Are you guys as tired of the rent vs. buy debate as much as I am? Seriously, how long are we gonna debate this for. I understand why there are so many rent pushers out there, but the rent pushers are missing a key point that drives peoples’ decisions when trying to figure out if they should buy or continue to rent.
I’ll give you a hint on the missing key point: it has nothing to do with interest rates, home prices, the affordability index, or numbers those kooky rent vs. buy calculators spit out.
In case you forgot (yeah right), here are the top 3 reasons you’re convinced you should rent, and the top 3 reasons you’re convinced you should buy:
Believers in renting say…..
1) “I think housing prices are gonna continue to fall so I want to hold off until the bottom.” (Hey, since you have a crystal ball, next time could you let me know when real estate is gonna fall of the cliff please? That woulda been super helpful to know)
2) “I plugged in some numbers in one of those nifty rent vs. buy calculators and it spit out an answer saying I should rent instead of buy.”
3) “Buying a home isn’t an investment.”
Believers in buying say…….
1) “My landlord will be raising my rent (because prices are rising) so I’ll probably be paying around the same amount for rent as I would be paying for a mortgage. I might as well buy.”
2) “Housing prices are at 10 year lows (first chart below) and interest rates for a mortgage are at 30 year lows (second chart below). I want to buy while real estate is still cheap and also lock in a low interest rate.” (So if shot gun prices fell off the cliff would you want to buy a gun too, just cuz they’re more affordable now? Just wondering)
(PS I bought my place in October 2007! AH HA HA HA)
Created by Steve Barry, originally published at TBP
Reproduced with the permission of Mortgage-X.com
And the last, but not least, reason why people want to buy is……
3) “I want to feel like it’s my place and paint the walls whatever color I want!” (I’m clearly in this camp)
WHAT RENT PUSHERS ARE MISSING
Studies show that people who lack emotions as a result of a brain injury have a difficult time making decisions; in other words, emotions help us make decisions. Pause.
A lot of changes happen in our late 20′s and 30′s. Some get married, some have kids, some move from junior to senior positions at work, and some start their own business. The most common thing I’ve seen during this period in our lives is married couples, and women in particular, want to nest.
Sure, we can pretend like we’re excited about decorating the baby room in our rental apartment, we can pretend like we’re “ok” with the stained white carpet that the last tenant graciously left for us, and we can pretend like the stark white walls throughout our apartment don’t make us want to reach for a bed pan at night. But when it comes down to it, by the time we hit our late 20′s or early 30′s, we want to live in a place that’s an extension of ourselves, our family, and our personality……and that’s hard to achieve when our hands are tied by Mr. Furley.
Telling people in their 20′s and 30′s who can afford to, and want to buy, that they should rent because “buying isn’t a good investment” is about as effective as doing a headstand to cure a hangover. Emotions drive our decisions, particularly when we’re at an inflection point in our lives. So when we want to buy, if we can afford it, we’re gonna buy.
BUYING IS AN INVESTMENT
Assuming your parents bought a place in the 80′s or 90′s, they’ve made money on their home, even when you factor in the recent housing crisis. So we all grew up listening to our parents telling us that we should ”buy real estate because it’s a good investment.”
But we need to look at real estate differently now: we need to stop relying on real estate as being our highest earning asset class like it was for our parents because no one really knows where prices are headed. In other words…..stop sucking the real estate money tit, please.
Yes, you heard it here first, I said tit on my blog.
We’re not our parents – we have no idea if buying real estate will be a good monetary investment.
Also, a lot of us are buying places in our late 20′s and early 30′s then moving on to a new place 3-5 years later because we’ve moved on to a different stage in our lives (marriage, kids etc). But buying a place with a 3-5 year investment time horizon isn’t a realistic time frame from an investment perspective; it’s just too short these days.
Let’s be clear: I am 100% supportive of buying a home if you can afford it. But, we can’t assume that our home will appreciate so much, like it did for our parents, that we can ignore building our savings in other areas.
There are 3 legs to your retirement stool: social security + your retirement plan (IRA or 401k) + your savings. (I wrote about your 3 legged retirement stool here before I went live with my blog in Jan.) Anyway……do you see “real estate appreciation” in the 3 legged retirement stool formula anywhere? Yeah, me neither.
Don’t factor in massive home appreciation in your retirement plans; IT’S NOT PART OF THE FORMULA, IT’S THE CHERRY ON TOP.
