Loved the article – the ending really got me. I rented for years and it was great… until the owner decided to sell and I had to go find a new place – and this happened more than once. Back then it was just me, so it sucked but I could deal with it. Now (with a wife, kids, schools, activities, etc...) getting forced to move would be a full-on disaster.
Honestly, the only real perk of owning for me is control. You’re not at the mercy of someone else’s plans. You can be financially independent, have no boss, live life on your own terms – but if you rent, your landlord is still kind of your boss. One decision from them and your whole setup gets flipped.
If I could sign a lease that guaranteed I could stay as long as I wanted (even with annual rent bumps tied to inflation) I’d do it immediately. Stability is the whole game – unfortunately buying is the only way to lock it in.
As far as making money, stocks/S&P500 is better than real estate in every single respect – as long as you don't do anything moronic like panic selling in a downmarket or using leverage or option instruments without understanding and accepting the risks that come along.
Such a great analogy! Landlords are kind of like a boss. You’re right - owning may not be cheaper, but it’s akin to financial independence which is worth something in and of itself.
I have kids, so I own a home to guarantee the school district until the youngest graduates. We’ve moved several times while they were growing up, so I wanted to give them the chance to at least experience the full four years of high school in one place. My eldest is in college, his 9th school in his lifetime!
you've touched on the real ROI here. Kind of the whole history of American is people fleeing rents that got raised against their will: Ireland, China, Italy, everywhere people were life-long renters... the American Dream of home ownership is embedded in a long past of people getting told "you don't live here anymore." It isn't that the value has to go up, its that the payment/investment stays (relatively) the same.
It is such a shame that Americans have to look at everything as a financial transaction. Housing has its financial implications-but it is an emotional transaction. Yes Condos and renting push the tasks of maintenance onto someone else-but you are still paying for it! It is the things you talk about-community, built memories, pride of ownership and the skills that go with it that makes owning worthwhile
We were lucky, in that my husband was enlisted during the tail end of the Vietnam War, so he got the associated benefits without going overseas (still, that certainly dates us!) and didn't need a down payment for our first house. I learned the trick about double paying the principal every month from a syndicated column in the newspaper, some lady that wrote about finances. We paid the 30 year mortgage off in 15 years. By then the kids had all moved out, so we downsized, got a bridge loan to pay for a townhouse and paid off the loan when our first house sold. We found a good financial agent and invested the balance from the sale. When my husband retired we did the same; moved to the country where prices were cheaper, paid cash for the house and invested the balance from the sale of the townhouse. There were certainly large repairs along the way, but we remained focused on the goal. Currently we are in a condo after our last move. There's a modest monthly dues and special assessments for major repairs on the historical old building we live in, but gosh it's great have ownership and not be answering to a landlord! Anybody who doesn't know, paying double principal on your mortgage is the ticket to freedom.
I'm totally with you about condo living. My HOA dues of $1k/mo seem ridiculous to house owners but it's worth it to have a place with almost no maintenance that I need to do and to be a in a secure high rise that I just leave on a whim to travel. And since it's not an apartment we owners choose what upgrades to do and what rules we have as a community.
My dad grew up going to the family cabin, and he warned me never to buy one or I’d spend most of my time there fixing it up. (He’s one of six, so his parents drank and spent time with friends while their kids did all the work.) It still boggles my mind that people want two houses! It’s hard enough keeping the 3 bathrooms in my home clean with three teen boys at home.
"Owning a home is as much a lifestyle choice as a financial decision."
This is such a powerful statement. Understanding the math is critical but as you articulate so well, the lifestyle component is massive.
Personally, I've made the conscious decision to buy a home knowing the math may or may not work in my favor. The deciding factor was how much I thought my lifestyle would benefit from the purchase. I was okay paying for the lifestyle even if the math doesn't work out over time.
This is wise. Personal RE is a a strange hybrid asset of a store of value that has negative cash flow and consumption. Buying where you live purely as an investment seems unwise. It has to make both affordability sense and something you think will make you happy.
