This is a second take on my Renting vs Buying page where I discuss the exact numbers from a recent house acquisition this past summer. I won’t rehash the purchase details, but it is a 4 bed 2 bath 1,400 sq.ft. home in a town of 10,000 people. Sale price of $255,000.

The whole “rent vs buy” debate is eternal. I will step up on my soapbox and announce the following: House buying is part of the American dream. Go to college, get a job, buy a house, start a family, and retire at 65. Enjoy summers at the lake and winters skiing in the hills. Paint that picket fence white and drive a new SUV like Mrs. Jones. Wife sits on the PTA while the husband works a 9-to-5 to pay the bills. WHAT A JOKE. Like practices in healthcare and anesthesia, we should question why we do things. Is it just because we have always done them or is there evidence to support their use in practice? Are these part of my dream? NOPE. Is college for everyone? NO. Are houses for everyone? NO. Retire at 65? I can’t even justify that with a response. I am stepping down now.

Myth Busting Pros and Cons of Buying and Renting

What are the pros of house buying? Equity —the almighty trump card. But I’m not buying it. Sweat equity, that’s a thing—but it takes money, time, and knowhow. Still better to have it as a rental property than your personal residence if you are going this route. Not to mention, mortgages are amortized over 30 years (meaning the interest is front loaded). If you refinance or buy another house, the amortization starts over and your payments go to interest all over again. Renting is throwing away money. Yes and no. It isn’t any different than paying the interest portion of the mortgage payment. And you typically don’t rent more space than you need. I know my wife and I wouldn’t be renting 1,400 sq.ft. with two sheds and a good size yard for the area. Appreciation is another pro. Sure, some areas of the country have boomed over the past decades, but as a whole, houses appreciate 3-4% annually, which barely outpaces inflation. Let’s look at two differing opinions on the matter (both found in the “must-read” tab).

Dave Ramsey is a pro-house guy IF PURCHASED APPROPRATELY. He recommends the payment (mortgage + insurance + taxes) on a 15-year fixed mortgage is less than 25-30% of your net pay. The Ramsey Solutions study of 10,000 millionaires showed home ownership was a big portion of their net worth. My question is what came first, the chicken or the egg. The study does not say that participants became millionaires due to home ownership. Home ownership is something people gravitate towards when money problems and debt are less of an issue. Regardless, he feels a reasonably purchased house is good in the long term and I like his recommendation of how much to spend on a house.

Robert Kiyosake has a much different approach. He is an “asset vs liability” guy. His definition of an asset is anything that cash flows or makes him money. Anything that costs money, such as a house, is a liability. He says you should rent and invest the money in cash flowing rental properties. Don’t waste the down payment on something that costs you money—whether that be in the form of a down payment, mortgage, insurance, repairs, or maintenance. The tax man is kind to real estate investors. Many of the aforementioned costs are considered business expenses and deducted accordingly. Major tax burdens can be pushed into the future with the almighty 1031 exchange. He goes as far to say don’t pay for a $50,000 car in cash. Buy rental properties that cash flow and use the cash flow to cover the monthly payment on the car. Just like the argument for significant sweat equity, this form of home ownership is a second job. You are a CRNA and make good money. I’m not skipping a day in the OR when my daily wage could cover a small renovation crew who actually know what they are doing.  

There is no such thing as a free lunch (except at The Financial Cocktail). You and I don’t work for free (or anything near $120 an hour according to the Facebook pages). Healthcare isn’t free. Borrowing money isn’t free. There are so many transactional fees (as evidenced by Renting vs Buying). Mortgage officers are a mix of bankers and salesmen. After the fiasco in 2008, due diligence is required to lend money, but the regulations are still a bit loose in my solicited opinion. It was easy enough for my wife and I to qualify. They noted our lack of debt, credit scores, W2 incomes, and the cost of living for the area and basically gave us a blank check. They said pick out which house you want, and we will write it up.

Housing is the middle-class trap. The U.S. Census Bureau reports the median square footage of houses increasing from 1,595 in 1980 to 2,386 in 2018. People want more house despite heat maps showing primary use limited to the kitchen and living area. Over this same time, the average number of occupants has decreased meaning a great increase in square footage per person. I suspect we buy more house simply because we can. Maybe ego. Maybe we want each kid to have their own room. Whatever the case, banks love more house. Especially with CRNA level money. They don’t lend out of the kindness of their heart— it is a business transaction. Anything with interest has you on the wrong side of compounding interest.

Are houses great? YES. Are they expensive? SO MUCH YES. No one is arguing that the privacy or customization options are inferior to that of an apartment building. No one is saying that your own personal space isn’t worth it. And I’m not saying, “don’t buy a house.” I am saying, think the purchase through. I am saying in every area I have lived, a similar sized rental plus a brokerage account outperforms buying a house every day of the week. Not even close. Money is quickly getting more expensive to borrow and the Fed is still hawkish. Historical average mortgage rates hover around 7% despite what the past 15 years would lead you to believe. And 7% isn’t benign. If housing is your thing, go hog wild. If retiring early, traveling, or anything else is your thing, think it through carefully.