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Lately, I have seen a lot of what I call “house shaming” floating around the internet. The battle of buy vs. rent has become ever so heated.
Every news publication is coming out with reasons why you should, or should not buy a house.
Robert Kyosaki, the author of Rich Dad Poor Dad, is famous for saying that your house is not an asset (I will save this for another post.)
Grant Cardone, Real Estate and sales guru says that owning is for chumps.
The list can go on and on with smart people bashing home ownership.
So the question really comes down to should you buy a house? Has what used to be the American dream now become a dumb decision?
To me the answer to the question is “it depends.”
I know that is not the answer you were looking for right off the bat, but my goal by the end of this is to give you a clearer idea of the pros and cons of home ownership.
As a full disclaimer, I am a homeowner, real estate agent, and I also own rental properties in the Tampa Bay area. I need both sides of the buy vs. rent coin to work in my favor for each of my businesses to flourish. So I am about as unbiased as they come.
Why I bought a Home Instead Of Rented
When we first got married, my wife and I rented a little 3 bed 2 bath house for a year. Then, I decided to dip my toe in the home ownership pool by checking out houses for sale in the area.
I immediately realized that I could own a house, and my mortgage payment would be less than what I was paying in rent. It was a no brainer for me, I needed to become a homeowner.
Four years later, that decision has been one of the best financial moves we have made to date. The house across the street that is the same size as ours, owned by a 95 year old man with no updates, just sold for 120 grand more than we bought ours 4 years ago. Where else can you just live in a house and make $120,000?
The answer is you really can’t.
Here is a chart from trulia (A company owned by zillow) showing which markets are still cheaper to buy over renting.
What If I Live in a Red Hot Market?
This is real estate isn’t it? You know what that means.
Location matters.
It matters more than any other factor in this debate. In fact, it is the reason why most property owners, and landlords for that matter, get themselves in trouble.
If the cost of rent in you area is lower than your mortgage payment would be, then to me it’s a no brainer (almost). BUT, you have to be able to understand the additional costs associated with ownership. Let me tell you, when it comes to home repairs, it’s seems like everything decides to break at once. Here is the list of everything I have had to replace just in the last 6 months.
- New fence wrecked by Hurricane Irma
- New garage door system
- New pool pump
- New pantry door
- All New toilets
You get the picture. Not expecting that I would have high repair costs would kill me if I wasn’t prepared. The older the house, the higher the repair bills will be. $200 a month will pretty much cover everything for my house built in the 80’s. So, if you decide to buy a house, make sure you factor in repair costs. They are inevitable. They will happen so why not prepare for them?
If you live in a major city where real estate is red hot (think San Francisco or New York City). Odds are, you are better off renting unless you have accumulated some major cash. The cost of living in those places is just too high to consider home ownership unless you are truly rich.
But, in places like where I live, it is still cheaper to buy than it is to rent.
Buying a House Removes Your Flexibility – Or Does it?
Flexibility is what everyone wants. You want to be able to go wherever you want, on your terms. Home ownership can really weigh you down, right?
It all depends on how you look at it.
When you rent, you can decide to leave once your lease is up, move to another city, and rent again. What if you did the same thing, but instead purchased a house and rented it out each time you left? You are building wealth and putting your hard earned cash to work instead of handing it to a landlord like me.
Do this five times in ten years and you will have a net worth of $500K – $1M. Numbers like this can really make you rethink your strategy.
If the thought real estate investing makes you want to gag, then I would just keep renting.
The Reason Renting Sucks
If you do buy a house, nobody will ever decide you raise your rent without including you. You won’t ever get kicked out because someone decided to sell.
No one is going to tell you what color to paint the walls or refuse you to allow your friend to move in. You can change the floors, landscape the yard, or do whatever you want.
Millennials don’t want anyone telling them what to do, yet 87% of them still rent according to the National Association of Realtors. They have quite literally chosen to be told what to do.
As I have said from the beginning, money is a tool that you use to get what you want out of life. If your dream is to own a house, great. Work hard, save money, and make that happen. If you want to rent all your life because you feel free, then do that. Follow whatever you are called to do, just know that money is only a means to which you get there.
Cheers,
Andrew
Andrew is the host of The Personal Finance Podcast, a show that is changing the way you think about your money. His primary goal with the podcast is to bring as much value as possible to his listeners.
Andrew's favorite free financial tool he's been using since 2014 to manage his net worth is Personal Capital. Each month he uses their free Investment Checkup tool and Retirement Planner to track his investments and ensure that he's on the fast track to financial freedom.
His favorite investment platform is M1 Finance, a site that allows him to build a custom portfolio of stocks for free. It has no trading fees and is his preferred way to invest without having to lift a finger.
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