One area where I do think renting is a big win is on the freedom front. You can obviously move around a lot more readily if you don’t have to sell your house each time you want to move. I spend a lot of time in South East Asia, and there the only sensible option is to rent – it’s far cheaper, more efficient, and safer than buying. As I spend time abroad I am considering selling up completely – haven’t decided yet which way to go.

It seems that you have hit on a hot topic. This whole discussion reminds me a bit of the saying, “Statistics don’t lie, but statisticians do.” You can make an argument either way – financially or on the basis of lifestyle. From an investment standpoint, the reality is – like any asset – there are times when real estate is overpriced according to its value and makes a poor investment and other times it is underpriced. With that said, I think there are a couple things to point out in your argument:

- The house price appreciatiation is actually applied to the whole house. So at the end of 20 years you have an asset that you own (part of) worth about $750,000 based on 2% appreciation.
- You say that you need to be able to cover the “whole house payment” even though $900 is actually the amount that you can deduct for taxes each month. Therefore you reason that you should actually be socking away $2000/mo if you rent. The reality is that you can adjust your withholding and take less taxes from your paycheck. Or you will simply get a tax refund at the end of the year. Either way, the actual difference is the $1136/mo you calculated initially. Which won’t add up to nearly the $1 million you calculated
- An assumption of 10% annual growth is very aggresive for your investments
- Finally, if you withdraw 10% from your investments you will find that you will exhaust your funds far quicker than you planned. If the market returns say 2% in a specific year and you withdraw 10% you have decreased your principal and you will need a higer return in the future to earn it back. As we know, the markets do not always co-operate with nice even 10% returns (ask anyone invested for the last 10 years). The generally accepted “safe” withdraw rate is 4%. This would give you a $40,000 income on $1 million dollars. Not chump change to be sure, but not what most Bay area people would consider financial freedom either.

I think one good thing to come out of this real estate bubble is the challenge the myth the home ownership is the “right” way to go. As you are pointing out and so many of the commentors are highlighting, the rent v. own decision is not so clear cut and both have significant pro’s and con’s that need to be fit with each individual’s situation.

Thanks,
Brian

A great article………

That is why owning a house in the Netherlands is NOT part of the Dutch dream. Being in debt as a society is NOT financial freedom

Home ownership is an expense not an investment…..Renting is much more in line with financial freedom. I also have rented and owned property in Canada and USA

http://www.nytimes.com/2007/04/10/business/2007_BUYRENT_GRAPHIC.html

It basically told me that at the current market, if I were looking to buy a house as an investment, it would never turn a profit.

And I totally agree with your view of having complete freedom that you mentioned in this post.

If you’re saying house prices are too high and should come down to the point where it would make sense for landlords (which I agree with) then you’re house should be valued at say $300,000.

So instead of 1% of the bogus $500,000 figure, you should take 1% of the $300,000.

I realize it’s all about finger in the air, but the $2000 difference compounded for 20 years at 10% will add up to something.

But in general I agree – and rent.