Is It Better to Rent or Buy a Home?

By AJ Ayers, CFP®, EA, CEP

It’s one of the most important life decisions you’ll ever make: where should you live? Should you buy a home in a new city? Is renting really like throwing money away?

There is an inherent bias towards homeownership in this country and here at Brooklyn FI, we often urge our clients to test that bias. Homeownership is not right for everyone. It’s often NOT a good investment and can actually be financially harmful to a young family.

John and I went head-to-head to debate: is it better to rent or buy a home? Watch the whole thing below.

 
 

We’ll summarize some of the key bullet points here.

Reasons to Rent

  1. Flexibility - It’s quick, easy, and relatively financially painless to move

  2. Cash flow - No extra costs, surprises, shit you need to fix when it breaks

  3. Selling your home is hard and expensive - Pay 6% commission to a broker who is going to tell you to spend $20,000 to renovate the bathroom and replace the kitchen cabinets before you sell

  4. Nobody keeps their house the way it is - Renovations cost a lot of money and often go over budget

  5. Homes aren’t great investments - Home prices appreciate a few percent per year on average and remember, it’s an illiquid investment

  6. Diversification - Your net worth is not stuck in an illiquid asset and you’ll be able to use the leftover money to put into your business, retirement accounts, other investments

  7. Property taxes, assessments, HOA fees creep up - Rent is negotiated and reviewed each year - easy to move if you don’t like it

  8. Low Transaction Costs - No 20% down payment required - keep your money invested and working for you

  9. Buying a home is not as easy as you think - Competitive markets create demand - demand requires more cash down > don’t get sucked in and lock up MORE of your dollars

  10. Browsing on Zillow is a hobby, not an investment - We don’t take stock tips from Reddit and we don’t assume every home on Zillow is a good investment

Reasons to Buy

  1. The feels - Numbers aside, the real reason to buy a home is that it feels good to have a place of your own to call home

  2. Lock in a low housing payment - You can potentially retire without significant housing costs - not having a mortgage or rent payment when you own your home outright allows you to keep your withdrawal rate low

  3. Building Equity - Access cash and borrow against your equity via a HELOC

  4. Tangible and Easy to Understand - Real estate is something you can feel and touch

  5. Security - Having a place of your own and knowing the landlord can’t kick you out when they sell the building - security for children and elders

  6. Taxes - Mortgage interest deduction, property tax deduction (limited under TCJA), and $250,000 exclusion of your gains PER SPOUSE when you sell

  7. The Market - Sometimes the rental market is expensive or overcrowded so buying is the best option, and sometimes you get really lucky like buying in Austin in 2009 and selling for a massive gain just a few years later

  8. Automated savings - Automated and forced savings (you might skip that $3,000 deposit to savings but you won’t skip your mortgage payment) 

  9. Mortgages are awesome - There’s the tax savings, the consistency of the mortgage payment as your income increases, and you can take advantage of low rates

  10. Access to Cheap (or gifted) Capital - No one is going to loan you hundreds of thousands of dollars to invest in the stock market

AJ Grossan