Many people have been debating buying verse renting a home and what is more financially optimal. Let’s dive into the pros and cons of both and then I will share my opinion at the end.

Important Things To Consider:

Before diving into the bulk of this, it’s important to consider a few questions that may drastically impact your decision regardless of what’s more financially feasible:

·         Where you want to live versus where you are willing to live?

·         At what age do you want to own your home and or start the buying process?

·         Are you willing to live with roommates or to rent out part of the property?

https://www.realtor.com/mortgage/tools/rent-or-buy-calculator/

This is a random tool I found to calculate the difference between the cost of buying and selling wherever you live. They found that it’s cheaper to rent any place for less than 5 years, but if you intend to stay there for more than 5 years, it will become less expensive to buy a home in the long term.

Renting

Pros

·         You don’t have to save a ridiculous amount of money for the down payment.

·         You can invest your money and avoid losing wealth to inflation.

·         You have total freedom to move and live anywhere without being tied down geographically.

·         You don’t have to pay for home maintenance, condominium upkeep fees, property tax, or insurance.

·         Getting rid of roommates or changing your living situation is much easier.

·         You don’t have to stress about the property, its value, or anything related to the legal and administrative side of owning a home.

·         Tends to be cheaper than buying within the first 5 years of living there.

Cons

·         You cannot easily make modifications to the property.

·         You are not building equity – you are putting money into paying off someone else’s mortgage.

·         Lack of certainty & stability that you will keep renting after your current lease ends.

·         More expensive to live there after 5 years.

Buying

Pros

·         You will have your own home. This can provide a huge amount of peace and bring less stress to your life.

·         Ideally your real estate will appreciate a lot in value.

·         Your rent payments will go towards equity instead.

·         You can sometimes get tax benefits for owning your home, especially for first-time buyers.

·         It’s cheaper than renting if you intend to live there for more than 5 years.

Cons

·         You need a massive amount of money saved to afford the down-payment to get a reasonable mortgage.

·         Housing prices are currently at all-time highs.

·         You have to pay home owner’s insurance, home maintenance, property tax, or condominium upkeep fees.

·         You will pay insane amounts of interest on your mortgage aka this asset will make you lose money acting more as a liability.

·         Your ability to move or travel will be greatly limited, and you will have to deal with potentially bad neighbors, a bad neighborhood, etc. over time.

·         If you rent out part of your home or have roommates, it’s more challenging to evict tenants or change up the living situation given the landlord usually has much more legal obstacles.

·         Real estate is very illiquid.

·         You need to find the right home to buy and you need someone who wants to buy your home in order to sell.

·         There could be one-off events that can impact your home value and people’s willingness to buy it like natural disasters, animals on the verge of extinction living on your property, or someone dying in your home.

·         There are additional costs to selling and buying like inspections and realtor fees.

Personally, I think it makes the most sense to build up your investment portfolio instead and build up your wealth so that you are avoiding losing money to inflation and missing out on great investment opportunities. I believe that I can do this in 5 years making it cheaper to rent and even if it did take 10 years for example and I spend a bit more from renting, the idea is that I would invest until I have the wealth to buy a home outright to have more bargaining power, avoid paying interest on a mortgage, etc. The other way I may do it is once I have enough to cover my expenses, to continue investing until I have enough to cover my expenses plus $1000 extra which I assume will be close to 1 million dollars invested in dividends with an average 5% yield and then pay for my expenses passively while using the extra funds to pay down a mortgage.

While I understand that you can have people live with you in your home to cut down a lot of the costs, I wouldn’t rely on living with my buddies for the next 10 to 20 years and that they never leave nor would I want to. Again, in this situation, you’d probably also still have to have saved the down payment and lost insane amounts of wealth to inflation.

Refer to http://www.shadowstats.com/alternate_data/inflation-charts for a better take on inflation though I still feel this is too low considering logically it should be more correlated to how much money was printed over the past 2 years.

To illustrate how big of a deal this is, let’s take the 9% inflation that we have now which I still believe is generously low, and let’s apply this to a 5-year time span. If you’re making $50,000 a year and you are as frugal as me or more and you save 50% of your income every year. With that inflating away at 9% per year, you end up with $93,035 or so after 5 years having lost $31,965 to inflation. So by not investing, you’re already down about 26%. Given you’ll need more than $93,000 for your down payment, I think it’s reasonable to say this could take you at least 5 to 10 years to save. The thing is, if you invest that money right, you could instead retire in 5 to 10 years. Instead, that just gets you started on your mortgage that you may work another 10-30 years to pay off.

Are you renting or putting equity into a home? What works best at what age? What’s right for you? Let me know what you think about this in the comments below and don’t forget to subscribe!

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*Disclaimer: This is not financial advice and is purely for entertainment purposes. What you see, hear, or read is my personal opinion, and any statements made are based on my views and should not be misconstrued as fact. My crypto portfolio may or may not be simulated*