The following article is from Melanie Lockert, our staff writer. Melanie is in the beginning phase of her journey to Financial Freedom and she’ll offer a refreshing point of view for us.
Homeownership has always been a huge part of the American Dream. People dream of having their own homes, raising a family, and having some place of their own to call “home.” I totally get the appeal, but owning a home has never interested me.
Maybe it’s because my parents are not homeowners, or that I saw the housing bubble burst and cause so much trouble for so many people. But a lot of it has to do with my lifestyle, preferences, and financial situation. Obviously, I am working hard to get out of debt and am in no position to buy a house.
Even if I was in a position to do so, I’d still not be interested in buying a home. I have several reasons for this, namely that I can’t imagine settling anywhere long-term (I like to consider myself semi-nomadic, moving every few years). On top of that is the fact that I don’t want children and having a house seems like a huge responsibility that I have no desire to have. After getting out of debt, I want the freedom to travel, live abroad, and not have to deal with fixing things, or feeling tied to a place.
I understand that I’m a unique case compared to most people — a majority of the population would like to have kids and also own a home. There is nothing inherently wrong with that at all, yet some people think I’m nuts for not wanting a house.
Proof of this came recently when I shared an article on Twitter about the merits of renting and I added my two cents about how I don’t want to be a homeowner and I prefer to rent. And I quickly received a response questioning my desire. This person asked me if I didn’t have debt and had enough money to travel, would I want a house then? My answer remained the same and he retorted that in some cases buying a house is even cheaper than renting.
I get it. I really do. But I am absolutely not interested in having a house — and that’s not just my financial situation talking.
A home can be a great investment for a lot of people. Depending on the area, the value of your home can increase tremendously, and even provide a good rental income later on. But there are other stories out there as well about homes that simply deflate in value and are just a place to live. A close friend of mine tried to capitalize on investing in the housing market, moving and selling at a profit every few years. But then the Recession came and they lost their job and were forced to sell at a loss.
Aside from the financial aspect, having a home feels so permanent. I know there is a lot of talk about “starter homes” and people upgrading later on, but homeownership simply doesn’t offer the lifestyle I want.
And doesn’t everything important in life revolve around your preferences and lifestyle? I think it’s amazing that once you admit to wanting something that is not the norm, people feel the need to question you. All of this got me thinking, am I crazy for not wanting a house?
I often feel like the financial black sheep for not wanting a part of the American Dream or having a “solid investment.” But I know I’m not alone. A brilliant article called Why your house is a terrible investment illustrates my point perfectly. In the article Jim Collins comes up with a list of things that would make the worst possible investment. Here are a few points from the article:
- It should be illiquid. We’ll make it something that takes weeks, no – wait – even better, months of time and effort to buy or sell.
- It should be expensive to buy and sell. We’ll add very high transaction costs. Let’s say 5% commissions on the deal, coming and going.
- It should be complex to buy or sell. That way we can ladle on lots of extra fees and reports and documents we can charge for.
- It should be something that locks its owner in one geographical area. That’ll limit their options and keep ‘em docile for their employers!
- It should be expensive. Ideally we’ll make it so expensive that it will represent a disproportionate percentage of a person’s net worth. Nothing like squeezing out diversification to increase risk!
- It should be expensive to own, too! Let’s make sure this investment requires an endless parade of repairs and maintenance without which it will crumble into dust.
- It should be fragile and easily damaged by weather, fire, vandalism and the like! Now we can add-on expensive insurance to cover these risks. Making sure, of course, that the bad things that are most likely to happen aren’t actually covered. Don’t worry, we’ll bury that in the fine print or maybe just charge extra for it.
I had to laugh at the laundry list of points. He so eloquently communicated exactly why I have no interest in being a homeowner.
Like I said above, I don’t judge people for wanting to be a homeowner, yet so many people judge me for not wanting to be a homeowner.
What do you think? Am I crazy for not wanting a house?
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Don’t buy a hous, i have one and i hate it. Even though things work well for a bit you always have to worry. Toilets flush, water leaks, siding coming off in 60mph gusts, roofing, heating, flashing, de humidifier etc. It never ends. I wish i could go back to my apartment. Equity is bs… The money and stress you put into the house isn’t worth the equity. I would rather sleep till noon, in my safe apartment, and invest in cryptocurrency or stocks , taking 1 hour showers and cooking thanks giving feasts everyday without worry about things breaking down
Thank you writing this! I have completely no interest in wanting to buy a home, however, my BF says otherwise. I have yet to see any sort of beauty and/or joy in owning a home.
I don’t want to own a home either! I’ve happily rented ever since becoming an adult and I’m now 36. In addition to the maintenance, tax, insurance, and time-suck issues of owning, I’ve lived in four states and can only imagine how much hassle it would have been to sell a home when I had to move!
