Lately, I have been reading a lot of articles online about the virtues of renting versus owning your home. The posts and feedback from readers have been quite informative and interesting to read. Should you rent or buy your home?
I enjoy exploring how other people approach their location and lifestyle. Maybe this is my own way of keeping up with the Joneses?
My wife and I have spent a great deal of time reflecting on our home ownership situation, wondering if owning is the best scenario at this point in our lives. We recently attempted to sell our home without success. Our plan was to downsize to a nearly maintenance-free town home, enabling us to put our home’s equity into investments and to reduce our overall housing costs. This would have given us the stability of a “home base” with less money wrapped up in our primary home.
Then some recent articles about renting began to change my mind.
I have been reading personal finance blogs for years and I am a big fan of the creative work and writing. Perusing the comments from readers, along with the blog authors’ responses, I have begun to learn and understand a lot about people’s lifestyles, choices, and philosophies.
As a service to my readers and to add some clarity to my own life, I am providing a quick summary of some blogs I follow, highlighting a comparison of the two groups with opposite opinions on home ownership. I have found an interesting division between owners and renters.
PF Blogs that argue for renting your residence
Jeremy and Winnie at Go Curry Cracker have had a couple posts recently about being renters for life and how selling their home for $102K more than they paid for it demonstrated that they would have been better off renting. Those two posts and their comments have had a tremendous impact on me. I can’t argue with the math of Jeremy’s premise and decision about renting.
- In the past, they owned and rented in the Seattle area.
- They currently live in an apartment in Taiwan.
- They are enjoying their new baby and continuing to travel.
JL Collins has been a homeowner for years until just recently. He has written several reasoned and articulate articles about the expense and opportunity costs of owning a home. He is now of the opinion that your house is a terrible investment and, as a result, he does not plan on owning a home again. By the way, I highly recommend you read his stock series!
- I believe they are now living in an apartment in Connecticut.
- They are currently traveling around the US in his motor home for the summer.
Jason at Dividend Mantra has been and plans on remaining a lifelong renter. A recent post on his site delineated the reason he is not interested in keeping up with the Joneses: the ability to own your time! I really can’t argue with being your own boss, setting your schedules, deadlines, and times for sleep and play.
- He, his wife, and son all live in a 900-square-foot apartment in beautiful Sarasota, Florida. They are a vehicle-free family now!
- He built an awesome blog and business, left his paid job over a year ago, and wrote a best-selling book. For fun and passive income he invests in dividend stocks and recently attended the annual Berkshire Hathaway shareholder meeting in Omaha.
Kraig over at Create My Independence has been a lifelong renter. He wrote a post last year that looked at the pros and cons of renting vs. buying. Kraig stopped working for his employer two years ago and has built a nice online business and passive income stream.
- He currently lives in an apartment in Minnesota and will be getting married this year. His fiancée feels fine about renting—that is, until they have kids, and the kids become older than toddlers.
- He is also my hero when it comes to setting up a website and blog!
Jacob at Early Retirement Extreme could be considered one of the grandfathers of the very early retirement community. I have read his blog for years and have several things in common with him. We both lived in the San Francisco Bay Area and we love sailing. Unfortunately, that is about as far as the comparisons can go.
- Jacob lived in a motor home for years in the San Francisco East Bay with his girlfriend. I am putting him into the renting crowd since he leased a space at a mobile home park for years. He has been recycling his blog with old posts and years ago told his readers they should start following this guy at MMM. 🙂
- He has since moved to the Chicago area. As hard as it is to believe, he went back to work and bought a house! It just goes to show that people’s situations can, and often will, change.
Some reasons to rent
Just a few days ago, my wife and I were discussing the possibility of renting our next place. She asked a simple question that really exposed a significant difference between us. She asked me how many places I have lived in my life. By the time I completed high school, my parents had moved eight times. It was amazing to me that I have lived an average of only three years in each of my homes in my adult and working career. Renting would have been simpler to manage, leaving at the end of a lease.
