I actually find piece of mind in renting. I can always say screw it and move to the cheapest part of the country as I am getting closer to retirement age.
I wish!
I built a fancy house in a fancy neighborhood, and then a real a-hole bought the house next to me as his retirement home.
Unfortunately the only surefire way to avoid this situation is to be the bigger asshole.
In my case, the advantage is that I don't have to share a wall with my bad neighbor.
Edit: I should add that the rest of my neighbors are awesome, Just like every other place I've lived.
Except if property taxes increase beyond affordability as they have for many folks in some states recently.
https://www.investopedia.com/terms/p/price-to-rent-ratio.asp
> as they have for many folks in some states recently.
I'm not sure you're derisking as owning is also subject to local taxes of whatever sort. Those too can increase faster than income.
rent === mobility
own === 10x less so
Sure. It's nice to want roots, have a home, etc. But given how the financial system works - and the economic and sociopolitical systems that sit on top of it - an RV might be the smartest way to go.
Sure there's always the American Dream narrative but (leadership) actions speak louder than words. Seeing Santa Claus or the Easter Bunny is 100x more likely than the now mythical Anerican Dream.
As you get over retirement age medical expenses could dwarf all these. you need to be more than debt-free you need to be debt-free and a good cashflow and emergency funds you can call on.
Just as you get to the top of the hill there is always another one to climb.
Something similar to this is why I prefer renting and why anyone who unshakeably believes renting is “throwing money away” is immediately suspicious to me.
I’ve always tried to rent the cheapest (some would say crappiest) apartment in an area that I’ve really wanted to live. I’ve done quite well financially and in terms of lifestyle as a result. I would’ve done better financially by buying a home somewhere I don’t want to live, but what’s the point?
> I would’ve done better financially by buying a home somewhere I don’t want to live, but what’s the point?
Few decisions are purely numerical to most people. Or rather there are many decisions people claim are purely numerical and then make suboptimal numerical decisions on.
It doesn’t make my choice a bad choice and doesn’t mean that I threw my money away on rent anymore than a homeowner threw their money away on a refrigerator, property taxes, etc.
I exchanged a small amount of money for a place to live and had money left over to spend/invest in other ways and I got to live in an area I really love.
I guess that’s what I get for being naive at best.
> Something similar to this is why I prefer renting and why anyone who unshakeably believes renting is “throwing money away” is immediately suspicious to me.
That doesn't seem like a rational take. Renting IS throwing money away if your goal is to maximize wealth. Paying off a mortgage early when you can get a higher % return in the market than the interest rate of your loan is ALSO throwing money away.
To try and claim you're generating more wealth by renting just isn't true. To claim you're living the lifestyle you prefer, great.
To be suspicious of everyone who makes such a mild claim is a microchasm of why the world is going to hell in a handbasket.
I never said that was my goal.
> To try and claim you're generating more wealth by renting just isn't true.
I never claimed this. I have rented and I have generated wealth, however.
> To be suspicious of everyone who makes such a mild claim is a microchasm of why the world is going to hell in a handbasket.
It's usually because these people refuse to believe there's any benefit to renting and jump to conclusions and claim I said things I never said.
I wonder if I can find an example of such a situation?
> To claim you're living the lifestyle you prefer, great.
Money on rent goes to pay for someone else’s appreciating asset you don’t own.
Insurance isn’t that much and you have to pay taxes multiple times on all your money anyway but at least property has a chance to fight back a bit or hopefully outpace inflation.
The money you earn today and sits in your bank is going to be worth very little in terms of spending power by the time you want to move somewhere cheap if you’re not keeping it in investments or property.
We’re entering a dark time financially and there will be a significant quality of life difference in 20 years of those who have money in the right places today.
Like any asset, it _could_ appreciate, but is not guaranteed. Where I live you can buy a house for 15-40K where normal prices in the country are 100-200K. It didn't use to be that way, last decade was all downhill for the city.
I can't liquidate my house piecemeal when I need money like I can my brokerage assets.
You can withdraw from your fund if you have a hardship but it is generally considered best to not touch it.
On my end it is just a manner of optics. The money being put aside, I never see week to week thus it just seems like an added bonus even though it is really just a part of the pay cycle.
