Your housing situation can affect and even control many aspects of your life. At some point in everyone’s life, they’ll wonder whether it’s best to continue renting a home or should they become a homeowner. I went through the same thing in my life and eventually bought my first house.
When you start out in life, you’re usually forced to rent a house, condo or apartment unless you happen to have family that helps you buy a house. I believe the homeownership hurdle is a huge one for everyone. It can often mark the point where switch from having a negative net worth to a positive one. Beyond the financial aspect, you simply have more freedom and stability when you own your home.
After more than 15 years of leasing where I lived and even where my wife and I raised our three kids, I bought a house for numerous reasons. Both renting and buying taught me priceless lessons that I really wish I had known when I was 18 years old. I’m going to pass that knowledge along to you now. Hopefully it will reach you earlier in life than it did for me!
The Rental Home Game
Since I started out my adult life by leasing an apartment with a friend, I’m going to begin the post there as well since I believe most people start in a similar situation in their own life. It all seemed so simple when I was 18 and getting my first place to live away from my parent’s house. You fill out a form to let them know who you are and give them money to get keys. Then just keep paying each month to keep those keys and the ability to continue living there. After a few years, I began to see the first signs that it wasn’t that simple. More than a decade later, I see the entire rental home industry as another form of controlling normal people and a way to take their money.
First I realized that lease deposits are basically scams. I left my first apartment dirty, so I understood them keeping my deposit for cleaning. When I left the next place spotless and still got billed for the same cleaning services, I started to wonder. After it happened again and again, even after thoroughly documenting moving in and moving out, I realized most landlords just scam tenants out of their deposits because it isn’t worth the legal bill to pursue it. Besides, most tenants are broke and can’t afford a big legal bill anyways.
Very early in my marriage, my wife and I fell on hard times. Neither of us had a college degree and we were raising a toddler. We ended up getting evicted from a townhome complex that we had moved into after we got married. Being in this type of situation is bad enough for your personal life and mental health already. To make matters worse, it then becomes next to impossible to find somewhere to live for many years in the future, even after you turn your life around. I quickly realized that the world doesn’t care about you. One mistake and you can be homeless and starving. Still nobody will care when it happens. Luckily, my wife and I figured out that some private landlords wouldn’t run background checks, so we were able to find rental houses that way for years until we built up a positive rental history that would actually help us hunting for a new house to rent.
Dealing With Landlords
Let me begin my talk about landlords by saying that I’m sure there are good ones out there, so please don’t let my blanket statements below take away from that. I’m just saying they’re rare and really hard to find. This applies to corporate run apartments but especially to private landlords. With that said, I’ll flat out say that most landlords are greedy narcissists that just want to use you and your family to put more money in their pockets that are often already quite fat.
In my entire time renting houses, townhomes and apartments, I had one single landlord out of 12 that I thought were decent people, honest and not centered around making a quick buck. One of them in particular I would considered to be a spawn of Satan himself. I’ve never experienced such blatant lies and outright greed in my entire life as I did with that one, so you can probably see why my opinion of them overall isn’t great.
The best advice I can offer you as a tenant is to plan to buy a house as fast as you can and cover your ass while you are stuck being a renter. Document every square inch of a rental property on the day you get your keys. Don’t expect your landlord to care about you or your life at all. Worst of all, expect them to try to screw you in any way possible if it means an extra dollar in their pocket. If you go in with those expectations from day one, I really feel like it will help to avoid some shocking surprises in the future.
Costs to Buy a House
You mainly need two things in order in your life to buy a house. The first is your credit score, which I’ve talked about in other articles on this site. The second is money. You need upfront money for a down payment and closing costs, in addition to a good income that will qualify you for the mortgage loan. I want to talk about the upfront money aspect of it here.
To rent a house, you only need to come up with 2-3 months worth of payments to get your foot in the door. To buy a house, it can be much more. It took about 35 times my monthly house payment in upfront cash to buy my house. This makes it much more difficult for someone to become a first-time homeowner and be forced to continue renting.