My first apartment (my memory might be a little fuzzy)
- The moving and transaction costs of buying and selling homes multiple times, and having horrible market timing, have not been lucrative for me. In hindsight, financially I would have been better off renting all those years. With renting, you are minimizing the expenses associated with buying, remodeling, insurance, taxes and interest on mortgages.
- If you want to have multiple experiences living in different locations and different countries, renting may be the way to go.
- You will tend to accumulate less stuff.
- The landlord will manage the maintenance and repairs. Hopefully the landlord is conscientious and responds quickly to any problems.
- In theory you will save money in the long run by renting and therefore you could invest the difference. This would build your passive income, which could feasibly pay your rent.
- You will not have money wrapped up in home equity, which is a non-income producing asset.
PF blogs and articles that argue for owning your residence
Sam over at Financial Samurai has to be the poster child for owning your own home. He is located in San Francisco and is enjoying a nice run-up of that housing market. He recently finished a $57K remodel to his master bathroom in his new home. Just as with Jeremy’s math on renting, I can’t argue with Sam’s math. Sam’s project increased his home by 140 square feet, at a cost of $407 per square foot. When you factor in the fact that the neighborhood he lives in now commands $850 per square foot at sales closing, his was a smart update.
- Sam lives in San Francisco, travels extensively, and has a home in Lake Tahoe that he rents to vacationers.
- He has one of the top PF websites out there and I really enjoy his perspective.
Pete at Mr. Money Mustache, or MMM as he is called, is in the same league as MacGyver. Heck, he could even build his own house if needed to and has built several in the past. He recently sold his former enormous, space wasting, “fancy pants” over-the-top luxury home and rental property on his own. Of course, who would expect anything different from MMM! 🙂 His blog, much like Sam’s, is one of the top personal finance websites.
- Pete and his wife retired in their 30s and live in Longmont, Colorado with their school-age son.
- He and his family have recently downsized, or perhaps he would say right-sized to an eco-friendly residence, where he uses passive solar, hot water heat, and energy-conserving appliances. Pete completed most of the construction himself.
- They ride their bikes extensively and pay about the same amount annually for gasoline as a typical commuter family of four would spend in two weeks.
Eric at Retire29 is an Army Veteran (thank you for serving!) and has an MBA in finance. He has a lovely wife, Natasha, and a new daughter. Natasha stays home with their daughter while Eric works on preparing for his CPA exam and writing his blog.
- They live in Virginia and have some big goals for their future.
- They own their home.
Justin with the Root of Good has a family with three young kids. Now 33, he is retired and his wife is continuing to work for the next few years. She is able to take sabbaticals from her work to help scratch their travel itch.
- They own their home in North Carolina.
- The whole family is currently traveling and near the end of a seven-week trip to Mexico.
Joe over at Retire by 40 lives in the Pacific Northwest. He retired as a computer engineer before age 40. He now runs a great website and has multiple sources of income. He and his wife have a young son for whom he gets to be Mr. Mom/Dad each day.
- They own a 2 bed/2 bath condo that is about 1,000 square feet in a high rise building.
- Joe describes in this post their dream home.
JD Roth at Folded Space founded and sold an immensely popular website called Get Rich Slowly. He became financially independent and loves to travel with his girlfriend, Kim.
- He owns a condo in Portland, Oregon.
- He and Kim are in the middle of a one-year RV road trip.
Finally in our short list we have us, Bryan and Dianne. We have been homeowners for most of our adult lives and have enjoyed the sense of pride that comes with owning our own home; in our current home, we enjoy being owners with the mortgage paid off in March 2015.
- We live in a 3/2 single family home in Sedona, Arizona.
- We are thinking about downsizing, perhaps up sizing, renting out our current home, selling our home, or renting something in the future?
Some reasons to own your residence
When you own your own home, you can remodel and decorate however you want. This includes landscaping, the paint color, flooring, windows and treatments, and the thousand other things you can do to add your own touches. Don’t forget about the desire for an open concept, granite counter tops, and stainless steel appliances!
