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.
- 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.