Hey, you’re not crazy. But you’re also not normal. Because it’s our nature and only reason why we live – to reproduce ourselves. So if you don’t want children, there’s is defentiely something wrong with you. Some little defect in you. You can’t help yourself, and I can’t either but it’s for sure not nromal. We’re on earth to get children. Thats just the way it is. Good day.
Not wanting children does not mean someone isn’t what your apparent definition of normal is. It’s instinctive to mate in order to aid in the reproduction and survial of species not to “want children.” A person’s lifestyle choices and wants are irrelevant to your suggested reasoning.
Sony, you are mistaken and clearly live with a very rigid mindset. Im sure this causes you a lot of pain in your life. Only reason why we live? Says who? Is that provable? No, its not your just being dogmatic about something that is very subjective. I have children and a wife and I love them, but I realize kids and marriage aren’t for everyone and quite frankly the world can’t sustain many more of our species. So, all the better for those that dont want kids.
Sony – many people like myself don’t like, enjoy, or want children. When I see or hear them, its excellent birth control.
As I’m sure many of the other parents could confirm, most people feel that way about other people’s children. Who cares. You’ll go on living just fine, I’m sure, without kids. But, please don’t diminish how special and life changing they are-even if you can’t understand the phenomenon. This is coming from a mother of 4. Motherhood trumped my 12 year medical education/training. I couldn’t imaging my life without having been a mother.
I didn’t get a chance to tell you how much I loved your article! When I sit down with clients the first thing we talk about is their lifestyle and goals. Not just their hobbies, but what they want to do in the future. Sometimes people only want to purchase a home because they think they have to or because someone told them they should. That’s how you get unhappy homeowners and a tanked market.
No one “has” to buy a home, and please ignore all the people who are saying “never say never.” Please! Say “Never!” if it’s not right for you!
Buying a home for investment can be done but as they say it is all about location, location, location and the risk is still high and the return prospect very low. A few years ago I chose to purchase a new home in a place I plan to retire. A good strategy for me and very low investment risk as I purchased in a very desirable place on the blue marble. That said, the Collins points are dead on. Renting is an excellent option –especially if you lack desire to set down roots. But as we are seeing right now in some markets, rents are increasing at a high rate. If you rent, you have to stay light on your feet and be prepared to move.
I think there are a couple of points worth noting here:
1) Buying a house as an investment is very different than buying one to live in. I know a few people who rent AND own rental property. A rental and a primary residence have completely different purposes. So, when you say you don’t want a “house”, you really mean you don’t want to buy your residence.
2) Housing costs are people’s largest expense and for many, owning a “live-in” home controls your housing costs in the longer-term. That’s much of the reason why I own. Since I bought, I’ve seen rents double and sometimes triple over only a few years and many people are now essentially “trapped” in their residences by their rental contract since they can no longer afford market-rate rent. Or, worse yet, they’re forced out with very little notice and need to move to another area completely. Renting can be as much of a trap as owning and leaves people just as vulnerable, but in different ways.
Interesting article! I think with what’s happened the past few years, a lot of people might actually share your opinion here. It does help that you don’t want kids, as I think kids would be why I’d want to buy a house. Besides that, I actually agree with you – getting a house seems like so much responsibility and hassle!
I think people do judge if someone says they never want to have kids, but with housing, I would think they’re just disagreeing with those who advocate long time renting. It’s very true those who bought housing at the peak of the bubble or stretched their finances to buy into housing ended up with bad outcome, but that doesn’t mean renting is better than owning a house over the long haul. Just as with stocks, over long term housing values will do fine unless your city becomes the next rust belt.
Since your goal is the become financially independent, which by the way only you can answer what the dollar figure amount to achieve that goal is, ask yourself if you know of any long time renters who are wealthy? I don’t know of any personally. If someone had $3 to 5million net worth for example, would they still rent for the long haul? I can understand renting for several years while trying to save up money and while young, but decades of renting and vagabonding from city to city every few years maybe the lifestyle you want, but it won’t be very conducive to becoming financially independent.
“And doesn’t everything important in life revolve around your preferences and lifestyle?”
At 40, I’m just starting to realize this. Before it was always about work, work, work, getting behind etc., lifestyle wasn’t even a factor.
Now, I sit in Goa, India having quit my job, sold my stuff and contemplating the future, while working online.
I don’t view a house as an investment. I view it as a place to live, hence I’ve always rented apartments. I do have my eye on those “tiny houses on wheels’, in the Pacific Northwest as a way to spend under 40k cash and have a home outright. It’s parking it which is the issue.
I agree with you for not wanting to “own” a house. I was a previous home-owner, and the best day of my life (besides marriage and kids being born) was when we got rid of that house via Short Sale.