View Buying a Home as an Investment in Your
Happiness
It’s ok to want to have a place that’s all yours, it’s ok to want to nest, and if you can afford it, it’s ok to buy a place even if you don’t know if it will be a good monetary investment, because you’re investing in your happiness, which goes a long way on a day to day basis.
I know that as long as I can afford the costs that come with my condo ownership, my daily happiness of coming home to my purple wall is an investment in me. I’m happy walking in my green room after being in a hotel all week in New York that has pasty white walls and smells like dirty socks.
I’m a happy after spending a weekend at home, in my condo, and I’m happy when I go to work which makes me more focused and productive. It’s the non tangibles, like our happiness, that make buying a home a good investment for our future, and that’s what the “rent pushers” forget, so back off buck-o!
Has buying a place been a good investment in ‘you?’ Or are you thinking of buying? I’m curious…..
you have a great apartment!
Love the post! I am looking to buy soon and what a place to be mine! A nice deck for my grill, a bar in the basement – I can think of lots of ideas! I don’t know if I will go with purple in my place though
Dave, I swear my apartment looks normal (kinda), despite what the photos might look like. In isolation, I recognize those pics make me look like a wacko! A grill sounds nice….. I don’t have a place for a grill, I mooch off my neighbors for that.
very timely post. loved it and your purple walls and most importantly the butterfly wing. WANT!!!!
no seriously, again reading this makes me just a little bit smarter. thanks for keeping a SAHM on her toes.
Sara, ok good, I’m glad you feel “a little” smarter. I don’t want you feeling “a lot” smarter or else you won’t read my blog anymore! knew you’d like the butterfly
Huh, we really haven’t changed the place since we bought it 5 years ago. Maybe we should have rented!
I painted my bedroom off-black in the first house I bought. It’s ok, I’m not a wiccan. But I was a goth type before goth turned mainstream.
Here are some other things to think about. Put at least 20% down. Why pay off the landlords mortgage with your rent payments when you can be paying off your own? If you believe inflation is coming back (I do) then owning real estate is a good place to be. When everyone is saying rent, then it is probably time to buy. Think in 7 year time horizons. With interest rates at an all time low the affordability gets much easier. I don’t believe in looking at charts. It’s like looking in a rear view mirror. It does not really tell you what’s ahead.
Great post! It’s all about perspective.
We bought our house on emotion and we were 100% aware of it at the time. We did everything wrong: fell in love with a house, bought at the top of the neighborhood, etc. We don’t regret it one bit.
And while there is no guarantee that real estate will appreciate significantly, we do know that in about 13 years (hopefully less) we’ll have a paid for place to lay our heads.
I’m carrying two eggs- this girl wants a nest! In all seriousness, great post and timely!
OH, 2 babies at once!!! Your metal is in the mail.
Kathryn:
The purple wall is beautiful.
I stopped reading when I saw that and concluded that you had already won the argument.
Rob
The purple wall was a gamble, my mom is a designer so I went with her judgement. I love it. thank you!
Great post! Keep blogging – I’m checking everyday!
This is really thoughtful and helpful. My hubby and I own a home but have been debating selling and either renting a place or buying a condo or something more affordable. Our costs have remained the same for the past five years but our incomes have been cut in half, so things are — needless to say — tight. We love the idea of owning, but not sure whether we should invest in something else right away or rent and try to save. Though the idea of throwing money away on rent kills me when we could use the forced savings. That’s what I see as a benefit to home ownership. If we’re not spending the money we’re putting into our home — and even if we break even or even make a bit less it’s a whole lot more than we probably would have saved otherwise. Is that a silly assumption? Anyway, sorry, long comment. Thanks for the advice though and I LOVE your purple and green walls. I had a purple wall that is now blue — so I’m totally on board with that whole nesting thing.
Hi K, lenders look for a debt to income ratio of 28% in order to qualify for a mortgage. So your monthly mortgage payment can’t be more than 28% of your monthly gross income. Then, they look for a total debt to income ratio of 36%, so your total monthly debt (includes all debt, not just mortgage), can’t be more than 36% of your total monthly gross income.
It’s easiest if you back in to it that way to see if it makes sense. There will always be great homes to buy….not worth it to buy if you’re gonna feel stretched financially. But, if you pass the mustard above and feel like your jobs are stable, you can see in the chart above how much prices have come down and interest rates are pretty low right now.