Why You May be Better Off Renting Your Home

There’s no question, owning a home is the emotional preferred choice. It also fits more comfortably with him humanity’s tendency toward normalcy bias ? the general assumption that whatever has worked in the past will always work in the future. But as the nature and core structure of America’s economy continues to change rapidly, you may be better off renting your home than owning.

Let?s take a look at the major reasons why.

Why You May be Better Off Renting Your Home
Why You May be Better Off Renting Your Home

Renting Offers Greater Geographic Mobility to Follow a Job

In 2017, only 11% of Americans changed residences, which I believe is a record low. Much of this recent lack of mobility is attributed to the high cost of housing. It?s making it more difficult for homeowners to change jobs when a geographic move is required.

There?s even significant evidence homeownership deepened the Financial Meltdown, as homeowners were unable to relocate to follow new jobs.

This is a problem a renter doesn?t have. It?s much easier to get out of a lease arrangement than it is to sell a house.

There?s also the replacement factor. The homeowner will almost always look to replace a current house with a new one, as in buying in the new location. The renter can go from rental to rental, greatly reducing the stress, cost and complication of a relocation. This gives the renter a major advantage in following jobs.

This is an underrated advantage as well. Job stability in the 21st Century no longer matches up with the nature of long-term mortgages.

The average US worker holds a dozen different jobs during his or her working life, with an average of just 4.2 years per job stay. It?s a certainty some of those job changes are lateral moves, while others may be a step down.

The typical mortgage runs 15 to 30 years, and with all the job changes it?s very likely some of them compromise the homeowner?s ability to afford the house. By contrast, a renter can quickly trade down to less expensive quarters to better match up with what might be a reduced income situation.

No Trapped Capital

This is really the liquidity factor. For many middle class workers, the family home is the primary source of wealth. They may have very little in savings apart from their home equity.

But as much as home equity may seem comforting, it represents trapped capital. Unless you plan to sell your house, it?s not a liquid asset.

If you have $50,000 in home equity, you have two choices if you need the money:

  1. Sell the house, which is never easy and will require relocation, or
  2. take a home equity loan, which will increase monthly debt.

Neither is a good option.

But then there?s opportunity cost. That?s the question of what could that money be doing for you if it were invested elsewhere?

For example, if you were to invest $50,000 in a blended portfolio of stocks and bonds, paying an average of 7% per year, after 20 years, you?d have $193,485.

You may have that much home equity after 20 years, IF house prices in your area continue to rise steadily. But with an investment portfolio, not only would your money grow, but you?d have access to it if you needed it.

It?s capital, but it isn?t trapped like home equity is.

Owning is Not as Cheap as it Once Was

When it comes to buying and owning, most people (real estate agents in particular) focus almost entirely on two numbers: down payment and monthly payment. Your down payment and mortgage principal and interest payment are fixed costs, but every other expense connected with homeownership is a variable, and subject to move in only one direction ? higher.

The reality is owing a house isn?t as cheap as it used to be. Even if you pay off your mortgage (which also results in more trapped capital), you?ll still have major expenses to pay.

Property taxes. This varies by state. The average tax bill on the median priced house in New Jersey is $7,601. That?s an extreme example, but property taxes are going up all over.

Homeowner?s insurance is another major variable. The national average premium is $1,083 year, but it varies widely by state, specific locality, type of home, and previous claim history.

Not surprisingly, Florida is the highest at $2,055 per year. But a previous coworker of mine who used to live in Palm Beach County had to sell her house, due to her homeowner?s insurance. It was over $8,000!

Then there are repairs and maintenance. These costs are routinely ignored in rent-vs.-buy debate, but they can?t be.

Here?s why?

HomeAdvisor.com reports the average cost to replace the following systems:

  • Roof, $7,496
  • Furnace, $4,240
  • Central air conditioner, $5,392
  • Hot water heater, $1,059
  • Driveway, $4,173
  • Paint a house, $2,795 exterior, $1,751 interior

A home repair guy in one of my old neighborhoods said homeowners need to budget $300 to $500 per month for repairs and maintenance. I?ve crunched those numbers and they?re accurate. That adds $3,600 to $6,000 per year to the cost of owning.

And that?s probably why it?s commonly ignored.

Tax Reform Removed the Home Owner Tax Benefits for Most Homeowners

Due to historically low mortgage rates and gradually rising standard deductions, the tax deductibility of homeownership has been slowly disappearing. But that situation took an even more dramatic turn with the 2017 tax reforms.