Unusually for these types of discussions, it seems like the US system is more socialized than the alternative in your country.
For that reason I also find it ridiculous that it's the social norm to take debt to buy a roof to put over your head. A (simple, clean, functional) house is a basic need, not a luxury item. I always assumed that if I don't have the cash for a house, I can't afford a house. In those terms, I can't afford a house right now, so I've been renting the whole time.
I think it should be the social norm for the median income to be able to buy a house with cash. For that to happen either people need to be making $1M/year median, or house prices need to come down to 1/5 of what they are.
- taxes (1M is close to 500K after taxes)
- money that you need to cut out and put into retirement to sustain yourself from age 65-100
- living expenses and rent until you buy
- real estate prices rising the whole time
Which will of course be stratospheric in a world where median labor costs $500 per hour.
Fortunately my life expectancy has dropped in the past few years!
> Unfortunately housing prices are rising so fast that saving for years doesn't necessarily get you there
> 1M is close to 500K after taxes
If you make $1M on your own the rates are even higher.
(That's not including the 10% sales tax you pay on almost everything you buy with the money you have left, property taxes on property you thought you owned, property taxes landlords financially pass onto you as a renter, etc.)
I actually do a lot of high risk investments with a small percentage of my net worth -- bitcoin, options, you name it. But I do it with hard cash to my name. If I lose a chunk of that I don't owe anyone anything.
I just never thought spending someone else's money and then owing them was even anywhere close to my moral radar of things I would do.
The only one time I took a debt is for a car when I had the cash to buy it but it was 2022 and I took a loan at 2% and put the balance of the car in treasury and municipal bonds at ~5% and paying back the loan slowly while selling off the bonds. I wouldn't take a loan if I didn't have the money. Before I could afford a car I just rented cars.
However, the most basic clean-and-functional versions of basic necessities (food, water, shelter, and transportation) should be accessible to everyone working a full-time job, in my opinion, without having to spend other peoples' money.
3 out of those 4 are attainable even with a low-paying job, it's really just shelter that is the problem.
(And again, I do agree that housing is incredibly overpriced in much of the world, it's just that debt vs not doesn't have much to do with it. The high price of mortgages is the same reason the rent is high, and the rent being too high is a problem even if it doesn't involve debt)
Personally going bankrupt means you're now facing the possibility of actually being homeless on the streets.
> housing is incredibly overpriced in much of the world
There's a difference between having money and earning money. If you find $20, are you therefore $20 more deserving? If you are mugged and the thief gets $100, does that make you $100 less deserving?
There are plenty of people who have lots of money through no good deed, and plenty who have little through no evil deed, and I think confusing monetary holdings with morality is a very poor road to go down.
I agree that "meant to have" and "deserve" are the wrong concepts here. But reality and practicality are what they are.
If I work hard and save my earnings, with the intention to buy something which we agree is a "valid" need/want (whatever that something is), and then lose the money through some circumstance that we we agree is "not my fault", that really sucks and I don't claim that it affects how much I "deserve" the thing (whatever deserve means), but the reality is that I now don't have the money to buy that thing. Am I going to now borrow money because "I worked hard and I deserve it"? Some would, others wouldn't.
You're thinking of debt as a consumer. Like, take a personal loan or credit card debt and buy a big screen TV. Yes, that's dumb.
Not all debt is like that. Picture this scenario: Your bank pays 5% interest on deposits. You're offered a loan from somewhere for an interest rate of 4.9%. It is a no-brainer to take that loan, go into debt, for as much as possible! Deposit it into your bank account and profit each month. If the rates change such that the bank pays less, just pay off the loan.
Now, sure, that's a simplistic scenario since nobody will offer you a loan for less than the banks are paying interest right now. But with time being another variable, you can manouver yourself into that situation. Right now my bank pays more interest than the percentage I pay on my mortgage balance. I'm literally making money every month by having debt. It would be very dumb to pay off that mortgage debt even though I have the cash to do so.
Banks do this all the time and some often fail.
Note that they said avoiding ALL debt.
For example, my student loan collects interest at a rate of 2.9%. Therefore, it makes sense to maintain that debt if I believe (and accept the risk) of making an investment that pays back a rate of 10%.
