Renting by Choice?
To rent or to own? That is the question.
This is a question a lot of people ask because they want to buy a home, have been told renting is throwing your money away and homeownership is a foundational piece of the American Dream.
While there can be some truth in those statements, homeownership has changed dramatically over the last 40 years and prompted many to become “renters by choice.”
One such person is Ramit Sethi, author of I Will Teach You to be Rich and popular finance “coach.” You can find him on Netflix and YouTube. Every few months someone in my circle brings up an article or an interview of his where he discusses “renting by choice” at length - going as far as saying we’ve been “lied to” about homeownership.
Sethi also explains that he is worth a bunch but chooses not to buy - he is a renter by choice. This can sound crazy to a lot of people but is worth financial examination like so many of the financial “ideals” that have been handed down.
One of the underlying reasons for this new wave of not buying is a real look at the math. Economists often see a home as a 0% return (or worse) when total cost of owning is considered. It is not as simple as I bought it for $400,000 and now it is $600,000 so we made $200,000. In examining further, in many cases, it cost the owner $200k or more over the time the home value increased.
The old rhetoric of “renting is throwing your money away” is actually only a partial truth if the only financial options for your money is rent or a mortgage. But many are seeing their financial lives a bit different, especially with today's high values and high interest. In running the numbers an example might be rent is $2000 and a mortgage would be $4000. Some are taking that $2000 and investing elsewhere and protecting themselves from a plumbing expense or replacing a roof and coming out ahead.
Does this mean owning is now bad? No! It is situational and no longer a universal great move. This is the evolution of the financial world we live in. It depends on why you want to own and what financial goals you are hoping for. If it makes sense - do it. If it doesn’t make sense and you choose renting - do that!
Ultimately, what I hope for is a reduction in stigma for renters because renting may be the best financial move you could do and there should be no shame in that.
I am not always a fan of “popular” finance people and their messages, but this is definitely worth consideration - especially in the new economy of today.
You can check out his examination on YouTube or check out the link below for the article people keep sending me.
https://finance.yahoo.com/news/youve-lied-ramit-sethi-says-130000716.html
You can also check out our podcast episode on this idea The Fellowship of the Renters
As always, if you come across a financially related article you’d like to send my way please do!
Best place to send them is to me.
More next time!
Jonathan