For 2018 and subsequent years the standard deduction has been raised to $12,000 for singles and $24,000 for couples.

You?ll have to have some serious deductible expenses to even qualify for itemization.

For example, if you?re married filing jointly ? with a $24,000 standard deduction ? you probably won?t be able to write off your homeownership costs.

If you have a $300,000 mortgage with a rate of 4.5%, your interest deduction is $13,500. If you add $6,000 in property taxes, you?re only up to $19,500. That?s still not enough.

Even if you double those deductions to $39,000, only $15,000 of it would represent an itemized deduction. The first $24,000 is being given to you by the IRS.

If you?re in the 12% tax bracket, the tax savings on your house would be just $1,800 per year ($15,000 X 12%).

If you were a renter, you?d still get the $24,000 standard deduction, even though you don?t own a house.

This is another situation that favors the renter.

Greater Control of Your Time

This one doesn?t take too much thought or proof. As a homeowner you?re responsible for everything that happens in your house and on your property. Examples include:

  • Keeping the inside of the house clean.
  • Property maintenance ? mowing the lawn, trimming the hedges, shoveling snow, cleaning the gutters, etc.
  • Less frequent outdoor maintenance ? pressure washing the house and driveway, treating decks and fences, maintaining plants and shrubs, etc.
  • Fixing whatever?s broken, both inside and outside the house.

It all takes time, which means you have less time for everything else happening in your life.

That?s becoming increasingly important. In a world of increasing self-service ? where vendors and merchants put more work on the customer to cut operating costs ? time has become more limited than ever. Owning just takes up more of it.

By contrast, a renter only has to be concerned with keeping the inside of his or her home clean. That leaves more time for everything else, like?

  • Managing a demanding career.
  • Taking care of your spouse or children.
  • Dealing with a career or financial crisis.
  • Traveling.
  • Doing fun stuff.
  • Engaging in serious hobbies or passions.
  • Taking care of your health.

Rent and Save the Difference

You?ve undoubtedly heard the life insurance saying, buy term and invest the difference. Term life costs about 10% as much as whole life. If you invest the 90% you?re not spending on life insurance, you can build up a small fortune.

The same can be said of renting vs. owning your house.

For example?

You have a chance to buy a $250,000 house. You?ll make a $50,000 down payment, and take a 30 year mortgage at 4.5% for $200,000. The monthly principal and interest will be $1,013. You?ll also pay $5,000 in real estate taxes, and $1,000 in homeowner?s insurance. The total monthly payment will be $1,513.

If you?re married filing jointly, you won?t be able to itemize your housing costs. However, we?ll assume the house isn?t in a homeowner?s association neighborhood, requiring yet another fee.

The alternative is to rent a similar sized house, apartment or condominium at $1,500 per month. The monthly payments between renting and owning are roughly equal, and neither gets a tax benefit.

But there are two major costs you?ll have as an owner that you won?t have as a renter:

  • The $50,000 down payment (we?re ignoring the extra investment of closing costs and escrows due at closing), and
  • roughly $5,000 per year in repairs and maintenance.

Let?s say you decide to rent and ?invest the difference?.

You?ve got $50,000 to invest up front (the down payment that wasn?t made), plus another $5,000 per year you?re not spending on repairs and maintenance.

If you invest in a blended portfolio of stocks and bonds averaging 7% per year, in 30 years you?d have $870,644.

Even if you paid off your mortgage (and never recast it), and the house tripled in value to $750,000 in 30 years, you?d still be better off renting.

You Never REALLY Own Your Home

I wrote an article on this topic a couple of years ago, Do You Ever REALLY Own Your Home? and it?s an increasingly valid issue.

There was a time ? only a generation or two ago ? when you could pretty much do anything you wanted with your own property. Those days are gone. The reality is that while you are fully responsible for your property, including both the financial and property maintenance sides, you?re largely limited in what you can do with it.

I would even argue that the whole concept of homeownership today would be unrecognizable to homeowners 50 years ago.

Just a few of the common prohibitions owners face include:

  • Running certain types of businesses.
  • Storing items, like cars or business inventory.
  • The number and relationship of occupants (restrictions against taking in boarders).
  • Food production (large vegetable gardens or a chicken coop).
  • Composting or burning compost.