Available and for sale now in Beverly Hills: $39,500,000 (9 beds, 9.5 baths, 20,418 sq ft)
- If you are a single family homeowner and live in a neighborhood of similar homes, you will more likely know your neighbors. The theory is that since these neighbors probably own they will tend to live in their homes longer than tenants. (Of course, you could live next door to tenants if the home is rented.)
- Living in a condo that you own in a multi-unit building might give you the same neighborhood feeling as renting. I would recommend you check with the HOA prior to buying any condo or town home to see the owner occupancy rates for the association. Some lenders won’t lend money to units in high non-owner occupied HOA’s.
- I recommend that you live in your home, on average, longer than if you were renting. This helps to minimize the transaction costs (closing, points, inspections, appraisals, and the 20 other fees) along with the moving expenses that come with relocating frequently.
- It is a forced saving program for those who are not fruitful with their savings habits. I have to admit, in my younger days, I would have just spent the money.
- You are able to deduct certain expenses based on your income and tax situation. This could include mortgage interest, property taxes, and some closing costs.
- If you or your spouse has a “nesting instinct” and hates change or moving, this could be a good argument for owning a home. Some people just want that sense of pride of owning and making their home a display of their personality.
How to decide if we should own versus rent?
I have gotten kind of lengthy in this post. This has been an exercise for me to help look at some decisions facing us regarding housing. I imagine that I will reflect back on this post over time.
I think an important criterion for a decision of this magnitude is to understand your lifestyle type regarding housing. My calculation on the average length of stay in my adult life is less than three years in one home. That is now getting longer as I get older. For my wife, it is closer to eight years on average at each residence.
That realization highlights the differences between us in the value we place on our home. For me, it is not as important as it is for Dianne. She prefers setting down roots.
I’m trying to open my mind to the idea that renting isn’t necessarily throwing money down the drain. Unless you live in high appreciation markets, buy and sell at the right times, and minimize your costs, the math doesn’t really show that home ownership gives you a better overall financial return. (I am not factoring roommates into this equation.)
As for us, we are still weighing the pros and cons of renting versus owning. If we downsize to a smaller place as our home base, this will free up home equity to invest in dividend-producing stocks and other passive investments. And we would have a larger contingency (or “bucket list”) fund to leave our paid work, guaranteeing us less sleepless nights. This approach would give us the ability to travel and enjoy new experiences. However, we still struggle with the desire to own a dream home now. We ask ourselves if we are willing to trade off owning the dream home in order to stop working early. Depending on the day of the week (especially Mondays), we fluctuate on our decision.
Erik says
Excellent article! I think about this topic a lot as well.
I just moved into my new house last Thursday and I am wondering if it is worth it myself! Tacking on a 30 year mortgage is heavy business, but I think that it will be beneficial. Here are my thoughts: By buying a house, you can use inflation and leverage to your advantage. Also, as you said, you can do cool things in your house that a renter cannot do.
While renting is stress free and much less of a time suck than owning, I think that it is all worth it. Maybe in 5 years, I will think differently, but owning a house is a great way to grow your net worth and learn many things along the way. Plus, in my case, I have 3 roommates who will be paying me rent. I effectively increased my yearly income by almost 20k in a year just by buying a house. Should be fun!
Have a good day,
Erik
Bryan says
Thanks for stopping by Erik. I appreciate the feedback!
I think you have an excellent situation that puts the “X factor” into your home purchase. Tenants! This will bring down your total out of pocket cost while enjoying the appreciation of your home.
This might get you thinking about starting a side hustle for you buy rental properties. Then you will have the ability to leverage other people’s money (loans) while collecting tenant rents on an appreciating asset. Depending on where you buy, the appreciation might be huge, or it at least keeps up with inflation. Either way, you will have a tenant buying your investment for you. Try doing that with stock!
Take care.
Bryan
Alexandra @ Real Simple Finances says
This is a topic I think about a lot, too. Since we own two dogs our options for renting are limited — since one of my dogs is a pit bull mix, the number of options available to us are essentially 0, even though she is hands down the best behaved dog I have ever met. It’s sad, but it’s our reality.
Even though for our pets owning is the best (only?) option, I still think renting would give us much more flexibility and allow us to travel. I’d love to rent a home short-term abroad, or in another state, just to have that experience.
