What’s the reason for not just renting housing till the end of time and dumping my excess savings into REITs? Is there a big difference in outcomes vs buying a home?
In: Economics
It is a perfectly reasonable strategy. Particularly if you believe you might be moving often or would like to continually upgrade your living quarters. There is, of course, a balance of risk vs gain.
If the REIT gives relatively reasonable returns compared to home prices, then this might be a benefit. However balance this against the fact that mortgages give a huge leverage on home price appreciation.
Bank costs and transfer costs for real property are high. Even for a relatively modest property, expect that it might cost tens of thousands to buy and then sell a home. This usually works out if you live in the home for 7 years or more. (Less time if home prices appreciate faster) But if you intend to move every 2-3 years, renting is probably a better idea. This is especially true if you believe your income will rise rapidly in the next few years and you’ll outgrow what you can afford today.
Your own personal discipline is important. It is tempting to skimp on investing which can severely affect the final returns.
Real property can be expensive and time consuming to maintain. Property taxes, upgrading stuff, repairing stuff and all that “stuff” adds up. There are also the non-financial costs – expect to spend many weekends just doing things on the home. Some people love this and some people detest it.
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