Home ownership revisited

Photo courtesy of Colin Whittaker

 

One of my very first posts at Unlikely Radical was titled “Why renting is better than owning“.

Later, I noted that while some people feel that home ownership provides a feeling of security, others will feel exactly the opposite.

Much more recently, responding to the house fever that seemed to be infusing my social circle, I wrote “Five reasons why you can’t afford to buy a home“.

Upon reflection, all of the above remains true.

But what happens when you’ve achieved those aforementioned five reasons against owning a home? What happens when we set our sights farther in the future?

The equation changes.

Home affordability checklist

To save you clicking, I posited earlier that five often-overlooked-but-necessary criteria you need before owning a home are:

  1. Have at least 10% to put down as a down payment.
  2. Able to afford the down payment without help.
  3. Afford the payments on a 15 year mortgage.
  4. Have a full emergency fund.
  5. Be able to contribute to an additional “home fund”.

Now some of these may be fungible depending on your situation, but if you find you’re skimping on all of these, you’re asking for trouble.

The long term

Because renting feels much safer to me than owning, I consider home ownership primarily from the lens of an investment. And by this, I don’t mean using the home as an ATM, doing any “flipping”, or any of that nonsense. I’m talking about the long-term prospect of not having to pay to live somewhere.

Think about it: if you’ve gotten to the same point I have in life, then you’re debt-free. (And if you’re not, let’s talk.) Your only bills are things like utilities, transportation, insurance, stuff like that. And rent (or mortgage, if you’re debt-free except for your home).

For most people, their rent/mortgage monthly payment is 25-50% of their monthly take home pay. Let’s be conservative and say 25%. What would would you do if you had that 25% extra per month to instead spend on whatever you wanted? How many thousands of dollars would that turn into per year? Not only would probably have enough money to do pretty much whatever you want, but then you’d also probably never have to worry about your retirement running out. How much could you just give away?

So yeah, I’m interested in that. But I’m 1-2 decades away from being at that point. That requires a longer-term view and lots of planning. And that’s really tough to do. I can tell you with certainty that I had no idea my life would be in its present configuration 10 years ago. 20 years? Forget about it.

But while it seems quite scary, making a plan with that long of a time horizon seems like the most financially prudent decision to make.

Evolving ideas

Being an Unlikely Radical doesn’t mean going against everything the system does just because. It means evaluating for yourself what makes sense for you in order to be truly authentic, and not letting anything get in your way.

So I’m revisiting the renting-versus-owning equation, and I finding that the balance may in fact be tipping. These are, and continue to be, interesting times. This is going to be a long story. Stay tuned.

But enough about me. How do you feel about the rent-versus-own decision?

Mike Pumphrey

Mike Pumphrey

I'm the founder and author of Unlikely Radical, a site to help people succeed with money, achieve their goals, and live intentionally.

I offer a free phone consultation to anyone who is interested in changing their financial narrative. Are you ready? Click here for details.
Mike Pumphrey
Posted on March 9, 2015
  • mpinard

    Good discussion, and well executed kneading of your viewpoint.

  • Collective ownership can be a good option too!

    • True, but that’s another post. 🙂 I’d argue that purchasing a home collectively requires a commitment to the shared owners on par with marriage; in other words, adding in other people adds in a level of complexity and intensity that is equal or greater to the purchase itself. Not to be taken lightly.

      I personally think that “shopping” for co-owners would be harder than finding the home!