You may agree with any or all those restrictions. But when I was growing up in the 60s and 70s, in a well-to-do New York City suburb, each of those activities were common for homeowners. Today, those are only the most general prohibitions. Some communities impose limits on even more subtle activities.

There’s also the property tax factor. A county or municipality can raise your taxes substantially, and you’ll have nothing to say about it. It happens in the real world.

And still staying on the legal side of the ledger, if you get involved in any financial disputes, a lien can be attached to your property. That’s always been true, but it’s just much more common today.

One of the main reasons people prefer to own is precisely to have greater use of their home. But today, that freedom isn’t always there.

The HOA Complication

The situation is even more serious if you buy in an HOA neighborhood. I?ve lived in three in my lifetime, and no one can convince me they?re benign.

As well, 15 years in the mortgage business showed me most people think HOAs are wonderful places, but largely because they don?t know any better. But trust me, all you need is one run in with the HOA board ? over an issue you think of as your inherent right as a homeowner ? and you?ll realize the frightening truth. (Don?t say I didn?t warn you!)

The overriding question that needs to be asked is are the increasingly limited ?freedoms? enjoyed by homeowners sufficient to offset the greater mobility and lower level of responsibility enjoyed by renters?

I?d argue it?s increasingly untrue.

Final Thoughts on Why You May be Better Off Renting Your Home

So why am I going through this list? Isn?t it un-American to cast homeownership in anything but a positive light?

I?m far more concerned about helping people survive and thrive in what has become an increasingly unpredictable economy, especially on the employment front.

The mainstream media advocate for homeownership because real estate related businesses are major revenue providing advertisers. The media is pitching for their sponsors.

But life should teach us that when everyone?s lining up on one side of the boat, it?s time to explore the possibilities on the other side.

Despite the happy talk from the government, industry leaders, the media and economists, America?s middle class is gradually being squeezed out of existence.

The only rational response to that reality is to develop strategies to earn more income, create more income sources, find ways to save and invest, cut basic living expenses, and embrace flexibility and mobility as virtues. Increasingly, renting is fitting those strategies better than owning.

Do you agree that we?re gradually moving toward a time when renting makes more sense than owning?

( Photo by Brett VA )

18 Responses to Why You May be Better Off Renting Your Home

  1. The problem is that where I live, we have watched renting neighbors get caught in a dangerous loop and we fear it is only a matter of time before it happens to my family. Scenario — average home sells for $150,000 – $160,000. These are duplexes and it is very common for owners to use them as rental properties. For the past several years, instead of someone local buying it with a traditional mortgage, out of state speculators literally swoop in and pay ALL IN CASH. The MINUTE settlement is made, they rent out the house for $200 – $300 more a month than whatever the previous rent was. How? By renting to those who qualify for Section 8. Which HAS brought blight and crime to the neighborhood. Now in the past month, next door neighbor sold his house for $280,000 to these out-of-state speculators. Why did they pay that much ($100K over current market rate)? I don’t know, but I do know that the temptation for my landlord and landlady to scoop up that kind of cash if offered to them is going to be overwhelming. We are dreading the day we are told “we just sold your place and either 1. you have to move out in 2 – 3 months or 2. Your rent just went up $300 a month (with no improvements made, I might add)”. We are looking for a cheap retirement home upstate, with no HOA, that we can buy in cash, so that once we move in, we no longer have to fear crazy rental markets and being told we have to move.

  2. PS We make too much to qualify for Section 8, LIHEAP, or any of the other “goodies” my new neighbors are getting.

  3. Hi Irene – You’re raising a lot of excellent points. I’ve heard of that happening in NYC, San Francisco and Miami, but not elsewhere. Unfortunately, the same thing is happening with owner-occupied houses. Prices are getting bid up by people with deep pockets, and as they do, property taxes and insurance are going up commensurately. Long time residents are being forced out, especially the young and the elderly. In my home town in New Jersey, the median house price is now about $800,000. It was once home to shopkeepers, factory workers and managers. I’m sure most are gone now, and I have no idea who lives there.

    The housing situation is much like healthcare and education, in that it’s in a bubble that’s causing distortions. But it’s another reason why I think renting is the better strategy. Things are changing quickly, and renting allows you to be more flexible. Your situation is an example. You’re thinking of moving to a place where housing is cheaper and buying a house for cash. Because you’re a renter, you can make that decision and act on it when you’re ready.

