How many times have you heard somebody say some version of this statement: “We made 100,000 on the sale of our house and we only lived there for five years. Can you imagine if we continued to rent the apartment we used to live in all that time? We would have lost all that money…
What they really mean is that they sold the house for $100k more than they paid for it.
Most of us here in BiggerPockets chime in to help new investors, so I put this post together hoping to help them on this topic.
I have long been an advocate of renting your primary residence vs. owning it. A lot of years ago, I wrote a technical paper on this topic (long before there were blogs or MicroSoft Word). It turns out I was right. Well in most circumstances, anyway.
For the record, I own two homes (I paid cash for the both).
Of course there are several financial factors that are involved when making a decision like this.
How long will we live there?
Down payment amount
Future economic factors
And that concept call Opportunity Cost
I ran across this Post in the New York Times today and I’ve spent two hours analyzing it.
NEVER HAVE I SEEN SUCH A CONCISE WAY TO REVIEW THIS TOPIC.
It confirms what I have what I have been saying for many years.
Please take a look:
Here’s my synopsis: We are all involved in real estate because we know how to, or we are trying to learn how to, generate a secure and attractive rate of return on our money.
I regularly double or triple my money or more buying and selling vacant land. Usually in less than 30 days (or I don’t do buy in the first place).
The input in the post only allows for a 20% annual return. If it went any higher the argument for renting would become even stronger.
The opportunity cost of tying up all that cash, time & energy is almost never worth it.
One of the only times it makes since to finance your primary residence is when you know you are buying a property substantially under market, and reselling it. Some folks call that flipping. Or if you buy a duplex, live in one side, and work the deal so the tenant is paying all or most of the mortgage (some circumstance like that).
Buying a rental house (or 20) the right way, and renting them out forever is one of the best passive business models I’ve ever experienced. This discussion is only about your primary residence.
And that’s just half of the decision. The other half is location. Every apartment or townhouse I’ve ever lived in centered around a ton of fun. Every house I’ve lived in was in the quiet suburbs where we did chores on Sunday.
A few years ago, I sold my primary residence and paid cash for a townhouse in Old Town Scottsdale, Arizona smack in the middle of all the fun. We completely renovated it and I can’t imagine living anywhere else.
It was one of the best financial and lifestyle decisions I’ve ever made.
Renting is almost always better, when you consider every aspect.
I make more than enough to buy a nice home and everyone I know owns a home and wonders why I don't. I've been spending all my free cash on rental property while we continue to rent our primary residence. My wife would love to buy a home but after seeing the returns from my rental property, I just can't justify buying a primary residence due to the opportunity cost. Ultimately, I'd be paying a down payment for a home, which then commits me to paying a mortgage when I could use that same money to buy another rental property that makes me a ton of cash. My parents recently questioned why I don't buy a house because they think that's what every smart person with money does. I'd like to think I'm enlightened. :) Perhaps I'll buy a home when I have so much money, it doesn't matter any more. :)
Here are a couple of videos I've recently watched and enjoyed the varying perspectives.
Phil Pustejovsky - https://www.youtube.com/watch?v=IomfI_iF4EM
Grant Cardone - http://grantcardonetv.com/video/younghustlers/buyi...
You will need a free account for the GC Young Hustlers show.
It's a good article. Of course renting make sense in many instances, lucky for most of us here! If you stay put for a long time, buying makes far more sense because you are eroding the purchase price with inflation, while rent will (theoretically) keep up with inflation. Eventually owning the asset allows one to do other things, whether it is borrow against the asset, rent the asset to others, have an (almost) free place to live, etc., whereas renting forever leaves one bereft of assets at the end.
Neither approach is "right". There are only scenarios that work for each person depending on the situation.
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