I own a bunch of rentals too, but I decided not to muddy this post with that analysis. The advantages and pitfalls are roughly similar though. Owners are just less likely to get emotionally invested in rental property expenses and decisions.
Elizabeth - I understand your frustration regarding home ownership costs - specifically tied to roofs, leaks, mold, water, and more. I thought I was reading my autobiography. I have spent more on my Chicago townhome (also flat, with a nice city view) in repairs than my entire downpayment! Not sure who thought stucco would be ideal roof deck siding during Chicago winters 🤷🏻♂️ And, the worst part is the property tax which has more than doubled in a decade.
I tell my kids, and other family members - home ownership has huge risks that nobody really talks about and is often marketed as the "American Dream".
If there is one thing I would encourage someone to do if they are purchasing a home - buy below your means, then take savings, and monthly excess and invest. Build rainy day funds, vacation funds, etc. This was the one thing I got right. People are often surprised by how modest my home is ("Let them" thanks Mel Robbins), but I poured all that excess into the market. So when it does rain, and I hear a leak, I can look at my portfolio and say, "It could be worse" BW
The outsized returns on real estate since the 1970s are largely an inflation play - fat real growth above declining inflation, value multiplication as the discount rate dropped, free step-downs with no step-up in mortgage rates, all amped with flush leverage on easily up to 90% of value (w HELOCs).
But that historic and long-lasting tailwind is gone, and seems unlikely to come back.
I doubt we'll see aggressive drops in home prices across the country, but I can certainly see several decades of stagnation.
interesting take (and great view from the patio!) I remember someone saying one time they thought they bought a home, but they really bought electrical wiring and plumbing hidden behind sheetrock.
2 quick thoughts
1) thank you for pointing out in the notes that mileage may vary. The historic bull market has caused nearly every piece of advice today to end with "but you'll do better in the stock market." Maybe, but many long periods of underperformance and everyone just assumes they won't have to live through those.
2) real estate, especially in the best parts of places like Dallas, will probably continue to go up for a while, BUT didn't always. Adjusted for inflation, a home in Pittsburgh, Atlanta, Houston, etc. was worth the same in the 1990s had it had been in the 1990s (source: Fed Bank of Philly). The recent shortage is new, and also Dallas had one of the longest housing busts in US history. So, as you say, be very careful assuming the past gets to tell the future what to do.
to your point, the real value is in the stability, the inability to be upended because the landlord says so.
The opportunity costs of home ownership rarely get talked about. I believe those under 35 should just rent. As you said. . home ownership ties you down to one place. You can't easily move for a better career opportunity or study. . you are tied down financially so you can't take as many financial gambles.. (Good in some cases). And yes you are also tied to the other person who owns half the home and is paying half or more of the mortgage and expenses. . Your home could easily own you. Yes you can extricate yourself. .. but it is much more difficult and takes much longer.
My house is never going to appreciate much. But I bought it for under $100K and paid it off.
I’d have been crazy to rent! It’s generally cheaper to buy than to rent here in Cheaphouselandia. There wouldn’t have been even one extra dollar to devote to investing if I’d have rented. At least this way I have “only” taxes, insurance and maintenance.
Love this! Outside of expensive major metros, buying RE is usually the way to go. But the math really flips in HCOL cities like NYC and LA. The key is to be able to get into something you can actually afford.
The maths for buying a property are a bit different in Switzerland (my country) but the reflections behind it and the final conclusions are definitely the same. Happy to restack this Post.
This is extremely dependent on local market as you point out in your disclaimers. This should not be taken as general advice without understanding this very important caveat.
In the SF Bay Area, owning a home is the difference in many millions in net worth at retirement vs 100K in the hole every year and at the whims of a landlord for renters. Entering the real estate market as early as you can with atleast a 1 bedroom condo in a good neighborhood is the secret to selling and buying bigger till one can buy their forever home. The market appreciation in good school districts is unreal - we sold for a 150+% gain in 14 years.
Loved the article – the ending really got me. I rented for years and it was great… until the owner decided to sell and I had to go find a new place – and this happened more than once. Back then it was just me, so it sucked but I could deal with it. Now (with a wife, kids, schools, activities, etc...) getting forced to move would be a full-on disaster.
