How To “Lie” With Personal Finance – Part 2 (Homeownership Edition)

Remember the blog post from a few months ago, How To “Lie” With Personal Finance? I got a fresh set of four new “lies” today! Again, just for the record, that other post and today’s post should be understood as a way to spot the lies and misunderstandings in the personal finance world, not a manual to manufacture those lies. Of course!

This one is about the rent vs. homeownership debate. Is homeownership a wise financial decision? I’m not going to answer this question here. It’s a calculation that’s highly dependent on personal factors. I lean toward homeownership over renting but that’s because of our idiosyncratic personal preferences – our ideal early retirement lifestyle involves having a stable home base in a good school district. For us personally, the monetary side of homeownership has also worked out pretty well (“My best investment ever: Homeownership?!”) and I like to hedge against Sequence Risk in early retirement by taking a small chunk of our net worth – just under 10% – and “investing” it in an asset that lowers our mandatory expenses because we don’t have to pay rent. But I can certainly see how some other folks, whether retired or not, would prefer to rent. I certainly don’t want to talk anyone out of renting. But on the web, you sometimes read pretty nonsensical arguments against homeownership. And just for balance, there’s also a prominent lie in favor of homeownership. This is going to be interesting; let’s take a look… Continue reading “How To “Lie” With Personal Finance – Part 2 (Homeownership Edition)”

See that house over there? It’s an investment!

Few topics in personal finance and in the early retirement community stir up emotions as nicely as the pros and cons of homeownership. Some folks in the FIRE community are renters and swear by it and others are very happy homeowners and/or real estate investors. Neither side is wrong. Those with more nomadic lifestyles probably prefer renting and the those with kids in school and strong ties to the local community are apparently happy homeowners. Normally, the two sides just coexist peacefully but discussions normally get heated and sparks fly when one side accuses the other of doing something wrong. If I had to distill the arguments of the two sides into bumper stickers it would be:

  • Homeowners: Renting is just throwing away money!
  • Renters: A house is not an investment at all. Or it’s a terrible investment!

But of course, both claims are just that: bumper stickers. And both claims are demonstrably false and/or crude generalizations! Let’s look more into the math of the rent vs. own tradeoff… Continue reading “See that house over there? It’s an investment!”

Real Estate: Buy or Rent?

If there’s one major disagreement in the Early Retirement community it’s on buying vs. renting your home:

  • Mr. Money Mustache apparently owned two homes at some point, lived in one and rented out the other. Both properties were paid off. He might have sold the rental property recently if I remember correctly, but still owns his primary residence. Owning real estate seems to have worked out all right for him. But he also points out that if you have to live in a large metro area, renting an apartment in town is probably better than owning a McMansion in the suburbs, with all the additional costs attached to it, see here.
  • Go Curry Cracker are renters. Mr. GCC had a bit of a traumatic experience as both a homeowner and an involuntary landlord. Besides, with their busy travel schedule they seem better served renting.
  • Jlcollinsnh thinks owning a house is a terrible investment.
  • Yours truly, Mr. and Mrs. ERN, live in a condo. The property has appreciated quite a bit since the purchase. But had we invested the down payment in an equity index fund, we would have gained as well. I once did a careful exercise to calculate our current gain net of the equity index opportunity cost, and we did come out ahead quite a bit owning our place. But this experience may not be typical. It may certainly not be replicable going forward.

We personally believe that the pros and cons of homeownership are about balanced. The median household with the median income and wealth living in the median U.S. city should be about indifferent between renting and owning. The personal idiosyncratic factors would tip the scale in one direction or the other: Continue reading “Real Estate: Buy or Rent?”