    But obviously, there are no easy solutions with housing in most markets. No matter which course you choose, you’ll have to make compromises. I’ve been unpleasantly surprised to find how expensive housing is in New Hampshire, whether it’s renting or owning.

    I even read an article recently about rural housing being expensive to buy across the country. Seems people aren’t moving out of existing housing and when they do move out (or die) the houses are run down and need tens of thousands in renovations. Meanwhile no new housing is being built in those areas, so what is available it priced too high for the local economy, which has few or no jobs to support such a purchase.

    There are big picture reasons why this is happening, but they’re far to complicated to go into here.

  4. Hi Kevin. I would like to hear about your big-picture reasons you mentioned, perhaps in a future post. I know you have talked about this before, but a refresher is always nice. We live in a rural area in a rural state, and affordable housing is a problem here as well. There are many beautiful homes here, but anything that is affordable is getting thin, and if it is, many repairs and upgrades are needed. When I’m saying affordable, I’m talking $200,000 to $300,000. Anything lower than $200,000 is going to need a lot of work, a lot! Everyone’s standards are different, and I like nice stuff as much as the next guy, but I do see how difficult it can be for young families trying to get a decent home. Even at $200,000, you’d need to save 30,000 to 40,000 for a proper down payment, and then how can you do the necessary repairs. Plus, it’s not just cost but also the availability because we live in a low population area with still very high taxes. I’m still a believer in home-ownership, but it’s getting more and more difficult. Renting is not risk-free either because, as Irene stated, they can raise your rent anytime to cover the owner’s expenses. I’m not disagreeing with your article because it has many valid points. It just seems that neither path is easy anymore.

  5. Your last point, that neither path is easy anymore hits the nail on the head Bev. But what I’m thinking with renting is that it gives the kind of flexibility that the economy is now requiring, like the ability to follow a job, or relocate to less expensive housing (or a less expensive area). I believe people still cling to homeownership because, among other things, there’s still the unspoken history of housing that it can also be a place where you make your living (farming, running a shop, taking in boarders, etc). But in most locations, at least metropolitan ones where most people now live, you can’t do any of that.

    I’ve seen the high housing costs in Vermont that you’re talking about, especially in the Burlington area. That was an area on our radar when we moved a few years ago, but the price levels didn’t seem supported by the economy. My wife and I have had a desire to move to Vermont for over 30 years, but in the end, economic factors won out, and we decided on New Hampshire.

    As to the big picture issues, I’ll try to keep this brief. Inflation is the first major problem. It’s caused asset prices, like stocks and housing to rise out of all proportion to average incomes. With housing the problem is more acute since it involves shelter. Apart from inflation, artificially low interest rates since 2009 have caused a nine year price spiral, that once again isn’t being shared by the average worker. There have also been a succession of programs designed to accelerate homeownership, like zero down loans, down payment assistance, bad credit loans, no income verification loans, and even tax credits for buyers. It’s all been designed to get people to buy who normally wouldn’t, or would have to save up a down payment.

    Had none of that happened, we’d have a normal housing market, like the 50s and 60s. Housing would be steady in price and affordability, rather than these boom cycles that make it unaffordable, followed by busts that make it impossible to sell and leads to foreclosures and bankruptcies. But it’s all public policy at the highest levels (mainly the Federal Reserve).

    And speaking of public policy, local communities limit housing construction, which is mostly about protecting and enhancing property values for current homeowners. They do this in various ways that can seem noble, but always produce the same result. For example, some limit new construction entirely. Others create difficult restrictions, like minimum house size or property size, essentially favoring McMansions over more practical housing. Many also zone out multi-family housing, like apartments, condos and 2-4 family houses. If all your building are McMansions, there’s no place for the working class to live.

    Not to mention the perpetual rise of the stock market in combination with super low interest rates (the two are closely connected) has created a huge wave of millionaires who can and are bidding up house prices to absurd levels, or at least keeping up strong demand for the McMansions.

    I hope I haven’t bored you or anyone else with this stuff, but this is the reality of both the housing market and the economy.