We took a small credit score hit… but we didn’t care… thank goodness and good riddens! Every time we had an good opportunity, we had to consider this “ball and chain” of a house… then the good opportunity immediately seemed like bad luck.
People I meet usually say, “it’s cheaper to buy”… I don’t get it… seems more expensive, and a freedom robber to me.
Chris
I’ve done both. It really comes down to making money work for you. Renting is money working for someone else. Full-blown home ownership can also deliver pop-up surprises that throw people into a financial tailspin…think new roof! A great approach might be a condo. Limited exposure and putting cash to work.
Definitely not crazy. I think the force fed idea that owning always beats renting is bullshit, or only true in very specific instances. I live in the Midwest where housing prices are really reasonable compared to large parts of the country, and even I pay much more to own a smaller home than I used to rent. I think people grossly underestimate all the costs associated with homeownership, especially for maintenance. And then there’s the time factor, and it takes a TON of time. And if you’re not handy or rich, when things break it can be very stressful in addition to the hassle. There were things about renting that got really old, but owning a home is no bed of roses and I think people should be very honest about that and don’t give others a hard time for whatever their choice is.
Good for you for figuring out what really works for you and for sticking to it.
I found Dr. youtube very effective in many case. I agree with the time you have to put in, but I think it’s rewarding a lot of time to do it yourself. A lot of people are depressed now aday just do services job – lawyer, doctor, dentist, analyst, writer, engineer, artichect, computer science, good service, etc. Our entire evolution is based on working with our hand to bring home the food to build things. Now we get to sit infront of the computer and stop doing reward things, so we don’t get that euphoric effect. More people are depressed due to lack of activities and outdoor activities that involve building and actual physical work with our hands.
Now, with that said, if you hate it, you hate it. My partner didn’t grow up,with a father, so he is not handy at all. He can run 25 marathons, but he can’t stand the grueling of holding or drilling some good to build a fence or a deck. It takes practice,,and it take the willingness to try and fearless of failing. If they are not ready, then nobody can’t help them. When I bought my house at 26, I was clueless, but I know it’s a good financial decision, things break down, I dial the number, people were quoting skyrocket amount of money, over the years, I learn who to call, when to call, you don’t know it until you actually executing it.
At my work, we update our program all the time, even though things would run in simulation mode, but until you run it in production mode, you don’t see what’s wrong with the program. All the program are in beta mode, like apple IOS it sucks so bad, crashing all the time, battery drain out all the time, etc. your house is the same way, when you own it, you never stop fixing, renovating, painting, buying stuff to fill it up. It’s the matter of whether you are satisfy with the beta version of your house or not. If you are ok with a boring all white wall. Ok. Stop. 🙂 otherwise, upgrade or fix as necessary when you buy a good newer house, or newly remodeled house.
No your are not crazy, you are just going against the societal expectation. Like you said, because so many people dream of being home owners they are going to have a hard time understanding why you couldn’t possibly want what they want.
It is the same type of response you get if you decide you are going to pay off your mortgage early instead of keep it for a full 30 years (or for many people longer due to refinances).
What I have noticed though is when you do something totally rebel or contrarian, if you keep those views for long enough and people start seeing that its working for you, they become very interested.
It is really funny how that happens.
Good for you that you know what you want. It sounds like a house would not really fit your ideal live of travel. Plus there are plenty of other ways to put money to work for you outside of real estate. So no reason to deal with being a landlord either.
Go blaze your own path and don’t apologize for being your own person.
Cheers!
Melanie,
I’m a 44 year old lifelong renter as well. Like you, I have some of the same financial barriers (high cost real estate market) and lifestyle preferences (single, no kids, don’t want to fix stuff) that tip the balance pretty heavily toward renting over owning. The KEY thing that you need to consider is you MUST keep your rent reasonable as a percentage of your gross income. I’d say the max should be 25%. Ideally, it would be a lot less than that. And you simply MUST INVEST THE DIFFERENCE. Keep your housing costs as low as you can tolerate and invest the difference. This is the main problem renters have. Not only do they not make the commitment involved in owning a house, but they don’t commit to saving or investing, either. I believe this is the main reason why renters have much lower net worths than home owners (aside from the fact that renters typically have lower incomes and are younger).
As far as what other people think, you just have to shrug it off and do what’s best for you. The evidence is overwhelming that most Americans are in a very weak financial position, so most are not well qualified to give you any financial advice at all.
Do what feels right to you! I typically lean towards someone that wants to run the math and follow the conventional logic. But if your lifestyle is one that makes home ownership (used loosely since there is always that looming mortgage) a good choice for you – do it! If you want to have more freedom – something I think we all search for – then make sure all of you financial decisions support your true vision for your life.
Melanie,
I have a friend that is a lifelong renter, he is 45. I have been on him for years to buy a house. But he is happy and content renting. Also, there is always that chance that he might move (but probably not). So, yes rent is better.
