This post started as an Instagram story. Don’t miss part II Burning money is a dumb metaphor and our impassioned reader comments.
We’ve all heard that “paying rent is like burning money” but that’s just one component in the rent versus own debate. I wrote about the hidden benefits of renting (over buying) and boy did that post strike a nerve. RadReaders responded in full force raising issues such as convenience, home improvements the benefits of property tax, the role of Airbnb and cross-geography arbitrages. The breadth and creativity of perspectives shows that there’s truly no right answer – instead it’s about tailoring the decision to your own utility function.
Ownership as an investment
Renting your primary home and investing in a secondary home
Another caveat is buying for the sake of living somewhere vs investment. People are always fixated on buying a house for themselves because of the investment aspect but what if the area you want to live isn’t realistic or worth it for buying but very realistic for renting (ie Venice). I’ve actually heard and found that in Palos Verdes there are houses with ocean views worth about 3 million that rent for about 7k. That mortgage would absolutely dwarf that rent. Maybe renting in an ideal area for living and buying in another area for investment then renting it out, collecting rent and appreciating is the solution.
Similarly (from another reader):
The arbitrage of renting in Brooklyn (and many other places) right now is huge.
Investing (then living) in a multi-unit condo
If you have the cash, one of the most compelling arguments for buying is if you buy a duplex/triplex/fourplex. You live in one unit and rent out the others. Right there that covers most, if not your entire mortgage.
The pro-ownership arguments
Power of long-term compounding (and property taxes)
In San Diego over the last 8 years both rent and home prices are up roughly 60%. I think it’s fair to guesstimate 3% annual increase on both over the next 10-30 years. Buyers’ mortgage payments stay fixed while rents climb. In CA buyers’ property tax rate stays tied to purchase price for life. When measured over the long term, 10-30+ year periods, owning is insanely better economically. Ask the oceanfront homeowner who bought in Manhattan Beach in 1975 what his taxes and mortgage are.
Airbnb as a game changer for owners
[There are creative ways to take advantage of] the many house-swapping websites today.We can live in my owned home for 6 months out of the year and rent out the main house plus in-law quarters while my wife and I are living, say, in Greece for the other 6 months; Or, we can Airbnb the in-law quarters, and we can rent just that part out during the high season; or we could make the in-law quarters into an artist studio, pop-up yoga studio, and Airbnb (provided we put in a Murphy bed). A series of set changes, so to say.
The incentives to making your home perfect
You don’t spend your weekends making your house look better when you rent
Learning to become more handy
Also, as to fixing things when you’re a homeowner: it’s true that it can be more work and more expense, but it’s also true–and this is usually unaccounted for when people become completely “professionalized” – that you can learn to be more manly and technically skilled.
For instance, I’ve learned how to prune all kinds of trees, replace deadbolts, use a power drill, replace a broken toilet, paint interiors, assemble and disassemble all sorts of things, chop wood, fix irrigation systems, etc. And I’m learning to use all sorts of tools besides. I’m slowly making my way up to off the grid living!
The pro-renting arguments
Paying a premium for the things you value
Agree HARD on optionality/low stress. We live in a 650 sq ft apartment on 14th st across from a Jeni’s Ice Cream, a Lululemon, & a Soul Cycle. We literally live on top of a Trader Joe’s. We are 1 mile from our offices. Yes our rent is expensive but this is what we VALUE. We value a carless & convenient lifestyle & we don’t mind a small space. If any of that changes we can get our quickly.
Appreciating the “hands off” nature
Sometimes I view home ownership more like a car (a liability?) than a pure asset. It depreciates. You gotta repair it, etc. I’m not even really handy. Would rather keep that downpayment money in the market where I am making $$ and it’s completely hands off.
A spreadsheet shows sensitivity to home prices
[After building a spreadsheet that incorporated transaction costs and the tax benefit,] we found that you had to have a double-digit price appreciation assumption for an extended period to favor a mortgage, thus we stuck with renting.
The low stress aspect
We recently sold our home of 15 years and decided to rent, at least temporarily, to leave our options open. The “low stress” aspect is a game changer. It allows me to focus my energy where I want, and not worry about home repairs or long-term appreciation/depreciation.
The cycle of home repairs
I have been in both scenarios and now looking forward to going back to renting mainly due to the peace of mind, flexibility and freedom we find in renting. We found the dream of owning a home full of unforeseen scenarios meant to keep us constantly in the ‘home repairs/remodel’ cycle and therefore tied to our investment.
Yes, home prices can go down
We owned during the housing crisis of 2008 and had to sell, losing our $60,000 down payment completely. We are doing much better financially now and the emotional pull of buying a house comes around every so often, but the flexibility of renting and being able to move whenever we want to wherever we like is just too valuable!
Is a home an excuse for individual inertia?
I wonder if there is something deeper about owning a home and almost having a trump card if people try to challenge you to try something new or do something you are wired to do. It’s almost like the greatest excuse in America. “I would, but you know, mortgage…” There is comfort in that for many at a deeper level I’m sure.