  6. Lose your job and if you’re renting you are out in 30 days if you can’t make the rent. If a homeowner you have options even bankruptcy to keep you from living in your car, live off the equity, but with renting you are out in the street looking crazy homeless. Be smart and pay your bills and don’t live above your means. O

  7. SSO – Your last sentence makes sense for everyone, owner or renter. But I don’t agree that it’s easier if you’re a homeowner and lose your job. If the furnace blows or the roof springs a leak, you’ve got additional expenses. And personally, I don’t think it’s an advantage for someone to use bankruptcy to keep their house. In most cases, if it gets to that point, the fundamental problem is they can’t afford the house, esp since it’s usually their biggest single expense by far.

    I saw several homeowners use such strategies to keep from losing their houses, as if keeping the house was the most important issue. Most succeeded in keeping the sheriff away for a time, but ultimately all ended up losing the house. It’s often a case of throwing good money after bad, and it doesn’t end well.

    Also, here’s another nightmare scenario…if you short sell your house in a bad market (sell at a loss) or foreclosure, the lender in most states does have the right to pursue your other assets for the remaining balance. But more commonly, they issue a 1099 to you and to the IRS for forgiveness of debt income, causing a tax liability. For example, if you owe $300,000 on the house, and the lender sells it for $250,000, there’s a shortfall of $50,000, plus unpaid interest, legal fees, and selling costs. You may get a 1099 for $100,000 at the beginning of the following year. You’ll have to declare that as other income on your tax return.

    I prepared taxes for a number of years, and saw that happen a lot after the Financial Meltdown. Sometimes the 1099 numbers were a lot higher than that. This is an example of one of the risks of homeownerhip that most people ignore. As Bev said in her comment, neither path is easy anymore.

  8. 1) renters pay property tax, when taxes goes up so does the rent.

    2) I own some rentals and the renters pay over $500 a month above my payment/tax/insurance,so they could be home owners and possibly break even with your numbers, (I am in a high rent area and I could easily push that up another 2-3 hundred but I like my renters and they do a better job keeping the house up when they see similar houses renting for more than they pay).

    3) my renters are in charge of all landscaping, power washing and the such and if they do not keep it up, it is written in the lease that I hire it out and they pay for it. Now if they were in apartments that would be no trouble but we are comparing home ownership to rentals so we should only be talking about single family homes.

    4) if you have an extra $5000 to put into the market you would have that regardless if you rent or not, only the initial down payment would not be there.

    5) The new tax law helps the majority of lower income lower home priced individual. By increasing the deduction above and beyond what they normally would have deducted, unless you are in CA/NY or other high income tax states, now if you rent, you get that deduction and it is a BONUS for them…

    6) If you stop paying rent you are gone in 30 days if you own, you can stay a year without paying anything… I seen this in the 2009 recession, lots of people, my neighbor in fact lived in his house for over a year and did not pay a dime to the bank or the city, now he filed for bankruptcy when it was all over but he was not out on the street…

    7) BUT all that being said, you do make great points against ownership and if you do not plan on being in the same house for 10+ years and cannot afford to do a 15 year mortgage instead of a 30 and you do not have some basic handyman skills, it is probably better to rent.

    My wife’s parents have a rental on their property and they have rented to the same individual for over 25 years, that person has paid for the house and then some.

    Thanks for a great well researched article.

  9. Hi Rick – I think what you’re describing is true in high rent markets. But there are a lot of areas where landlords can’t pass on higher costs. For example, taxes and insurance may go up by $100 per month, but the landlord can up the rent only $50. If he pushes it too high, the tenant may move, causing a vacancy of one or two months, as well as repainting and other expenses. It’s not an automatic adjustment in the landlord’s favor.

    Also, even if the tenant has to maintain the outside of the property, you can’t hit them for upgrades, like a new roof or driveway. That may shift some of the R&M cost to the tenant, but as the owner you still have the lion’s share. So I think the extra $5k per year is a legitimate tenant benefit. For example, I had to pay $4,400 to replace a central AC unit, that a tenant wouldn’t have to pay. That’s what I was referring to. That won’t change because the tenant is responsible for mowing the lawn.

    As to #6 I’ve seen the darker side of what happens when an owner can’t make the payments, and it’s not as neat and pretty as it is in theory. I too have seen people stay in their homes for a year or more – without making payments – but it catches up with them. Contrary to folklore, most people who lose their homes or rentals don’t end up on the street. And when they do it’s usually because they could barely afford where they were living before things got really bad.

