I feel like my wife and I are that couple in the "Never" commercial from State Farm.
"I'm never getting married. Ever." Here we are...
"We're never moving to the suburbs." Well those don't sound so bad...
And up until recently, "We're never buying a house."
I now realize that's a short-sided, naive point of view. Both renting and buying offer great benefits (and downsides) and it would be silly not to at least consider the possibility of buying a home.
But before I say more, I'll let you decide. Here are the cases for both.
The Case for Renting
Cash
In 2014, I watched a video from Sal Kahn (Kahn Academy) that has been forever been engrained in my mind.
Essentially Kahn makes the case that you're actually burning more money each year on owning a home (taxes, interest, etc.) than you are if you were to rent that exact same home.
And since we're making the case for renting, let's assume that's true. You'd be able to take the cash you would have spent on a down payment (20%) and put it into a low-risk money market account and earn roughly 2-4% every single year. Compound that year-over-year and you have a nice little nest egg for yourself.
In fact, there are many that believe renting and reinvesting the savings from renting, on average, will outperform owning and building home equity, in terms of wealth creation.
Freedom
There's another strong argument for renting and that's freedom. The freedom to move wherever you want with no strings attached. Freedom from a mortgage if you ever get laid off from your job. Freedom from interest rates and upkeep costs and HOA fees.
Buying a home is a big, life-changing commitment. If you decide you want to move or don't want to pay your mortgage anymore, you don't have a ton of choices. You could sell, of course, but that often takes several months.
Plus, you sure better love where you live if you're buying a home!
The Case for Buying
Investment
One of the biggest arguments for owning home is that you're investing in a tangible asset. Investing in real assets, such as a home, can be very valuable because money is the only medium of exchange that loses value every day due to inflation.
Plus, after you’ve finished paying off your property, you can add the full value of the property to your net worth if you wish. Instead of throwing money away on rent each month, you are putting it toward your home, which you can leverage later towards the purchase of a new (better) home.
And don't forget about the property tax and mortgage rate deductions you'll be able to take advantage of with owning a home.
Stability
Owning a home also brings something intangible to the table.
Pride of ownership is one of the main reasons why people purchase their first home.
You can make your home what you want, raise your family there, build memories that last forever, and even pass it on to your children one day.
Owning a home provides you with a sense of stability. You don't have to worry about rent prices going up or the landlord kicking you out or noisy upstairs neighbors. It's all yours.
And although "stability" has nothing to do with financials, there's still something to be said for it.
What do you think?
So, what do you think? Are you pro-rent or pro-buy?
The jury is still out for me!
Fun Stuff
Still unsure on renting vs. buying? In 2014, NYT published an incredibly helpful calculator that makes it easy to calculate whether you’d be better off renting or buying a home. Check it out - it's pretty fun.
And before you ever buy a house, make sure you pass the 30/30/3 rule. Spend no more than 30% of your gross income on your monthly mortgage payment. You should have at least 30% of the value of the home saved in cash. Aim to spend no more than 3X your annual gross salary on buying a home.
Until next Friday, Thinkers.
- Brian
P.S. One of my favorite podcasts (besides the Science of Social Media) is How I Built This from NPR. If you love podcasts and a good story, check out this piece from the The New York Times all about the wonderful genius that is Guy Raz.
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