For me, I’m not going anywhere. Love where I’m at and life is great. BTW, I own 3 rental homes. Every time I bought a home, I save, moved, rented it out and bought another one. I’m in house #4. I will rent this one out one day as well. When you buy as your primary home the rates are about a quarter percent or more less than if you were going to just buy a rental property. However, I invest as well and have been for 20+ years. I’m 46 and didn’t “retire by 40”. But I retire at 42. Not bad I guess.
You see, my renter pay my bills. We all have to live somewhere. So think of it this way when you pay that rent. You are getting nothing back compared to something back if you own a home. I know the naysayers will say “but the housing collapse, it’s too risky”. That was 7 years ago, get over it already. To be honest, I am still upside down in one of my rental, but just one. Every other home I own has gone up in value. Realize this, you are paying someone’s mortgage or their bills when you pay rent.
I love my renters. I hope they are there for a very long time. Your landlord is thinking the same thing.
Regards,
BJ
Don’t feel bad, I’m with you all the way. I might eventually buy a house, but I’m not sure I really want to.
No you’re not crazy. Some people are just renters for life and there’s absolutely nothing wrong with that. Sometimes renting makes way more sense than buying. Furthermore as you stated, you don’t see yourself living in the same place for 10 years. If you’re planning to move around here and there, I agree there’s very little point of owning a house. When you sell a house you’re occurring all the extra transaction costs. Doing that a few times over 10 years and your net worth will decrease significantly.
On the other hand, Tawcan, if you buy a house to fix up, live in it for a couple of years as you improve it, and then sell it, you can keep $250,000 in gain tax free. Doing THAT a few times over 10 years can INCREASE your net worth significantly.
One other comment for those who say they are renting because they want to avoid the expenses of taxes, insurance, repairs, and so on of home ownership: THERE IS NO EXPENSE TO THE LANDLORD THAT WILL NOT BE PASSED TO THE TENANT.
I too prefer to rent than to buy although sometimes I do think about owning, but eventually I realize that I don’t want to be tied down at all. For me, a tiny room is good enough, it keeps expenses down to the bare minimum. I don’t even own a car because I hate paying taxes, insurance, maintence, parking and fuel costs. Not having a car also minimizes the urge to go out and therefore spend money unnecessarily.
The thought of having to pay taxes, insurance and maintenance on a piece of property is totally off putting to me.
I prefer to have my money work for me through securities in my trading and taxed advantaged accounts where it mostly grows unencumbered by taxes and other expenses in the taxed advantaged account. The trading account is where I buy and hold.
This keeps me debt free and gives me the freedom to go anywhere I want when I choose. My lifestyle has allowed me to become financially independent in a relatively short time of 5 years.
I plan to retire in a couple of years after I’ve put in my time for eligibility for social security and then I will spend my time traveling to see the world.
So yes, you’re not crazy.
Since this is a financial blog care to share how you were you able to reach financial independence after only 5 year of working? If by FI, you mean renting a room and living a vagabond lifestyle, then I can understand. My wife and I’ve been working for nearly 20 years and still am nowhere close to FI. Our networth is around 1.6 mil, but that doesn’t go very far in BayArea.
I have read for many years financial blogs and can say 100% there are multiple definitions of financially independent. Andrew’s definition just might not be the same as you think (either that or he won the lottery, had a rich relative die, etc.)
I don’t think you are crazy. I own two rental properties which the rent pays for the expenses. but since I am single and don’t need much space I rent with flatmates near work. just in case my situation changes and I need a house. tah
I don’t know I would say I judge, as I don’t judge a perfect stranger without all the facts, but I would say I would wonder why. Any business/financial decision goes to the knowns, the expected knowns, and the restrictions you have on yourself. With the restrictions you have on yourself (moving frequently, etc.) you have precluded yourself from making a financially viable decision to buy a home. No person’s story is the same, and for sure if you want flexibility, continue to rent. If you hate doing maintenance and don’t make a lot of coin to have someone else do the work, then you are on the right path.
My restrictions were different, I had a judge tell me I HAD to buy a home (in a different state, with no job, already owning a home and job in the other state) if I wanted custody of my son. I did and I got custody of my son. That was 11 years ago, I have been in my current home for 8 years (I sold the first one after 3 years as it was tiny) and it is paid off. I pay my 1800 a year in taxes and 800 a year in insurance and that is all I have to pay (outside utilities). That is my slice of heaven. I have a son to do the yardwork (which I hate) and trade favors with handymen to do the little things I can’t do (fix gutters, paint, etc.)
No story is the same, no perspective is the same. Thanks for sharing yours.