    Let me also add that right now we’re describing what has turned into a 9 year bull market for landlords. The rent-vs-own debate is still a close one. But when the economy turns down, and the bull market in real estate shuts down or turns negative, tenants will have the advantage. For what it’s worth, from 1930 through the early 40s there was a prolonged “tenant’s market”. Even during the Financial Meltdown, tenants generally fared better than owners, millions of whom lost their homes, despite efforts to delay the outcome.

  10. Kevin, after owning a home for 18 years, it was not a great transition to go back to renting for three years. It made sense, at the time, for the flexibilty to move, as you point out. That?s why we did it. But it was hard to adjust to apartment life after being in a single family home. There was little privacy, a lot noise from tenants upstairs, and we had a view of a parking lot. It was nice not to have to do maintenance, BUT…on the other hand, we waited weeks to have the refrigerator replaced when it stopped keeping the food cold. Then the landlord did upgrades to our apartment ? an inconvenience for about a week ?and raised the rent by $200 a month within less than 2 years.

    We had considered renting a single family house, but we needed flexible lease terms ? something only available from corporate landlords ? and didn?t want to mow someone else?s lawn.

    When we eventually moved to another state (careeer move), it was to a small town in a more rural part of the state. There was nothing suitable to rent. No apartments in the town except for income-restricted or 62+ apartments. There were less than a half dozen single family homes for rent, but they were old and run down ? no central air conditioning, old kitchen appliances, disgusting carpet, etc. There was one SF home that was renting for $1,000 per month OVER our budget ? it was one of those estate-sized homes for a large family, We had no choice but to look at homes to buy instead. And even considering the maintenance costs, it was the only choice that made sense.

    And once you get to the point that the house is paid off, or where you can downsize and pay cash for a house, it becomes more expensive to rent than own. Even adding $300-$500 per month for maintenance to the taxes and insurance ? that?s still maybe half the cost of monthly rent for a decent place that?s not a dump. At least, that?s the case in the cities/towns where we live and where we?re looking to downsize soon.

    And, of course, no HOAs for us! Where we live, it?s still easy to avoid them. And I think that if people really want to avoid HOAs, condos, then they will probably have to move to the northeast or the midwest, and avoid the insanely pricey big cities.

    The best buy/rent choice really depends on the local housing market.

  11. You’re right Deborah, it really does depend on where you live. Over the years we’ve owned and we’ve rented and I’ve generally found renting to be less expensive and more pleasurable. And that’s been in New Jersey, Georgia and New Hampshire. One thing I have become aware of though is that a lot of properties that are owner-occupied are run down, as if nothing has been done to improve them in 15-20 years. A lot of times this is the elderly, but not always. And it confirms that a lot of people don’t have the money for repairs and maintenance, even if they’re comfortably managing the basic monthly payment. I also see people leaving maybe a step or two above homelessness, despite having substantial home equity. That makes little sense to me.

    In the article, my goal was to open people’s eyes to a different way of looking at things, and of conducing your life. Even in cases where renting may be more expensive, the flexibility and reduced responsibility may be a critical factor in managing a less certain career and economy.

  12. OOPS !! I was looking for insight regarding SELLING vs RENTING this no mortgage home. Have you done that analysis yet? Anyway, your logic is spot-on. Fixed and variable expenses for this 20 year old home (no major repairs yet) are 750 per month. 650/yr insurance. 2,400 taxes. I could take in one tenant for 700 per month IF there was such a thing as an ideal tenant. So, what happens when this 230,000 structure goes on the market? Currently converting a small box truck to a super-insulated, stealth RV toy hauler to tour bike paths in the US with my battery powered mountain bikes. NO MORE high density residential living in HOA controlled communities for me. I’ll take a pole barn on a few acres in Michigan to store my stuff and travel/live like a modern day Jeremiah Johnson. This 4 bedroom house could/should rent for 2,000/month to a family OR more likely a single “master tenant” who get a discount for being the property manager and renting out the other 3 bedrooms. 4 tenants would also generate about 2,000/month less 500? expenses. 230K @ 5 percent (conservative portfolio) would generate about 10,000/yr. The decision becomes enduring the potential headaches of renting for additional 400? month income.

  13. Hi George – The article doesn’t deal with selling vs renting, but in your case it sounds like selling makes more sense. You’re looking to go mobile, which is not conducive to being a landlord. And it looks like the return on the proceeds of the sale will produce a higher net income with fewer headaches. I think you’ve already made the decision, based on the numbers you’re showing.