Bryan says
You have brought up an excellent point about the benefit of buying your home, pet ownership! For us animal lovers, it is much more difficult to find a place to rent when we have our furry family members. Difficult but not impossible! 🙂 For the frugal extreme crowd, they might argue that we are wasting money on pets. Hey, those are the choices we have made.
The same challenge goes with extended travel. We have brought our cat along on all of our camping trips for the last year. He does quite well traveling and is well adjusted. At some point we will do some extended AirBnB stays and will need to find an owner that will allow pets. They are out their but it does limit our choices.
Thanks for stopping by and take care,
Bryan
Holly@ClubThrifty says
We own our home and a few rental properties. The best of both worlds! I think it makes the most sense to own if you plan to stay long-term. I don’t think people realize how much they spend moving or “upgrading” every few years. Plus, if you time the market poorly, you could sell your home at a huge loss. That doesn’t sound fun to me =)
Bryan says
Holly,
I have been following your and Greg’s journey for a while now. It is interesting the parallels in that we both have two daughters and purchased rental properties as a way to build an active/passive income stream.
You absolutely correct regarding how most people miss all of extra cost of moving often and then upgrading when you are there. We fall into that category. For us, we need to settle down in one spot for a while to for home ownership the better financial choice.
Take care!
Abigail @ipickuppennies says
We bought, but it was a foreclosure. Even after extensive upgrades to bring it up to FHA, we paid about $85,000 for a three-bedroom-and-a-guest-house place.
I do think houses are a terrible investment — in the traditional sense. You shouldn’t buy them planning to upgrade when the time comes. Markets crash, buyers drop out… It’s a mess.
But when I think of our home as an investment, I think of the long-term when we will be rent-free. In that sense, it’s an investment. And yeah, it’s nice to be able to do whatever we want with the space. Though usually it’s less about what we want and more about “Aw crap, what broke this time?!”
Renting is perfectly valid for a lot of people. But if you live in a low-cost area, I think it probably makes more sense in the long run to just buy. On the other hand, renters don’t have to pay for repairs or upgrades. That’s a lot of money
Bryan says
I think in your case buying a foreclosure at an $85K price will probably be a great long term investment for you and Tim. I know that the Phoenix area was hit hard in the great recession but has since done pretty well with real estate values.
For us, it is nice being mortgage and rent free in our home. Should we stay long term, then our home may be ok from an investment perspective? Time will certainly tell.
We also have considered relocating at some point. If that happens I will be leaning toward the renting approach at least initially.
Redeemed Finance says
Hey,
So here is a small curveball, I currently rent… but I own a 2 family house in which I also rent out.
The 2 family house income covers the mortgage/taxes and pays for about 50% of my current rent.
I guess I could have put the money towards a single family home but decided this would build my portfolio faster.
Rich
Bryan says
Rich,
I was in a situation like yours years back. The way I justified it to myself is that I was still a homeowner in the fact that I had a rental property. I knew I would not be renting for long term so therefore it was the less expensive way to go at that point.
This will give you options to consider. You could sell your rental and buy a home, keep the rental and buy a home, or stay in your current situation. Running through the numbers and expected time frames should help provide you some clarity.
Take care!
Luke Fitzgerald @ FinanciallyFitz says
Excellent write up. It’s an interesting debate. We own and are currently saving as much as possible for down-payment for another in 4ish years.
There are so many factors that come into play. First off, your financial situation has to be right (especially newlyweds). The rent vs. own debate doesnt start until you have paid off other debts. Not your sitiuation, I know. Closer to mine
For us, I don’t see a time when would be renters. I highly doubt we ever move from our area. We wont be bouncing around from place to place either. And although I hate considering your personal residence an “investment”, it does make the most economic sense if your plan is to stay 10+ and in no way in need of the potential future equity.
Good post!
Bryan says
Luke,
I think you are looking at this very logically! Each persons scenario will have an impact on their decision. Your age, income, job, location, martial status, house price, interest rates, down payment, and a bunch of other factors are considerations in your choice.