I appreciate that you want to move around and prefer flexibility, home ownership makes that very difficult. For home ownership what you plan to do next is very important. Are you moving in 2 years, then bad idea, want to stay for the next 30, then great idea, investment property that you live in, great idea. I mean you get the picture.
I’ve been in the same place for three years and am getting the itch to move again!
I don’t judge the non-homeowner, I thank them, so I can continue to make money with my rental biz.
I’m blessed that growing up that I only have to move once when I was 15. I like a stabilize environment, where I know my neighbors, the landscape, the view, it provides great comfort when things don’t drastically change. Which allows me time to grow – say I I have to move, like when I move at 15, I have to invest more time to learn about other people, how to interact, their culture. I moved from where having an outstanding academic means you are cool and popular, to perform well athletically means popularity. Juggle in that kind of a world can set someone like me back a couple year. As a teen you got to fit in. Ehhehehe. Having written this making me sound like a dump geek. But I was truly try to learn, just different type of learning. I ended up playing varsity on my school golf team, the quest to fit in… Ehhehehe So I highly recommend parents and potential parents to not uproot unless it’s absolutely necessary.
You are an adult with a vision. Your parents raised you to be a nice, educated lady, and they rented and move around. You adapted to the new environment very quickly and with confident. Because that was the learning experience your parents provided to you. It’s obviously, there isn’t anything wrong with moving around and not owning. You don’t have kid, not plan to have any, enjoy your nomad life, no longer in high school, why worry about what’s people think? Ehhehehe
The point is there is no good perfect way of raising a kid, or whether you own a house or not. As my philosophy professor said: “the decision that had been made was the best decision.”
See, it’s a mutually beneficial relationship 🙂
Melanie, you remind me of the saying, “Never say Never”.
Now that I am nearing age 80, I must say that I have enjoyed both aspects of housing: owning and renting. When age 55, my wife and I built our final dream house on three acres easily worth over a million dollars in Oregon. Ten years later, after much debate and expense, we decided we really wanted freedom not ownership. So we first rented an apartment on the river for a planned six months…that turned into four years of total bliss. Then 15 years of travel and working abroad in the USA and overseas.
A few months ago, my wife said, “Time to settle down once again.” We debated, apartment, vs. condo vs. house. A cozy apartment overlooking a small golf course won out because we still wanted our freedom to travel.
Having said that, all of my fellow teaching colleagues, now retired many years, are multimillionaires because they purchased two homes in different stages of their careers…one for living, the other for rental. My home in Palo Alto area went from $37,000 to 2.5 million over 40+ years. Of course, I sold it before the first million value, but it shows the possibilities of monetary gain.
As for me, I travelled the world many, many times on foot, bicycle, elephant, camel, auto, and ship and loved every minute of it. I am a very happy guy now planning six weeks bicycle camping in Denmark and Sweden this summer. As we age, our desires and dreams change. House or apartment? All grist for the mill.
Wow, I loved hearing your story. Your adventures sound awesome. I won’t say never, but probably not! But I’m open to all life possibilities — it’s been an interesting ride so far.
I think the emphasis on this story should be on the word “possibility”. My dad bought a house at the same time as his classmate did (both were university profs) almost exactly 50 years ago. Dad’s friend bought in– you guessed it– Palo Alto and saw a 100-fold rise in value. Dad’s house in the Midwest didn’t fare quite so well rising about 4-fold in the same time. That’s a 9.6% annual growth rate vs 2.8%. Which do you think is more typical? By contrast your S&P500 index fund has beaten that 9.6% by a hair. In other words the best corner of housing appreciation matches only the average of the US stock market. And good trying to collect annual dividends from your bricks and mortar.
I’ve lived in silicon valley for nearly three decades and I must say I seriously doubt that houses here will appreciate similarly over the next half-century. Maybe stocks won’t either but I would rather bet on a stock average rather than one individual home. Like you I’m a lifelong renter who is comfortably financially independent. I didn’t reach this point by blindly obeying when others suggest that I purchase something.
I’ve never rented, only owned, so I can say that yYou’re definitely not crazy!
Renting gives you a lot more flexibility and often lower monthly costs, especially at the start. If you don’t want the responsibility of a home, don’t get one!
Thanks! 🙂
The problem with owning is sometimes your home in the suburbs results in a long commute to where you need to work. My loan to value is 50% and my commute is long. Buying a house closer to work would result in a more expensive house and lost equity.
Good point! Luckily I don’t have a commute right now as I work from home. That’s another thing — I’m so not a suburbanite. Cities are my jam and it’s unlikely I could even afford living in the midst of everything.
I don’t blame you. Houses can be quite a hassle and don’t really appreciate much faster than inflation. They’re great as investments if you rent them out and the properties are cash flow positive.