  14. There are some areas of the country where owning is better than renting. There are some areas where renting is better than owning. I think it depends on where you live.

    Having an action plan with your life for me is key. No matter what you do it has to fit with your goals.
    Example, I’ll use my life as an example. Freedom is key for me. I don’t want to be forced to do anything that I don’t want. So I tried to create a lifestyle that fits into that. I own my home free and clear. It isn’t just a home. It has two apartments. One is where I live. The entire upstairs, which is bigger than my last home. I have a separate apartment downstairs where my mother in law lives. In the front of her apartment is a business space. Since I don’t want to be forced to move because of a job market or corporation who decides to downsize and eliminate your job. I started my own business. I have the business in the same building. So essentially I created my own job market. Not forced to answer to anybody else. I close or move if I want to. If I fail at a business, I still own my home and can get a meaningless job to pay for basic monthly expenses. I know enough people in this city that I know I can get a job if need be. Living here for 54 years I have developed relationships and contacts that I would not have moving from place to place.

    I have stayed debt free my whole life. Which has allowed me to save, invest and as much as possible insulate myself enough that I can weather an economic downturn. I bought a small vacant lot that I built a garden on.

    I’m not saying this to brag. My point is to have a plan. To know yourself and what is most important to you. Payments, debt, mortgages, car payments, etc, etc. Are all forms of slavery that take away power from us and gives it to financial institutions and jobs. It forces you to make decisions that you shouldn’t have to make or want to make. Forced decisions are bad decisions. None of what is said above should matter to anybody if you create a lifestyle that involves freedom of choice.

    Of course, we are all one disaster away from losing everything. That will never change. A sickness or major injury can derail the best plans. That doesn’t mean you shouldn’t have one.
    It’s all about flexibility and freedom of choice. That is what I believe Kevin is pointing out more than anything. Some cases it is better to rent. Some cases it isn’t. It depends on your goals in life and what is more important.
    The days of getting a job, staying there for 40 years, keeping the same house and retiring are over. That was my father’s life. It isn’t mine. It’s a different time now. His way of doing things is finished. The quicker we realize that and except it. The better we can make a plan based on what is happening now.

    It’s not too late for anybody. If I was tied to things like a job or mortgage I would sit down and develop a plan to change it. I did it a long time ago. There was a time where I could see the trap I was getting into. I stayed debt free but it was getting harder. I sat down and I ended up selling everything and starting over the way I wanted.
    Sometimes we have to free by eliminating emotion from our minds and just get rid of what is not working. I have seen also people who are emotionally tied to a home and will go to all lengths to stay there. Why? we don’t own it anyway. Someone else will when your gone. We are renting anyway. Can’t take it with you. It’s a roof over your head. That’s it. A consumer good like everything else.

    We can crunch numbers all we want and make arguments for or against. To me, it’s all about knowing what you want and living your life according to that. To do that though we can’t be tossed about to and fro reacting instead of acting. Things always look good that come along but if it doesn’t fit into my priority of freedom of choice as much as possible than it doesn’t happen.

    Sorry if this sounds like a lecture. I’m lecturing myself as much as anybody. I can drift with the best of em. Writing this keeps me in touch with reality.

  15. Hi Tim – I’m embarrassed to say you wrote what I tried to write better than I did! I naturally agree with everything you’ve written. You made a point about “we are renting anyway”, and that’s a MAJOR point I failed to include in the article. Whether you pay rent to a landlord, or to a bank – in the form of interest on your mortgage (interest is rent on money borrowed) – you’re still paying rent. Property taxes are a similar story. You never fully own your home no matter how you want to interpret it. It’s even worse in an HOA.

    But the way you own your house Tim is the old fashioned way. I wrote about this before in Buying a House with Income Potential. That means buying a property where you can live, but also grow food, rent out to tenants or boarders for income, or run a shop. Your house counts on all fronts. You live there with your family, you have a second unit for your mother-in-law (which could also be a rental), you have a garden, and you run a business out of it. That’s what a house was for centuries.

    In the past 75 years or so, a house has become shelter only. That means it’s a consumer good, not an investment. An investment provides a financial return. Most people confuse appreciation with financial return, but that’s really speculation that it will continue in the future. But appreciation isn’t income. You can’t spend it unless you borrow it out, which creates a debt with a new payment. And since most people buy a new house that’s even more expensive than the one they sold, they never get their return until they finally sell and downsize or move to a rental (which surprisingly few do, despite the fanfare it generates). That gets back to the trapped capital dilemma.

