Investors, do you own your personal home or rent?

58 Replies

I have been listening to podcasts and youtubes and I keep hearing people say that investors should not own their own home, they should rent.  Can someone please explain the logic behind this.  I have 55% equity in my house so I do not know why I would want this to come off of my financials.

@Gayla Kemp I'll chime in! I honestly wish I was in your position. With that amount of equity you have the option of a HELOC which is always nice. My wife and I rent a tiny 600sqft 1/1. We are young though and newlyweds. We decided it made sense for us to get started before kids, mortgages, and student loans. I do plan on buying a 4plex and renting the other 3 out to live "rent free" in the near future. I see no reason why you should switch that up. Kind of goes along with leasing vs buying. Might as well pay down your mortgage vs padding someones pockets. Just my 0.02

Ryan Dossey, Real Estate Agent in IN (#RB15001099)
800-347-9296

@Gayla Kemp  

I suppose the logic behind renting is that you would be more liquid and have that much more money to invest. Of course, many people are not sure of where they want to be long term or simply want to have the option of being mobile, so renting would be a smart option in this case as well.

Personally I own my home, not because I think it is a good investment but simply because my wife and I enjoy living in a nice house. It simply comes down to our preferences. Others may prefer to spend all their money on investments because that's how they like spending their money.

@Gayla Kemp  

A good question, and one that many people encounter only after they have purchased a home. 

Buying a personal residence is a dream for many. For investors, however, it is often seen as a liability. A home purchase represents 30 years of bondage to a lender. You pay for and care for the bank's asset throughout the majority of your lifetime and the useful life of the home. For investors that appears to be the inverse of the preferred model. Investors want to be paid for the use of their assets and avoid liabilities.

As a young man and investor, Warren Buffett rented a residence for his family whether they were living in Nebraska or New York. He kept his capital available for investment and did not burden himself with the costs and commitments of home ownership. Upon becoming wealthy via his investment partnership, Mr. Buffett later paid cash for his first and only residence in Nebraska. He submitted a single payment of $36,500 in lieu of 30 years of bank bondage.

It is this model that many investors hope to emulate. By owning rental property while remaining a renter one may amass wealth via regular cash flow and, potentially, eventual appreciation. At some point in the future one may buy a personal residence for cash. No worries and no payments come with that ownership model.

Ironically, Mr. Buffett has recently noted that the purchase of a primary residence using a 30 year mortgage is likely a solid investment at this time in many markets if the buyer is careful to acquire value for their purchase price. He has noted that historically low interest rates, falling long-term dollar value and future American economic growth make home ownership an attractive investment option for many at this time.

My sense is that his words were meant for a broad audience and encouraging of real estate  purchases (primary residence or investment) in general. Real estate investors in many cases will benefit from the factors Mr. Buffett highlighted. In addition they will preserve their flexibility, limit their liabilities and enjoy cash flow and potential appreciation.

You will find many investors in BP nation supportive of buying rental property while remaining a renter. @Brandon Turner often notes to @Joshua Dorkin during podcasts that such a strategy or the purchase of a duplex as a primary residence, where a tenant's rent allows one to live for free, is a good start for a new investor. 

Good luck to you,

Jonathan

I have never heard anyone say that investors should not own their own homes, so I'm kind of curious where you are hearing it. I have heard it discussed as an option, of course. And for some people it might be a good idea- someone who wants a very mobile lifestyle, for instance, or someone who wants to live in an otherwise unaffordable market like maybe NYC. But I would guess most investors own their homes.

@Gayla Kemp  Do you have any links?  This is a pretty sweeping silly statement to make, unless they are qualifying it.  Maybe putting yourself in a position of being house poor isn't smart, but that isn't you.

We own our home. While some areas it might make sense in the areas we live owning is heaped to renting. Owning is also a large part of our investment strategy. My husband is active duty military so we move around a lot. Therefore we buy at every duty station with the idea of renting out when we leave. This allows us to take advantage of low down payment and lower interest rates! That being said there are different strategies for different areas!

Own mine. 

I own my own home free and clear. I do plan on renting it out when me and my family move into a bigger home next year but I never plan on selling it. At least not anytime soon.

I've heard similar strategies to people who run their own small business. I agree with you @Kyle B.  I can only imagine it is to be more liquid. I disagree with it though.

The home I own today is part of my retirement strategy as it will be a rental once my wife and I outgrow it. My equity in it has grown significantly and when we're ready to buy a bigger home we can refi to take equity out to pay the down payment on our next home. 

I personally do both. I own my own home and I rent a small apartment in the small town where I work because the commute is killer. I go home for the weekends.

We own our home. It's a choice that my wife made or demanded? To me it is forced savings that will eventually cost you MONEY over time.

The only thing of value is the dirt it sits on...otherwise it need frequent repairs, updating,.. I know each ailse of Home Depot like the back of my hand.

There are several memories, schools for the kids...the whole nesting thing but to me capital that is not very liquid and we have limited mobility. I think the avg person moves approx every 6 - 7 years?

