Overhead: Is there anything more simple than Renting?
- Posted by chicagosean
- on April 13th, 2011
I recently had a discussion with the proud papa of my new baby niece Emma (who was born yesterday), about my thoughts on buying versus renting a home. Much has been written about the topic by people much more qualified than me to compare the actual and opportunity costs involved in buying versus renting. And from what I’ve read, there seems to be no real clear-cut answer that is universal for everyone.
However, my point of view on the topic comes from a simplicity standpoint. After all, that’s what I write about here, right?
My wife and I have been renters now for 14 years, and we see no reason to change that. It wasn’t by any real grand design. In fact, I consider us lucky. In the early 2000′s we were in a position to buy and went on a bunch of home tours to see what was available. But for no real reason, we didn’t pull the trigger. We were living in Florida at the time and real estate prices just seemed a little too high (little did we know they’d soar much higher in just a few short years). Our frame of reference was Buffalo, NY real estate prices where $100,000 buys you a really nice home on a large suburban lot in a great school district.
Later on, because of poor personal money management on my part, we continued to rent because financially it was all we could afford. Meanwhile, it seemed everyone around us was getting rich flipping houses and buying McMansions with little-to-no money down and non-existent interest rates. We were the outsiders at the party.
Well, hindsight being 20/20, we are very happy we never took on a mortgage obligation on a house that no doubt would be valued today far less than whatever we would’ve paid for it. And it was because of this that when an opportunity to move to Chicago presented itself in 2003, it was very easy for us to pick up and move at the end of our lease and start a new chapter in a great new city.
Which brings me to why I love renting: Simplicity, flexibility/adaptability, and affordability.
As a home owner, one must make sure you keep your house up and running. This means you are responsible for any and all repairs – no matter how much they cost, lawn/yard maintenance, shoveling, etc. In addition to these headaches, you have to write checks for your mortgage, property taxes, school taxes, corruption taxes (in Chicago), etc. These things add up, and they all require a little work. As a renter, I write one check each month. And if something breaks, I make one phone call and its fixed. Is there anything more simple than that?
As a home owner, a house can act as a very significant anchor that restricts your opportunities – especially in a down market (which I don’t see ending anytime soon). If a job or lifestyle opportunity opens up in another part of town, city, or even another country, it may be very difficult to sell your home for a suitable price in a timely fashion. As a renter, the worst case situation is we have to wait until our lease is up (which is usually less than a year). However, it would probably be pretty easy to escape our lease if the situation warranted.
Or maybe our income has dramatically changed (hopefully for the better) and we’d like to change our living situation to reflect our new station? As a renter, its pretty easy to get a change of scenery. And many times, it can be pretty affordable to find an adequate rental in a really swanky part of town that we’d never be able to afford to buy in (like Gold Coast in Chicago). The beauty of renting is we have the flexibility to adapt our living situation to our current financial situation much easier than we would if we were tied down in a suffocating mortgage. Sure, the act of moving sucks (believe me, I HATE it), but having the flexibility to do so when needed (or wanted) is tremendous freedom.
Touched on it a little above… but to add to the point, I’d much rather be paying out $1800/mo for rent and investing the rest than shelling out $4000/mo for a mortgage payment that barely nips at the principle for the first 5-10 years. Yes yes, I know there’s a lot of math involved here regarding building equity long term – yada yada yada. I don’t disagree with that entirely. But I just feel more comfortable having more money in my pocket now, as opposed to later. I think the Stock Market will yield better returns over my lifetime than owning a home will.
I’m a Trader and an Investor. And my #1 resource is cash. Without cash, it will be very difficult for me to make trades or investments. Why would I want to tie up a significant portion of my future net worth in a possibly very illiquid investment? There’s got to be better opportunities out there than owning my own home.
The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.blog comments powered by Disqus
Sean McLaughlin - Editorial, Curation, & Investor Relations Solutions at StockTwits. Also, former Member of the Chicago Board of Trade who trades his own account in Boulder, Colorado. More »
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