I mean, don’t get me wrong. I own one and I enjoy living in it. Almost as much as when we rented. 😉 Right now there isn’t a lot of maintenance on the outside since not a lot grows in the winter. But mowing the grass in 90 degree weather in the summer isn’t fun. I do it myself but know I can outsource it for $60 per month. By owning our home, we’re basically getting a 6% real return on our home equity (after deducting all costs of ownership). Which is roughly the level of long term stock returns.
Thanks for sharing your perspective!
Melanie,
I’ve now rented in NYC and owned a home in VA and I would say renting has been a painful and awful experience. Forking over a pile of money every month as a straight expense, no deduction, no equity, little freedom to “make it my own,” and the susceptibility to rent that increases each year is simply not worth the bit of time it would take to do the few house repairs or sell the property.
I equate freedom to “total ownership of one’s self, time, and assets.” Renting makes me feel a touch of vulnerability–but hey, that’s just me.
Eric
I think you’re young Melanie (I’d venture early to mid 20’s), and you’re setting up too many “hard” rules IMHO… :”I’m not having kids”, “I’m not owning a home”… You may find that where you sit today could change with falling in love (Even George Clooney, Mr. “I’m never getting married” got married), you may find a community you want to settle int0, you may even find internal peace… My advice here is just relax. Not buying a home is fine, but the fact is it’s the easiest way to build wealth, it’s almost subsidized from the Gov! Tax benefits, low interest rates, I could go on and on.
I’m actually 30! Though my financial life is more reminiscent of someone in their 20s. I am open to life changing and open to possibilities. But for the last 10 years I haven’t wanted those things, and everyone said I’d change by now and I haven’t. Also, it’s not just about me! My partner also agrees….and talking about changing. We also said we’d never get married, but after 7 years, I’m thinking that the practical aspects and legitimacy in the eyes of the government might be nice. So I have changed a bit 😉
You’re still young, so never say never on housing, kids, never get married. Whatever choices you make, good luck to you. However, one thing I could never understand is how someone who enjoys constant change and non commitment in most area of their life still can commit to a long term partner. 7 years is a very long time to be with someone in their 20s.
I’m a guy who used to hate the thought of the typical adult life of getting married, having kids, working for the man, owning a home, staying with one partner for rest of life, etc, and rebelled against it in my youth by job hopping, constantly going through romantic partners, and not committing to one area. Eventually, I got tired of the constant change after I reached late 30s and decided to settle down with one partner and buy a house and stick it out with one company unless there was a much better opportunity elsewhere instead of just leaving out of boredom.
If you don’t want a house, don’t buy a house. Even if you bought the perfect house–even if you bought the perfect house for YOU–if you don’t want it, you’ll hate it. With that said, here are a couple of points on the other side:
1. Forced savings. If it’s cheaper to rent than own, are you willing to commit that you will establish a long-term investment account for the difference? Also, be willing to make extra investments from time to time, to represent the occasional cost of a new roof or whatever.
2. Leverage. Owning a home is one of the few opportunities a young person has to work with other people’s money. Want to make a banker laugh? Tell him you want to borrow his bank’s money to invest in their stock.
3. Money is worthless. With our fiat currency, you need to be invested in things that keep up with the effects of inflation that are deadly to a nest egg. Equities and real estate are two examples.
As to the “terrible investment” stuff: The cost of sale being 5% is a red herring. It’s akin to expecting to sell at the exact top of the market and sell at the exact bottom: you’ll never do it. Real estate isn’t illiquid: I have a home equity line of credit on my paid-off house. I hope to use it to make the down payment on a rental property soon. Real estate is not overall expensive, although you do need to come up with a down payment, and I’ll admit the percentage down payment required is higher than it used to be. It’s true that something can happen to your house, but that’s what insurance is for. What insurance do you have against a drop in the value of your stock portfolio?
I own stocks; but I like the feeling of being diversified by owning some real property as well. You might enjoy reading Millennial Money by Patrick O’Shaughnessy, published in 2014. God Bless!
You make some good points! I am totally willing to invest a ton of money once I am debt-free, to make up for the difference. I’ll check out that book! I’ve actually heard good things about it.
I like buying if you buy properties with investment potential (owner – occupied multis, smallish homes that can positively cash flow if rented).
Otherwise, better to rent than to be sunk into a $500K house.
Thanks for sharing your thoughts!
This is one of the things about personal finance I dislike. So many people telling you that a house is better than renting. For some yes, for others, no. You have to decide which makes the most sense for you and do that. For me, renting doesn’t make sense for a myriad of reasons. For you, renting does make sense. As long as you are making the best choice for your personal situation, that is all that matters.
Yep, totally agree! I don’t want kids, plan to move often, and it has zero appeal to me.
Thank you Melanie, with out people like you I wouldn’t be making 35% ROI after tax on my rental properties.
