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7 Reasons You Should Never Buy A Home

by Brett on July 31, 2010

As a career renter living in Northern California, I felt like I was missing out on a raging campfire of a good time in the housing market from 2003-2005.  Prices seemed way too high to me to justify purchasing a home.  My wife and I couldn’t afford anything decent…but also couldn’t figure out how others were buying into that overheated market.  Were we missing something?

Fortunately we stayed out of the market.  In hindsight it’s blindingly obvious that it was a bubble.  But it’s not so clear when you’re smack dab in the middle of the insanity.  In fact, it’s easy to feel like a moron when everyone around you is “making money” on houses that appreciate double-digits every year.

While prices in my local area (Sacramento) have eased off of their mid-decade highs, prices still look too expensive to me.  When compared with renting, it’s still no contest in terms of how far a dollar of rent will get you, versus a dollar spent on a mortgage payment.

Thanks to the pullback and current depression, we were recently able to rent a premium 2-bed 2-bath condo (with pool view and all!) for roughly half of what it’d cost to buy an equivalent type of unit.  Not to mention that we have no property taxes, or capital improvements, or any of the other home ownership woes.

Last week Barron’s published a piece called Renter Nation: The recession and shifting demographics will swell the ranks of people who will rent, not buy, housing over the next five years.  Yeah Barron’s!

Inspired, here are 7 reasons you should strongly consider renting over buying for the foreseeable future:

  1. It’s still more expensive to buy than rent (in most areas of the US). Don’t listen to the morons who chide you for “throwing your money away on rent” – these are the same geniuses who are hundreds of thousands of dollars underwater on their homes right now.  To get a handle on the rent vs buy math, check out this excellent calculator from the New York Times (hat tip Carson for the heads up on this resource).
  2. The trend in housing prices is still down. Don’t try to catch a falling knife!  So what if housing is cheap now – it’d be stupid to buy a house and watch it get cheaper.  Just rent for now – until we see an uptrend in prices.  As always, the trend is your friend.
  3. Demographic trends are not favorable. The Barron’s article outlines this well, as does noted demographer and market analyst Harry Dent.  Dent sees the housing market finally bottoming out mid to late decade – short term he sees more PAIN.
  4. You don’t get rich buying a house – anymore. That time is over – and good riddance.  Wealth is created by entrepreneurship – not flipping homes to one another.  If growing your wealth is your goal, you should deploy your capital in a more productive manner than a down payment on a home.
  5. Mortgage obligations kill your life flexibility. We are in a doozy of a recession, or an outright depression.  You might lose your job.  You might want to start a business.  You might want to split town altogether.  At times like this, the more flexible your “personal burn rate” is, the better.  If times get tough and you need to cut your monthly spend in half, you can’t do it if you’re locked into a 30-year mortgage.  But if you’re renting, you can move into a shoebox to conserve cash until the storm passes.
  6. Deflation is here – cash is king.  See #1 above – right now you want cash above all else.  Real estate is not the place to be as long as deflation is in control.  It may have its day once again, but not until the scale tips in favor of inflation.  Please review our deflation investing guide for full details.
  7. Home ownership is a time suck, and it makes you lame. If you want to spend weekends doing yardwork, powerwashing your aluminum siding, and redoing the tiling in your kitchen – by all means be my guest.  But you should realize and accept that we human beings have limited time and limited resources available to us while we’re alive.  Time is our most precious asset – and we must choose how to utilize it to maximize our personal happiness.  For me personally, that does not include housework.

Renting has been very very good to me.  My free time on nights and weekends allows me to enjoy a full social life, while entertaining a busy professional schedule too – of running a time tracking software startup, and also regularly publishing my deflation investing blog.  I hope some of these thoughts help you break free from the American Dream paradigm that you must own a home in order to lead a fulfilling, successful life in this country!


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  • Nathanael

    Um, it’s still cheaper to buy than to rent… *if and only if you can buy outright with cash, no mortgage*.

  • Brett

    But isn’t there still an opportunity cost on having your cash tied up in your home purchase? That’s a very large potential chunk of capital.

  • Carson Gross

    And the house is a depreciating asset.

    A bet on housing is basically a bet on the land that the house is located on. Makes sense in some places, but not in the vast majority, particularly when you consider the whims of fashion in real estate (see El Dorado Hills.)

    Cheers,
    Carson

  • Brett

    Exactly Carson – and back to EDH, a town surrounded by nothing but EMPTY LAND as far as the eye can see, you’d have to question a “long” position on that. No converted motels turned offices out there or other infill projects for sure.

  • Joe

    I bought around 2000 and after refinancing once, my mortgage is less than half what it costs to rent the condo next door. With the exception of the last couple of years, I could sell my condo faster than getting out of a 6 month lease. Property taxes, capital improvements, etc. are included in your rent. You’re still paying them, you’re just not getting any equity in return. The trick is living within your means. It may be better to rent a nice place than to buy one right now, but it is still better to own a mediocre place than to rent a nice one. You will agree after you become a homeowner. With the exception of the last couple of years, renting is for suckers. The market will come back in a few years, and I will still have a cheap monthly nut plus my equity.

  • Joe

    Once inflation starts to kick in, your rent will keep going up, but my mortgage keeps going down each time I refinance. You seem like a nice guy, I’ll be happy to rent a unit to you at twice what I pay for it when I buy again at the bottom in a couple of years.

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  • Ted

    Interesting, except you should acknowledge that there are probably at least 7 reasons to buy a house. (you know, contrary) It all depends on the individual and the circumstances.
    More to the point, I don’t know anyone who owns a house, myself included. Every year I pay the rent to California and if I don’t, they increase the amount I owe them and eventually will kick me out and find someone else to rent the property. Every year I can count on the rent to increase and if I use my own good money to improve the property or add structures to it, they will increase my rent even more. I could find someone to take over my rent and maybe make a slight profit by selling them the right to pay rent to Cal. but if I do make a small amount of profit I will probably have to share it with Cal. and my Uncle Sam.
    In Cal. we are lucky to have Prop 13, most other states raise their rent to whatever the market will bear and if we see hyperinflation then Prop 13 will be a godsend if it is allowed to continue to exist.

  • Brett

    Yes, absolutely – there are valid reasons on the other side of the argument. Which of course vary from person-to-person, based on their location, situation, and a host of other factors. Great analogy re: paying the rent to CA too!

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  • Brennan

    Good article Brett…
    I do like being the landlord though, if I’m cash flowing on the rent… Unfortunately, today many investors are having to rent underwater, trying to keep it as close to break even as they can… Also, if land (which should always be the case) is productive land, and netting a positive return (agriculture, business, etc.) then it’s a very worthy venture for most. I am a huge advocate for property, but only if it can help the owner with self-sufficiency… There is no real freedom without property… property, preferably, of course, that is debt-free…
    Peace.

  • go2mars

    I have a wife and 2 small boys, and… 4 female roommates. They help keep the costs down for us and pay bills. Common kitchen area, etc. Allows me to afford a hot tub, big TV, and some extra spending cash, just because I own the home (8 bedrooms). Plus it’ s fun. There’s always something going on, and someone can usually watch the boys for a few minutes from time to time.

  • Brett

    Brennan – thanks, yes, makes sense if you’re cash flowing on rent.

    I live in Northern CA, so am admittedly biased against current opps for renting places that cash flow – because that hasn’t worked in my area in quite some time due to inflated prices.

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