrow tries to calculate an effective monthly cost of home ownership that can be compared to the cost of renting. One thing is the “sticker price” that you pay and another is the ongoing maintenance costs that come along with home ownership.
Owning a home does not somehow make it free to live in. When you look at the numbers, which I will do shortly, you can see that notion is completely false. Home ownership has clear, quantifiable, ongoing costs, just like renting. For different people in different times and places, one approach or the other can make more sense.
Owning a home does not somehow make it free to live in. When you look at the numbers to rent or buy, which I do here, you can see that notion is completely false. Home ownership has clear, quantifiable, ongoing costs, just like renting.
6. It’s Not About The Money: Rent Versus Buy
Jason advocates for whatever makes you happy in the end when to comes to rent versus buy. He finds it silly to debate about the issue in terms of finances when “considering that much of the decision of whether to buy or rent your abode is really a personal lifestyle call”.
Just looking at the financial aspect of it, assuming you’re going to live in one particular space for at least 10 years, you’re generally better off buying if you’re in the middle of the country. Along the coasts, it becomes harder to financially argue against renting. In big cities, renting seems to be the more favorable option most often. These are generalizations. And they may not have any meaning in your particular situation.
This is part of an ongoing series where I dissect and discuss the reasoning behind various facets of my lifestyle. Through this, I’m attempting to separate the money aspect from the decision-making process, showing that I live a lifestyle that’s largely divorced from concerns about money whatsoever.
How does the Enchumbao Couple feel about renting vs. buying?
We currently rent because we’re a few years away from early retirement and knew that buying wouldn’t make sense for us. We live about 5 minutes from work and our area is not desirable for us after retirement. After knowing what I know now on how much money a home can consume, I don’t feel that we should be buying a home until we’re at least financially independent. Renting provides us with choices and the freedom to pick up and leave whenever we want. This is very important while we’re on our journey to FI.
I think that the only people that would “throw the money away” by renting are the people that are really bad at saving and investing. The people that don’t save a dime unless they’re forced to might be better off buying a home that they can truly afford. For the FI-minded individuals, renting and investing the rest of the money might serve them better.
There’s also the emotional side of the rent versus buy dilemma which Jason points out in his article. We agree that is a matter of preference besides the financial part of it.
After retirement, we’re leaning towards either buying or building our home abroad, possibly with a second small apartment that can cover all the housing expenses. We’ve been exploring different options and are very excited about the prospect of building our own home, customizing it to our needs and saving money in the process. It’s a win/win! This should make for an interesting series of posts if we decide to go that route.
These days we usually travel for a couple of weeks at a time and do enjoy returning back to our permanent place, cooking in our kitchen, sleeping in our own bed and everything else that a home is about. So I don’t think that would change much in the future. Being nomads would probably not work for us in the long-term but it does sound exciting.
We believe that a house is an investment in your happiness. We wouldn’t view it as the rest of our income-producing assets, since it can be a terrible investment after you calculate inflation, maintenance and opportunity cost. You have to do your numbers and see what works for you. The average person is not willing, able or mentally equipped to do this kind of homework. That’s why they might make bad decisions, such as buying too much housing or failing to realize how much a house would really cost them.
Given that buying a house is really a luxury, we’ll first reach financial independence and then buy/build our home when we can truly afford it. By affording it we mean reaching a point when we’ve built our multiple flows of income. 🙂
What are your thoughts on the rent versus buy dilemma? Do you prefer one over the other?
What’s trending on Enchumbao? 15 Lessons Learned from 10 Years of Investing
Earlier this month, I wrote about lessons learned in 10 years of investing and the post was picked up by RockStar Finance, Physician On FIRE and Future Proof M.D. Thank you so much for helping get the message out. This article is now the most popular post on our blog. Yay!
It’s been a little over 10 years since I invested my first dollars in equities through my retirement plan at work. At first, these dollars were like tiny drops that dripped into a bucket. It didn’t feel like they were amounting to much, but every pay cycle kept filling up the bucket a bit more….
Until next time…
This concludes our list of mind-drenching content for November. As you get into the holiday shopping season, remember that there are methods to avoid becoming a holiday-shopping zombie.
Our inspiring words for this month are:
“Don’t let anyone rent a space in your head, unless they’re a good tenant.”
~ Unknown author
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Happy reading, listening or viewing!