A home isn’t a good investment. That is not how anyone should look at it. I compared the cost of renting versus the cost of buying. In the long run the buying option always won out. You should also do some quick math to see if you should put more money down or less, have PMI/MIP, which loan type gives you the best ROI, etc etc.
If you don’t desire to be locked down to one area then that is one thing. But financially buying always makes more sense.
Ha, glad I could be of assistance 🙂 Being locked down is a huge thing for me. In my adult life, I’ve never stayed somewhere longer than 5 years, and my debt-free plans (hopefully) include travel and living abroad at some point.
Although we too do not have children, and I personally was sort of a vagabond in my 20’s, I think I am better off having owned houses for the last 23 years. My calculations have shown me that, even taking all the costs of home ownership and the “lost” investing opportunity cost, we have basically lived at a net housing cost-free basis for 2 decades. All the costs have been more than offset by the profits from the sale of our past houses (even with one of them selling during the recent recession). Add to that the fact that owning our own house allows us to change and tweak it to be ever-more responsive to our activities, needs and preferences and to us it is a complete winner.
Nice! So glad it has worked for you.
I agree that it all depends upon the person. Sometimes I wish I didn’t want a home, but I grew up with the mind set that home ownership was a life goal. Not just a home, but owning property. My grandparents were farmers, so property was a way to make a living. I currently own a home that has no mortgage. It’s a great feeling to own something that can’t be taken away (as long as taxes are paid). Having a place to live that is paid off is one key to financial freedom. However, I do understand the many points against home ownership. I consider a home a liability, but it’s still something I feel good about owning. I am not much of a traveler, so that’s probably part of it.
That makes sense. I think it’s appealing to have something paid off, but I just can’t see it for myself. I like small spaces, mobility, and adventure. Currently, renting affords the lifestyle I want.
You’re not crazy in the least–you’re smart. I think owning a home only makes sense in certain markets and under specific conditions. It is absolutely not the ultimate investment it was once thought to be.
We own, but we bought this house largely for its rental potential. Since we live walking distance to two universities in a city where over 60% of the population rents (and rents rise every year…) we figured it was a good bet. Rental prices right now for the house are about double our mortgage, which we’re excited about. That being said, it’s a hassle to own a house (stuff breaks all the time!) and, it’ll be a hassle to property manage it when we have tenants. Fortunately Mr. FW enjoys being Mr. Fix It and I enjoy being Ms. Paints Walls.
So, we’re happy with our purchase, but, I definitely do not believe in the blanket advice to always buy! I love your plan of travel and there are plenty of easier, safer ways to invest than real estate.
Your plan sounds legit! See, I’m so not good at fixing things or painting things and don’t want to be bothered, lol.
You are crazy. Just like us. Welcome to the free and exciting side of life, the land where somebody else keeps the grass green and trimmed, fixes the plumbing, and replaces the roof while you go on vacation and watch your real investments bloom
Haha love it!
Melanie,
You’re definitely not crazy. I’m a lifelong renter, and a happy one at that. Even if buying a house were cheaper than renting in my area – which it’s not – I’d probably still rent as it’s just plain easier. If time is money, then owning a house is more expensive than people make it out to be since one would have to factor in all the time they spend on maintaining the house and everything else.
I think owning a house can be good for a certain person and/or lifestyle, but I share your desire for liquidity/flexibility/simplicity. And knowing that stocks far outpace residential real estate in terms of total returns over the last 100 years, I’d rather own the former and rent the latter.
I also find it funny that some homeowners get almost offended if they find out you’re not a homeowner. I couldn’t care less if someone rents or owns, but it seems like some people do. One should never let emotions take over when deciding whether or not to buy a house. If the numbers add up and you’re perfectly happy with owning, own. But make sure you’re not doing it because everyone is telling you have to do it and how “it’ll be a great investment”.
Best regards!
Hi Jason & Melanie,
I used to think exactly like you. And I do understand the hassle factor. I hate hassle. I also understand that renting and owning is a personal choice. Housiing is not a good diversifier, house prices could remain stagnant. Housing could also vary from market to market, although I doubt in most places in the US that to be true. In the Midwest, you are almost always better off buying than renting. Housing can reduce your flexibility – but in reality people do want to settle down at some point in their lives. If you want to “travel the world”, that’s great, but also realize that moving to a new place every few months or so means starting over in your life every few months or so.
But I also understand that no matter what I do in life I would still need a place to live. Even if I decided to “travel the world”, I would still want a place to go “home” to.
If you realize you need a place to live, you then need to compare apples to apples. Since you always need a roof over your head, you will have to have a housing expense – whether it is rent or own is the question. That’s why you cannot say you could have used that money to make a killing in the stock market – this is because by owning you are reducing one of your largest expenses in your household budget. If I were an owner, I would see the right to live in a place “rent free” as a sort of “housing dividend”. I still pay for maintenance and taxes, but my “mortgage” is fixed and will not increase over the next 30 years.