Honestly, the only real perk of owning for me is control. You’re not at the mercy of someone else’s plans. You can be financially independent, have no boss, live life on your own terms – but if you rent, your landlord is still kind of your boss. One decision from them and your whole setup gets flipped.
If I could sign a lease that guaranteed I could stay as long as I wanted (even with annual rent bumps tied to inflation) I’d do it immediately. Stability is the whole game – unfortunately buying is the only way to lock it in.
As far as making money, stocks/S&P500 is better than real estate in every single respect – as long as you don't do anything moronic like panic selling in a downmarket or using leverage or option instruments without understanding and accepting the risks that come along.
Such a great analogy! Landlords are kind of like a boss. You’re right - owning may not be cheaper, but it’s akin to financial independence which is worth something in and of itself.
I have kids, so I own a home to guarantee the school district until the youngest graduates. We’ve moved several times while they were growing up, so I wanted to give them the chance to at least experience the full four years of high school in one place. My eldest is in college, his 9th school in his lifetime!
you've touched on the real ROI here. Kind of the whole history of American is people fleeing rents that got raised against their will: Ireland, China, Italy, everywhere people were life-long renters... the American Dream of home ownership is embedded in a long past of people getting told "you don't live here anymore." It isn't that the value has to go up, its that the payment/investment stays (relatively) the same.
It is such a shame that Americans have to look at everything as a financial transaction. Housing has its financial implications-but it is an emotional transaction. Yes Condos and renting push the tasks of maintenance onto someone else-but you are still paying for it! It is the things you talk about-community, built memories, pride of ownership and the skills that go with it that makes owning worthwhile
We were lucky, in that my husband was enlisted during the tail end of the Vietnam War, so he got the associated benefits without going overseas (still, that certainly dates us!) and didn't need a down payment for our first house. I learned the trick about double paying the principal every month from a syndicated column in the newspaper, some lady that wrote about finances. We paid the 30 year mortgage off in 15 years. By then the kids had all moved out, so we downsized, got a bridge loan to pay for a townhouse and paid off the loan when our first house sold. We found a good financial agent and invested the balance from the sale. When my husband retired we did the same; moved to the country where prices were cheaper, paid cash for the house and invested the balance from the sale of the townhouse. There were certainly large repairs along the way, but we remained focused on the goal. Currently we are in a condo after our last move. There's a modest monthly dues and special assessments for major repairs on the historical old building we live in, but gosh it's great have ownership and not be answering to a landlord! Anybody who doesn't know, paying double principal on your mortgage is the ticket to freedom.
I'm totally with you about condo living. My HOA dues of $1k/mo seem ridiculous to house owners but it's worth it to have a place with almost no maintenance that I need to do and to be a in a secure high rise that I just leave on a whim to travel. And since it's not an apartment we owners choose what upgrades to do and what rules we have as a community.
You will pay someone’s mortgage; it may as well be your own.
My dad grew up going to the family cabin, and he warned me never to buy one or I’d spend most of my time there fixing it up. (He’s one of six, so his parents drank and spent time with friends while their kids did all the work.) It still boggles my mind that people want two houses! It’s hard enough keeping the 3 bathrooms in my home clean with three teen boys at home.
Totally! I thought I might want to own a second home for years but casually erased that from the goals list at some point and never looked back.
"Owning a home is as much a lifestyle choice as a financial decision."
This is such a powerful statement. Understanding the math is critical but as you articulate so well, the lifestyle component is massive.
Personally, I've made the conscious decision to buy a home knowing the math may or may not work in my favor. The deciding factor was how much I thought my lifestyle would benefit from the purchase. I was okay paying for the lifestyle even if the math doesn't work out over time.
This is wise. Personal RE is a a strange hybrid asset of a store of value that has negative cash flow and consumption. Buying where you live purely as an investment seems unwise. It has to make both affordability sense and something you think will make you happy.
My experience has been that you can invest in real estate or buy a home, and there's often very little overlap between the two.