I think it's very situation dependent. I find it interesting that Elizabeth C. buys everywhere as a military investor because I'm also active duty and choose to rent my home and buy elsewhere. There are a few reasons for this. First is due to my current location. I'm stationed in DC where home prices make it cheaper to rent than to buy. And knowing I will move in a few years means I need to know it will cash flow and properties just don't cash flow well here at current prices. So even though I can buy with zero down here, I choose to buy elsewhere in markets I know will cashflow well. Another reason is that even if it was a positive cashflow area I still spend a lot of time and money on a house that I own and occupy. In my rental someone else has to fix any problems. This gives me more time and money to invest in better investment properties. I think there are definitely areas and circumstances where an investor should buy, but I also understand why some choose to rent instead.

@Jacob Elbe  

I am exactly opposite! I buy personals every where I am and than invest in pure rentals else where. As long as my pure rentals cash flow at least $200 more than my mortgage we are good. We practice the southwest airlines model. Small margins but keep them VERY tight. We also buy rentals, that we just happen to live in ;0. 

Elizabeth C.

I actually bought at my first base with plans to rent it, but there was a very small margin for profit. This has since turned into a size able loss every year due to plumbing issues, painting, other turnover costs, etc. So now I only buy if it's a good deal and cash flows enough to cover any risk down the road. Otherwise it's a liability. Having to replace a plumbing line on that house wiped out months of profit from a better pure investment property. And selling hasn't been an option because the market tanked after I bought it so we're holding it at a loss every year until I can at least sell it and break even.
Hopefully we're sent somewhere with a great rental market next so we can use your strategy! In the mean time I'm happy to not have any worries here. I don't even do lawncare here and it's great!

I rent but not because I think it's better.  Life through a few curve balls at me and I had to sell my home in 2009.  

Originally posted by @Gayla Kemp :

I have been listening to podcasts and youtubes and I keep hearing people say that investors should not own their own home, they should rent.  Can someone please explain the logic behind this.  I have 55% equity in my house so I do not know why I would want this to come off of my financials.

 [Citation needed]

I own my home.  I prefer it over renting.  I don't like sharing walls or ceilings/floors.

Thanks for all the input from everyone. I don't remember where I heard this but I was thinking that either Brandon or Joshua said they rented in one of the podcast. If I hear it again, I will come back and mention it. I have listened to so many things over the last week that I cannot remember where I heard it but have several times. With equity built in, I don't think owning is a bad thing. Just to mention it too, I did take out a HELOC on this equity and used 1/2 of it on the 6-unit multiplex that I bought in Sept.

I own, I like being king of my castle, and not having to have to deal with a landlord.  

@Jacob Elbe  

While we have great investing margins we live in a small town where I can get across it in 12 minutes or 5 miles. We are 3.5 hours to everything, but 3.5 hours to everything! Honestly enjoy Washington D.C, Annapolis and the surrounding area. While the margins are slimmer the cultures is amazing (can you tell I miss it :( )

I still am trying to wrap my head around this whole thing but am starting to believe it is going to be based on where you live and your situation.  Here is mine so don't think renting makes any sense.  Here is my information based on zillow.  House is 2062 sft, built in 2007, would appraise around $220,000 and would rent for about $1800.  My current house payment on a 20 year (17 years remaining) at 3.75% is $970 including insurance and property tax, balance remaining is $95,000.

We thought about getting a new place and renting this one out but not sure how well it would rent, we see houses up for rent in our addition setting for quite a while.  Also, would need to update the flooring which would be a job of tearing out pavers and replacing them with something else, and then replace the carpet in the other rooms.  Have not gotten any estimates but think it would cost somewhere around $15,000 to do this.  The tearout of pavers will be a job as it is in all the kitchen, hallways, bathroom and laundry room.

Staying in this school district for my 6th grade daughter, we could downsize in sft but houses are selling for around $120 per sft as there is not much on the market in the lower sft range, making no sense to move.  Houses rent for around $1 per sft, 1800 sft rents for $1800 per month.

        

I own. It is feasible here where it may not be in other markets like Cali, NY, DC, HI. If I was only factoring in ROI, I would rent my house out and buy something smaller. It is a 2-family of sorts anyway (separate mother-in-law apt). Life is not just the ROI, and we like the house and location so we will stay. It would be nice at times to call someone else when the water heater goes out or whatever, but I don't think I could ever rent again. If I want to paint or get a pet, I couldn't imagine having to ask a LL first!

@Gayla Kemp Making $1,800/mo on a $220,000 house is not a good investment, so your house would not be a good rental. I would recommend you get a HELOC based on your $125K in equity and use that to make down payments on investment property or to make cash offers and then refinance.

But get educated first!

This question just puzzles the hell out of me. I see so many newbies on here who want to be investors or who want to flip or wholesale, and they don't even own their own home. Buying and living in your own home is one of the best educational courses that one could ever get in real estate investing. Plus, if it's done properly, one can gain a lot of equity which can be used to get a HELOC, which can be used to fund additional purchases. But we have newbies coming on here all the time who wouldn't even know how to do the most basic of things relating to buying and owning real estate because they haven't even done it for themselves.

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