Home | Rent or Buy
Updated: Apr 11, 2018
People say that home is where the heart is - there's even a song that says "Home is wherever I'm with you". That's super precious and all, but for most people home ties to an address.
There are many different representations of a physical home - teepees, apartments, duplexes, condos, and houses. Specifically, many view buying a single family home as the ultimate American dream. Is that a correct view, or is it flawed? All of those different abodes have pros and cons, but the core financial detail is whether you rent or own the aforementioned abode.
Tim Ferriss, who is a widely-read author and arguably the most successful podcaster known to man, has an interesting take on purchasing property. His perspective, summarized, is that if the property has a personal use to it then it's okay to buy. He doesn't buy for the heck of it or simply as an investment.
Tim is a well-informed, calculated individual who's opinion I recommend taking into consideration. However, there are other successful people that totally disagree. Grant Cardone, who is a recognized author, sales leader, and investor, believes that buying residential property is foolish. He waves the banner of freedom and flexibility as he steers his listeners away from the allure of home-buying. He enjoys the ease of being able to move to a different home or city without having to sell or lease his former residence. He also has a massive multi-family investment business, which informs his opinion.
So, is anyone right? Let's bust out the Excel spreadsheet to find out!
The truth is, a long term plan of renting or buying is highly dependent on one thing - lifestyle. Is your current plan to stay in the city that you currently live in for the next three decades? Are you a digital nomad who enjoys new cities and experiences? Do you have an upcoming career shift that may dramatically change your financial outlook?
Simply put, you have to know you and decide accordingly. People will point to buying as an opportunity to build equity as opposed to "wasting cash each month". Others will point to your lack of flexibility and say that you are backing yourself into a geographical corner that limits future opportunities.
So, the question is not "is owning or renting better", but rather "is owning or renting best for me in this current season of life?"
P.S. If you want a measure of how much you should spend on your rent or mortgage, many will advise a maximum of 30% of your pretax monthly income. This means if you make $48,000 each year, your pretax monthly income is $4,000 and your max rent or mortgage spend would be (30% of $4,000) $1,200.