I\u2019ve been a homeowner, and I\u2019ve been a renter. I\u2019ve been a landlord since I was 24, long before I became a homeowner. And I\u2019m a renter once again.<\/p>\n
Goals and dreams are great, but let\u2019s get more creative with them. Here\u2019s why financial independence makes for a better dream than homeownership\u2014and why you shouldn’t assume renting is the slower route to get there.<\/p>\n
Flexibility to Move & Pursue Jobs, Opportunities, & Mates<\/h2>\n
When you buy a home, you take an initial loss. That\u2019s because it costs thousands of dollars in closing costs to buy a home, and when you go to sell, it will cost thousands more.<\/p>\n
Over time, most homes appreciate in value, while the principal value slowly ticks downward. After a period of years, homeowners usually reach a breakeven point, where if they sold the property, their net payout would cover all the of the costs they\u2019ve incurred (each round of closing costs, maintenance costs, etc.).<\/p>\n
But what happens if six months after buying a home, you get a job offer that pays double what you\u2019re earning now\u2014in another city? Or if your spouse gets such an offer? Or what if you meet the man or woman of your dreams, but they live in another state? Perhaps you have children, and a new report comes out showing that the local schools are far worse than previously reported?<\/p>\n
What happens if you find yourself expecting another child (surprise!) that you weren\u2019t, well, expecting? Maybe that 2-bedroom home isn\u2019t big enough after all, and you\u2019ll have to move in a year or two.<\/p>\n
The point is that it\u2019s hard to predict your wants and needs in two, five, 10 years from now. Our realities are constantly shifting, so tying ourselves to one home for a period of years is dangerous. The ability to move to pursue our dreams has very real value.<\/p>\n
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Related:<\/strong> Liability or Asset: Is Owning the House You Live in a Wise Financial Decision?<\/a><\/em><\/p>\n I own 15 properties in the U.S., but I live in Abu Dhabi. Why? For the heck of it. My wife took a job over here so we left the United States and started traveling.<\/p>\n As a landlord, I can capitalize on the benefits of real estate ownership without being tied to one place. I have all the tax benefits<\/a> (and then some) that homeowners have, I have a hedge against inflation, and I benefit from appreciation. But I spent a month living in Italy last summer and didn\u2019t have to pay a mortgage at home while I did so.<\/p>\n And I get it\u2014not everyone wants to be a digital nomad. Consider a closer-to-home example: Let\u2019s say that it\u2019s expensive to buy a home in the neighborhood you want to live in. But rents in that neighborhood aren\u2019t outrageous. You can move in for a year or two, enjoy living there, and then move again at your leisure.<\/p>\n Some markets make sense to buy into, while others don\u2019t. But if you buy as an investor rather than as a homebuyer, you separate your financial interests in real estate from your personal, emotional interests about where you want to live.<\/p>\n For most American homeowners, the vast majority of their net worth is made up of their home equity. That\u2019s a problem.<\/p>\n Homes are illiquid and cost money rather than earn money on a monthly basis. Why have\u00a0so much of your net worth comprising an \u201casset\u201d that you can\u2019t sell quickly or cheaply and that costs money every month?<\/p>\n And is your home even an asset?<\/p>\n I agree with Robert Kiyosaki on this one: An asset brings in money every month, while a liability costs money.<\/p>\n We all need a roof over our heads; it\u2019s a necessary expense. But that doesn\u2019t mean it\u2019s an asset. I need food, but that doesn\u2019t mean that a loaf of bread in my pantry is an asset.<\/p>\n Whether you rent or own, you spend a certain amount of money for the right to live somewhere. Sure, many homes appreciate in value over time and might provide a payout one day in the indefinite future. But we don\u2019t live in the indefinite future; we live in the here and now, where your home costs you money that may or may not ever come back to you.<\/p>\n The one exception: If you \u201chouse hack<\/a>\u201d and buy a multi-unit building, where other residents pay for your mortgage plus some cash flow.<\/p>\n Related:<\/strong> Forget Everything You\u2019ve Read: Buying a House is NOT For Suckers<\/a><\/em><\/p>\n Imagine having $50,000 in cash, which you could use for a down payment on a home or a down payment on a multifamily building<\/a>.<\/p>\n Even if we set aside the flexibility issues already raised, tying up so much of your capital in a liability rather than an asset is problematic. If you take the $50,000 to buy a home, that\u2019s money you can\u2019t invest elsewhere, in a real asset.<\/p>\n In contrast, if you rent, you\u2019re free to invest that $50,000 in an income-producing building. Perhaps you leverage that $50,000 to buy a $250,000 five-unit building, borrowing the other $200,000 and earning $1,500\/month in cash flow?<\/p>\n So yes, you might spend a few more dollars each month on a rent payment rather than a mortgage payment for a comparable property. But does the $50\/month savings justify missing out on $1,500\/month passive income?<\/p>\n The homeownership rate in the U.S. clocked in at 63.5% at the end of 2016<\/a>, a far cry from 2004\u2019s peak of 69.2%.<\/p>\nReal Estate Benefits Without Being Tied to One Home<\/h2>\n
More Balanced Net Worth Allocation<\/h2>\n
Your Home Is (Almost) Always a Liability, Not an Asset<\/h2>\n
Don’t Ignore Opportunity Costs<\/h2>\n
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<\/p>\nIncreasing Demand for Rental Housing<\/h2>\n