Financially it might make sense to keep that debt, pay the minimum and invest cash into let's say an index fund.
If you have a hardline stance that you NEVER want any debt, then you are basically saying you're highly risk averse (at least when it comes to ending up in the negative).
What? Technically this is true because “many” people already own homes and can use that wealth towards another. However, when talking about the unafordability of homes the target market being discussed should be first-time home buyers (unless you have an investment podcast or something).
In my HCoL bubble the only people I know that can afford their first house are high-income DINKs, or living 30mins outside of the city, or have a high-paying remote job and can relocate to a LCoL area with its own drawbacks.
https://www.statista.com/statistics/184902/homeownership-rat...
Most cities aren’t San Francisco and New York City. Even in both California and New York, there are many areas with affordable homes for single income families.
It seems like a self-defeating position to take?
But you are renting.
While renting isn't debt, it can be helpful to think of it as debt you have to pay every month (unless you plan to be homeless).
So you have 12N (where N is the number of years you think you might still live) of rent debt payments that you are committed to pay. If you transform that into mortgage payments, at least you're building equity. And it will only be 1230 payments (given a 30 year mortgage) so it is a bounded number unlike 12*N.
It's not that simple to sell a house, and if real estate prices crash you're still on the hook for the several hundred thousand dollar difference.
And then, what?
Unless you have a backup plan which allows you to live for free somewhere, you can't get out of paying someone for it. Whether rent or a mortgage.
For housing, it is most useful to plan long term and consider you have a lifetime of housing payments coming up. How can you minimize that lifetime total?
But given that you need a home, what's the difference between $1000 in rent+fees and $1000 in mortgage+taxes+fees?
Normally the biggest difference between renting and buying with debt is that you can stop renting. But you're not going to stop having a home.
> can never save up to the 20% down payment
something tells me those two things are connected
Or one could remodel a car and give up on home ownership, because it seems like a losing idea atm, and they'll have pursued something they find fruitful for the time being. At least they'll have the car in common with their boomer neighbors.
> remodel a car
Instead, a modest trip and a few gadgets is wildly less compromising and stressful.
Remember you're paying for all these costs (+ landlord profit) when you rent.
But the main deal is people are still in "appreciation mode" where they don't really care if on paper they're losing money, because the house is appreciating faster than that.
Once appreciation slows or dries up (or prices start going back down) then things will get suddenly interesting.
> it turns into your own home equity so it's money coming out of one pocket and going into the other
You need to compare both numbers, because that equity doesn't do much to help you make your payments.
I think even if you choose not to use debt as a mechanism, you should understand why it's used as a mechanism, much like the parent comment has. Debt as a mechanism is not a bad thing - there's ample proof out there that availability of credit is an extremely strong indicator of future economic activity at the macro level.
As I understand it, sharia law forbids paying interest, so a conventional mortgage is not an option for adherents. However, several different mechanisms are allowed by which the purchaser gradually gains full ownership of the home. E.g. one is roughly equivalent to a rent-to-own agreement. The financier still gains a profit that reflects the risk their upfront investment is subject to.
What I find interesting is a recognition that some people need a lot of time to attain homeownership, and it may be valuable to let them live in the home before they fully achieve it, despite the outright rejection of lending as the mechanism.
For most things, that's a wise philosophy. Going into debt for something that depreciates like cars or furniture or electronics, is not wise.
Housing is different though for several reasons. One is that you must live somewhere. So (unless being homeless in an option) you have to pay for housing one way or the other. So you either buy (build equity) or rent (a pure expense). Another reason is that a house may (often does) appreciate in value so you're leveraging that debt to make money. Even if it depreciates, it hardly ever depreciates faster than paying rent. Another reason is that rents always go up, a mortgage locks in your cost for the next 30 years.
Or a bit more precisely, for the time the mortgage is running, you and the bank are essentially co-owners, and you rent the share you don't own from the bank (that would be the interests) while at the same time, you buy the bank share bit by bit (that would be the principal). At the end, you become a full owner and stop paying "rent" to the bank.
Think of people who owned houses in declining industrial cities. The local economy went bad, their house value went down and they faced a barrier to moving since they couldn't sell, move, and get a comparable house in a city with better prospects.