If you are going to stay in one place for say one decade, owning is better than renting. I am talking about comparable units for buy vs own decisions, not purchasing a McMansion. You see, when you rent, you pay the landlord for the mortgage, administrative costs, taxes, maintenance and a nice profit. If you disagree with me, just open the annual report of any REIT investing in apartments and tell me I am wrong. If you look at apples to apples comparisons, owning a similar unit that you are currently renting is a better deal. If you tell me that it is better to pay $1000/month in rent for the next 30 years, or to own the equivalent unit to roughly $1000/month (it pays mortgage, property taxes, maintenance – but builds equity) for the next 30 years, you are likely not being honest with yourself. After paying mortgage for 10, 20, 30 years, you have some equity left – I am not even counting on housing price appreciation. After paying rent for 10, 20, 30 years, you have no equity left. And no, you cannot tell me you were going to put the excess money in the stock market – since we are comparing owning your rental unit to renting it your cash outflows are roughly similar in both situations.
The numbers show that you will be better off owning, assuming you are willing to stay in a certain place, and you are willing to have some hassle. Owning can be a hassle, and my example is highly theoretical. But I also know now quite a few people who own rental real estate, and they are FI in their 30s or 40s.
DGI,
“If you are going to stay in one place for say one decade, owning is better than renting. ”
I’d be careful with that dogma. Really depends on your local market. To say that everyone, everywhere would be financially better off buying rather than renting over 10 years is just plain incorrect. Furthermore, as Melanie and I are stating, not everything can be measured in pennies and dollars.
“If I were an owner, I would see the right to live in a place “rent free” as a sort of “housing dividend”. I still pay for maintenance and taxes, but my “mortgage” is fixed and will not increase over the next 30 years.”
Your mortgage payment is fixed, but that’s it. Your property taxes, maintenance, HOA dues (if applicable, as in my case), repairs, insurance, and pretty much everything else (including your time) isn’t. Those all increase over time. After you’re all done paying that mortgage for 30 years you get the wonderful reward of…still paying a lot of money every single month for as long as you live in your house.
Best regards.
Hi DM,
I addressed the fact that not everyone wants to own in the first paragraph of my comment – if that’s a personal decision, I cannot argue and tell you what you should do. I also addressed the fact that housing markets vary in the first comment as well. I don’t see how my comment could be viewed as “dogma”. It is just numbers, common sense, looking at probabilities. Nothing is certain, personal situations are different, so I understand if someone has a different view. I respect a different view – what you or I end up doing depends on our situations. It is important to realize why someone wants or doesn’t want to do anything. If you don’t want hassle – don’t do it even if you might be leaving money on the table. And, make sure that you do or don’t do something for the right reasons.
As investors, we both deal in probabilities. There is a higher probability of having a positive result when you own for 10 years versus renting that unit for 10 years. If our friend FI Fighter can make money buying a renting out properties, then chances are that there is something of value in properties. If REITs can make money in apartments, then there might be something there. I am trying to think of the situation from different angles. I am viewing it from the angle of a landlord, from the angle of a tenant etc.
After 30 years, I would still have to pay taxes, maintenance etc. But I would own a house worth something that I can sell for example. I would have had hassle, but I would have something of value. After 30 years, I would have been better off since you will be paying more in rent every year. As a renter, you are paying the landlord every month. You pay for their cost and their profit. Their cost includes mortgage, insurance, taxes, HOA dues, maintenance, admin cost etc. If their costs increase, they pass those on to you.
There is someone at my work, which started 20 years ago, and thought she was going to be there temporarily. She has rented the same place for 20 something years. That money is forever gone. She has paid rising rent each year, and with the money the landlord has paid their mortgage, paid taxes, paid for maintenance, insurance and for the salary of a pretty girl in the property office ( ok he owns many properties). Hence, that someone at my work would have been better off buying that property. Looking at their example, I think to myself that this is the situation I do not want to be in.
As for my time being worth something – anyone who has started a blog on anything definitely does not value their time. Just think about your first 1- 2 -3 years of DM and how much have you earned – in my case it would have been more profitable to have the hobby of cashiering at Wal-Mart ? For the value you have offered to others, you should be earning 6 or 7 figures. Either way, I view purchasing a property as a way to “capitalize” my expenses.
Best Regards,
Dividend Growth Investor
For people who are like dm(lazy) owing a home is not a good option. For those who work owning is a good option as well as owning growth and dividend growth stocks and funds.
For me I really can’t see myself staying in the same place for 10 years. I’ve moved every 2-4 years or so, and will probably move again in the next year or so. You make some good points, which I appreciate you sharing. Definitely some things to consider.
Thanks for sharing your perspective! Nice to hear someone feel similarly.