The buy vs. rent debate when it comes to housing is one of the more tiresome in personal finance. Buying a house will likely be the single biggest purchase you make during your lifetime.* So getting it right is important.
The problem is that there are so many different variables involved including the type of house, location, your financial situation, your family status etc. Any one of which that can tip the balance in one direction or another.
On average, the default in America is to buy a house. The majority of the things you read push you in that direction. Ramit Sethi at I Will Teach You to Be Rich has a post up talking about why renting isn’t ‘throwing money away’ including:
The powerful real estate lobby, the government, and our parents all tell us that “real estate is the best investment of all.” There are even governmental tax incentives to buy! Repeat this for decades and a population starts to blindly believe, rather than run the numbers.
One of the more popular links on Abnormal Returns of late has been this one ‘Why your house is a terrible investment‘ by JL Collins.** There are no shortage of reasons why including:
It should be expensive to own, too! Let’s make sure this investment requires an endless parade of repairs and maintenance without which it will crumble into dust.
No matter what, most people aspire to own a home at some point in their life. Nick Maggiulli at Of Dollars and Data has a list of three things to consider before buying:
- You plan on being in the home for at least 10 years
- You can afford it
- You have a stable personal and professional life
Maybe it’s even more simple than that. Arthur C. Brooks writing at The Atlantic narrows the home buying decision down to one criteria. He writes:
If you think the house you are considering purchasing is the best place you can find to raise your family, welcome your friends, create traditions, and provide a destination for those you love, then go ahead and make it permanent. Your happiness will rise, because you have found a physical place to help you build the love in your life.
Stretching to buy a house that will strain you financially or distance you from friends and family could end up being a net happiness killer.
Anyone who tells you definitively that buying a house (or not) is the only way to go is likely you selling you something. Getting counsel from trusted sources who have been there before can help, but in the end the decision is up to you.
These big financial decisions aren’t easy. As with most things in life the answer is, it depends.
*Purchase, not investment. While housing prices have generally increased over time, estimating the costs of upkeep, taxes, etc. is at-best inexact. That and the fact there is no good way to spread your risk.
**To say nothing about a second (vacation) home.