Posted in Money on June 12th, 2017
In most cases, renting beats owning though we can find a few exceptions to this and in this article we look at these exceptions. We assume that people do the sensible thing and buy more land than home, as large homes waste more resources, cost more, and are energy inefficient over smaller homes. In addition, the median US family size in 1970 was larger than today, yet the median size of a home in 1970 was 50-60% smaller. People should complain less about the rising price of homes and spend more time complaining about their rising sense of entitlement.
1. If we plan to live in our area for the rest of our life. In most cases, a person who plans to live in his area for more than a decade should buy a home because the cost of owning versus renting favors owning after a significant period of time. Be careful here! All areas differ by size, so a major city is not “one” city, but often an aggregate of multiple cities. If the person’s job changes, then his commute may add an additional cost.
2. We are in a stable career; most paths are not stable. Only medicine is stable. With the exception of medicine, this doesn’t apply for most careers anymore. Only medicine is currently experiencing a labor shortage; other career paths have too little future potential with too much labor entering them currently. It should be of note that this will become clearer in 10 years, but won’t appear to be the case for now.
3. If we’ll be living in an area for an extended period of time. This is similar to the first one, but we may plan on living in a different area when we’re older. The example to consider here is a person living in San Francisco for twenty years, but planning to retire in Omaha. In this case, buying a home makes the most sense, as a longer time scale favors owning over renting.
4. We want to own a house and we’re completely uninterested in selling the house. Some people buy homes because they want to turn the house into a cash flow asset. If we intend to do this, owning a home is our only option. Because the house becomes a cash flow asset, we can generally use the cash to pay for the house and offset the costs.
5. The rent to own ratio favors owning and at minimum one of the above applies to you. Sometimes rents in an area become unsustainable and begin favoring homeowners. When this occurs, we should consider owning a home, provided that one of the above items applies to us.
Solomon wrote that “there’s a time and place for everything under the sun” and this holds true for everything. This requires understanding the time and we’ll see times in which owning will be a better choice than renting.