I own a bunch of rentals too, but I decided not to muddy this post with that analysis. The advantages and pitfalls are roughly similar though. Owners are just less likely to get emotionally invested in rental property expenses and decisions.
Elizabeth - I understand your frustration regarding home ownership costs - specifically tied to roofs, leaks, mold, water, and more. I thought I was reading my autobiography. I have spent more on my Chicago townhome (also flat, with a nice city view) in repairs than my entire downpayment! Not sure who thought stucco would be ideal roof deck siding during Chicago winters 🤷🏻♂️ And, the worst part is the property tax which has more than doubled in a decade.
I tell my kids, and other family members - home ownership has huge risks that nobody really talks about and is often marketed as the "American Dream".
If there is one thing I would encourage someone to do if they are purchasing a home - buy below your means, then take savings, and monthly excess and invest. Build rainy day funds, vacation funds, etc. This was the one thing I got right. People are often surprised by how modest my home is ("Let them" thanks Mel Robbins), but I poured all that excess into the market. So when it does rain, and I hear a leak, I can look at my portfolio and say, "It could be worse" BW
An excellent article, thank you!
The outsized returns on real estate since the 1970s are largely an inflation play - fat real growth above declining inflation, value multiplication as the discount rate dropped, free step-downs with no step-up in mortgage rates, all amped with flush leverage on easily up to 90% of value (w HELOCs).
But that historic and long-lasting tailwind is gone, and seems unlikely to come back.
I doubt we'll see aggressive drops in home prices across the country, but I can certainly see several decades of stagnation.
interesting take (and great view from the patio!) I remember someone saying one time they thought they bought a home, but they really bought electrical wiring and plumbing hidden behind sheetrock.
2 quick thoughts
1) thank you for pointing out in the notes that mileage may vary. The historic bull market has caused nearly every piece of advice today to end with "but you'll do better in the stock market." Maybe, but many long periods of underperformance and everyone just assumes they won't have to live through those.
2) real estate, especially in the best parts of places like Dallas, will probably continue to go up for a while, BUT didn't always. Adjusted for inflation, a home in Pittsburgh, Atlanta, Houston, etc. was worth the same in the 1990s had it had been in the 1990s (source: Fed Bank of Philly). The recent shortage is new, and also Dallas had one of the longest housing busts in US history. So, as you say, be very careful assuming the past gets to tell the future what to do.
to your point, the real value is in the stability, the inability to be upended because the landlord says so.
really good posts. look forward to others.
The opportunity costs of home ownership rarely get talked about. I believe those under 35 should just rent. As you said. . home ownership ties you down to one place. You can't easily move for a better career opportunity or study. . you are tied down financially so you can't take as many financial gambles.. (Good in some cases). And yes you are also tied to the other person who owns half the home and is paying half or more of the mortgage and expenses. . Your home could easily own you. Yes you can extricate yourself. .. but it is much more difficult and takes much longer.
My house is never going to appreciate much. But I bought it for under $100K and paid it off.
I’d have been crazy to rent! It’s generally cheaper to buy than to rent here in Cheaphouselandia. There wouldn’t have been even one extra dollar to devote to investing if I’d have rented. At least this way I have “only” taxes, insurance and maintenance.
Love this! Outside of expensive major metros, buying RE is usually the way to go. But the math really flips in HCOL cities like NYC and LA. The key is to be able to get into something you can actually afford.
The maths for buying a property are a bit different in Switzerland (my country) but the reflections behind it and the final conclusions are definitely the same. Happy to restack this Post.
“Your rent payment is the maximum amount you’ll pay for housing; your monthly mortgage payment is just the beginning.”
truth.
This is extremely dependent on local market as you point out in your disclaimers. This should not be taken as general advice without understanding this very important caveat.
In the SF Bay Area, owning a home is the difference in many millions in net worth at retirement vs 100K in the hole every year and at the whims of a landlord for renters. Entering the real estate market as early as you can with atleast a 1 bedroom condo in a good neighborhood is the secret to selling and buying bigger till one can buy their forever home. The market appreciation in good school districts is unreal - we sold for a 150+% gain in 14 years.