    Owning a property that generates in income, in my opinion, is the true reason to own a house. Otherwise you’re just taking on a battery of rising expenses to try and fit in with the culture. There’s always a price to be paid for conformity, and most people either underestimate it or ignore it entirely. But your house Tim represents classic, historical homeownership, the kind very few Americans have any more.

  16. Hi Kevin. I’d like to comment that I think Tim K’s situation sounds ideal and relates perfectly to your article, even though you wrote of the advantages of renting. He essentially stated that we all have to decide what is best for ourselves and our family, and there are pros and cons to both….owning or renting. His situation of having a home/house for his mother-in-law, his business, and his own family solves many issues we all face. I would love to own a property that generates income, and we’re actually looking at one right now for when/if we ever retire. It has a nice apartment attached to the house. It’s a whole new road for us, literally and figuratively, but it’s true what you said about houses becoming trophies for us to show to the world. Again, when I think on what you wrote, it was never like that 50,60,70 years ago. My family stayed in the same 2 BR, 1 bath home for 60 years, got married there, died there. There’s a lot to be said for going back to that way of home ownership…having the ability to rent out a room, land you own or a barn, or something. Many people here own land and lease it to the farmers for corn, crops, large gardens, etc. But you can’t do that in many places today because of zoning and HOA’s. That’s a whole other issue, and, again, one with pros and cons, but again something to consider. People are moving back and forth, all over the country now and never seem to develop that sense of community that’s sadly been lost. I need to stop and go watch an old movie!

  17. Bev – You and I are roughly the same age, and are both ex-surburbanites (or converts of some sort) so we see often see things in a similar way. Historically, the whole idea behind land ownership was what you did with it, meaning how it generated a living or income for you. The attachment to “land” – meaning a house in a metropolitan area on a cookie cutter lot – still holds fascination with people. But the original reasons why land ownership was valued was because of what you could do with it.

    You put it perfectly when you referred to houses today as being trophies. That’s exactly what McMansions are. Heck, if you can live comfortably in 2000 square feet, but you buy a house with 5,000, you’re either a) indulging yourself, b) showing off, or c) both. That’s why I wrote in the article that the whole concept of homeownership today would look unrecognizable to people 50 or 60 years ago. Tim’s housing situation probably describes fewer than 10% of homeownership today. That’s also why so many people are so tightly stretched financially. The whole concept of committing $300,000 or $500,000 or more just to provide shelter – with no cash flow of any sort coming from it – is really something of a perversion if you really think about it. It’s the tip of the iceberg on how impractical we’ve become as a culture, and most don’t even see it.

    One of the inherent limits of being a contrarian is that you have to accept being a “voice in the woods”. I tend to not see things the way most people do, and that’s what inspires the topics and my ideas on them. I figure if people want mainstream opinions on everything there are a lot more sources to turn to. I’m content with my role as a pariah, and looking to inspire true thinking outside the box. My hope is it gets a few people to think about things differently, or at least to begin questioning why they do the things they do. I’ve been very encouraged by the feedback from you and others on this blog.

  18. Thanks for the vote of confidence. I read a book in my early twenties that talked about this concept. It basically said that anything you own if it doesn’t put money in your pocket then it is basically a consumer good.

    Think about how much time, money are spent maintaining a consumer good. Your right, home equity is a myth. It is tied up. You can’t use it. You could borrow on it but like you said, it generates another bill or payment. Most borrow to finance other consumer goods in life that do not do you much good in the long run or provide income above and beyond the payment it generates.

    The only way to cash out so to speak is to sell and not repurchase anything. Then it raises the issue of where your going to live. You could sell and purchase something for a lot less and pocket the rest. So you can put some of it a way. You never see the full potential of what you could.

    It has been sold to the public as an investment but it never really pays off.

    The only way I can see it being worth it is to sell, purchase a multi unit building for less than you sold. Live in it for free and pocket the rents as income.

    I honestly have never owned a single family home. I also have never lived in an area that double or triple digit gains can be made.
    The land under it to me is the only thing worth anything. If you think about it a home is like a car. It wears down. Needs repairs, gets beat up from use over time. There is no reason for it to go up in value.

    It is just another perversion used by the finance industry. That’s good ol America for you. Pervert anything for gain at the cost of the uninformed consumer.

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