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
In addition to what else has been mentioned, remember that in the US, personal home ownership is *heavily* subsidized at the federal level (and sometimes also the state level). This subsidy takes on a variety of forms, but the most significant is the existence of the 30 year fixed rate mortgage, which only exists because of FHA backstopping. This is a multi-trillion dollar per year wealth transfer from the country to homeowners, skewed heavily towards primary residences.
You miss out on that wealth transfer if all you’re doing is renting and investing in REITs. This manifests in the form of rent being effectively much more expensive (in terms of real wealth cost) than owning a comparable property over the medium- and long-term.
Also remember that REITs get absolutely hammered by the fact that dividends are taxed as regular income. They’re not actually as good of an investment as they seem unless you happen to be in a very low tax bracket, and even then, you have better options.
Read most of the other posts if you are simply talking about your bank balance. They talk about the cost of rent vs the cost of owning, and set about drawing up that spreadsheet …
BUT there is a big issue that these sort of posts do not touch on. That is security. Once you’ve been in your own home for a while and you start paying down that mortgage you are “getting ahead”. You are your own “master” and are not subject to Rent Inspections (and other rental annoyances) at other’s timetables. You own the place and the more you go on, the more you know you are “in charge”.
Even further down the track and you pay it out. Total “security high”. No matter waht happens, even if the economy goes totally belly up, you have and own your home and no one can take it away. No rent vs buy spreadsheet can detail that comfort/feeling of security.
Sure – do your spreadsheets. But know a spreadsheet cannot always detail all possible issues involved.
The issue is that if renting is normalized, then owning property then becomes something associated with just rich people (as opposed to also including middle-class people).
Property ownership should really be a right, with renters being a small amount of people who choose not to exercise that right.
The reason is as a renter you’d have no control over your life. If your landlord wants you out, you gotta move. See how you like that over a lifetime see how you like that when you’re 50 years old and your landlord tells you to get the hell out and you’re on your 11th move.
A HUGE reason is that there are so many non financial reasons why you would prefer either option.
Many people find the stability of owning is preferable to stress of moving or fear of being evicted. Many people like being able to customise their house without fear of estate agent inspections. Want to have a dog. Paint the walls.
Any rent vs own approach that is strictly $$$ is misguided imo.
And any comparison that doesn’t take into account random rent increases, a few moves every 4 years is nuts. That shit will happen.
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