We have been home owners for years and were sick and tired of making mortgage payments. There is a whole different debate about if you should pay off your home or not, considering the cheap interest rates and potential tax deductions for mortgage interest. We faced many of the same factors listed above in the rent vs buy discussion.
There is an emotional side to this equation that may be most important. Do you want the pride of home ownership and the ability to personalize your house. I think for you that is important! 🙂
Take care!
Retire29 says
Bryan,
Thanks for the plug and including Retire29 in this list alongside some great bloggers! I have to say that renting vs. owning is also a psychological thing. We are still renting an apartment as well (for another four days). I’ve been late on that payment so many times… I’m just not suited for being a renter. I want to own, it’s just my genetic makeup.
Eric
Bryan says
Eric,
I am in agreement with you on the emotional and psychological aspects to buying versus renting a home. This is one of those math exercises that have a difficult time calculating a return for the intangibles such as the pride of home ownership. How do you put another on that? 🙂
Good luck with your move. Thanks for stopping by and take care!
Financial Samurai says
Love this debate! I was thinking you were really getting swayed on the rent bandwagon b/ the ER bloggers until I kept reading 🙂
I FIRMLY believe everybody should be neutral real estate by owning their primary residence at least. You don’t want to be a victim of inflation, but a beneficiary of inflation as your real asset inflates!
Bryan says
I hope you do not mind me referring to you as the “Poster Child” for buying real estate? 🙂
Sam, I really am torn on this debate due to my desire to travel and see the world. Jeremy and Jason both are staunch supporters of the “renting for life movement” with some very valid arrangements. You of course have your own numbers to back up your success with your real estate.
I know regarding my experience with real estate they have been some definite benefits to owning that are not necessary all tangible. From a rental property perspective, it has been a no brainier for me going that route. It has taken many years and lots of patience to get where we are today. This is a major segment in our passive income strategy.
Financial Samurai says
Is there a perception you can’t travel as a homeowner? If so, that’s weird and I’m wondering why?
A homeowner can rent out their place if needed. A renter might
not be able to, due to the laws:lease.
Jeremy travels. I met up with him in Taipei a couple months ago.
Does Jason travel?
I know I travel about two to three months a year as a homeowner.
Please help explain the travel notion!
Th
Bryan says
Excellent points Sam.
Regarding Jason at Dividend Mantra: I only know of a couple trips he has taken, to Michigan and Omaha for the Berkshire Hathaway shareholder meeting. So a good point you are making is that he really does not travel that much.
That is so cool that you met up with Jeremy in Taipei . I would love to meet them someday. Jeremy and Winnie definitely travel extensively!
Our situation: My wife and I have a raging debate going about if we should stay in the Sedona area. It is a beautiful place to hike and visit. However, living here is quite different due to the temporary nature of tourists, snowbirds, and part time residents. We are also at the younger end of the average age of locals that live here. So it has been difficult to make more then a couple friends in the last 4 years.
We attempted to sell our home and downsize into a town home in Sedona, to catapult ourselves into retirement early this year. Unfortunately no luck with selling. 🙁
There are also some local regulations about renting for less than 30 days in the city limits. We could rent our furnished home out for a longer time frame to bring in some income for longer trips. I will have to look into that possibility.
It appears that we are going to stay put in our house and go on extended camping trips over the next year. I think when we have had enough of that experience, our travel will morph into something else.
RA50 says
Bryan,
We are renting and we have difficulties to make the first step in buying a house. This year, we have been able to decrease the rent by 15% because of the building in front of us.
I would have bought this apartment , it’s us that probably would have lost 15% by the time of selling the house.
Cheers, RA50
Bryan says
RA50,
I can certainly understand why you would be renting in Switzerland. It is so very expensive to buy a home in many parts of western Europe.
My mother was born in Germany and met my father when he was in the Air Force. My grandma (Oma) never worked while my grandpa (Opa) had a good job with the railroad. My German grandparents never did buy a home in their lifetime – they always rented.
I believe location and the cost of a home has an big impact on your buying decision.
Take care,
Bryan