There are some options that can be used to become a homeowner for much less upfront though. Some loan options like an FHA loan let you put as little as 3% down to buy a house, so you may only need to save up 10 monthly payments to buy. If you join the military, veterans can take advantage of a VA loan to get 0% down. You’ll still have to come up with money for inspections, moving costs and closing costs with a VA loan, but this can usually be done with 4-6 months of house payments, making it the cheapest possible upfront option to buy.
Long-Term Rent vs Buy
If I had been able to buy a house as soon as I moved out of my parent’s, I would’ve had it 50% to 65% paid off by the time I was actually able to buy my first house. All of that equity was simply thrown away, or more aptly thrown into the pockets of greedy landlords that reveled in taking advantage of families in need. Beyond the monthly payments, house prices as a whole drastically appreciated during that same time period. Houses were selling for 2x to 4x more than they were when I first started renting. This simply means that buying long-term would’ve left me hundreds of thousands of dollars in my pocket in the form of home equity or possibly cash if I had sold.
By comparison, renting all of those years brought me absolutely nothing. In fact, I lost even more than my monthly payments all of those years from tons of extra moving costs and getting scammed out of every single lease deposit I ever put down. There simply isn’t a contest between having absolutely nothing to show for renting versus having hundreds of thousands of dollars worth of value in my home.
Beyond long-term asset and net worth value, you should also consider the benefits that buying can offer to your monthly housing expenses. First off, landlords are in the business to make money, so you can simply buy for less and even maintain and pay taxes for less. If you couldn’t then there wouldn’t be any landlords.
Inflation is another key factor. This wont affect you right away, but it will catch up to you eventually. When I was first renting, I could get a 3 bedroom house for my family for about $850 per month. Today it would easily cost $2,500 and maybe more. That wasn’t even 30 years ago either, it was about 20 years to make that jump. Had I bought a house back then, I’d had a mortgage payment around $850. Your monthly payment can increase from taxes and insurance, but the actual loan payment will stay the same for the life of the loan. During that same time, landlords would continue to raise the rental payment on your lease, so you’ll never get savings from inflation this way unless you buy a house.
Freedom & Housing Stability
Most of what I’ve talked about with renting vs buying has been related to money. However, there’s much more to it than that. In my opinion, the other benefits of being a homeowner would still be worth it to me even if I ended up with zero home equity just like renting. With rental homes, you have to deal with the landlord, lease terms, and the likely need to move around every few years. Simply put, you don’t have the freedom to do whatever you want with a rental house, and you also don’t have any housing stability. Your landlord can choose not to renew your lease or raise your rent any year and force you to find somewhere else to move. Even worse, you can have a landlord do to you what one did to me – make up lies and try to evict you under false pretenses just because he wanted to sell the house during a hot housing market but was stuck with your long lease. I had the money to fight back against that landlord but most renters don’t.
Ultimately, when you rent the place where you and your family live, your life is restricted by their rules. If you’re a single guy, your landlord could actually prevent you from having a serious girlfriend sleep over for more than a week at a time. Stressed out moms that love nature may not be able to spend their free time relaxing by tending to a garden. Your financial future could even be restricted by not allowing you to run a home-based business (yep, I’ve had that issue with many potential landlords).
My most successful businesses these days are ones that I simply wouldn’t be able to do if I wasn’t a homeowner. I constructed shade houses to grow tropical plants that I sell. The office building on my property has modifications for my work and bitcoin mining machines that a landlord would certainly never allow. As long as I keep paying my mortgage until it’s paid in full and keep up with homeowners insurance and property tax payments, nobody can ever tell me that I have to leave my home. This freedom, peace of mind and stability with my housing means more to me than all of the money in the world. However, I still find being a homeowner to be much better for my finances too, so hopefully you can see why I believe the contest between renting vs buying a house isn’t even close.