How I Made $102k in Real Estate and Am Poorer For It

Welcome to Seattle.  You Should Buy a House.

In Y2K I arrived in Seattle for a new job and immediately set out to buy a house.  I have no idea why; I was just following the rules society had laid out.

I had just received an offer on my Chicago area house for 178k.  Houses close to work started at $550k.  I was experiencing major sticker shock.

Price forced me to widen my search to nearby commuter communities, where I found a great looking house in a nice neighborhood.  It had easy highway access, a nice view from the upstairs office, and was barely in my price range at $292,500.  Nearby was a newly constructed office park that would attract potential future buyers, and an elementary school in a good school district was a 5 minute walk up the hill

With a 20% down payment of $58,500, I had just purchased the biggest house I could afford, the smallest house in a good neighborhood.  Remaining in my bank account was a lonely $20.

5 years later, I sold this house for $394,500, a gain of $102k!  At the closing, I received a check for $143,842.

In just 5 years, the house had increased in value by 35% and I nearly tripled my down payment. Leverage is awesome! Over the same period, inflation was up only 14% and the S&P500 was down 11%.  Those people who say houses are a terrible investment are idiots!  But not me, I was some kind of Real Estate genius!

And I’m not the only one, these stories are everywhere.  Ask anyone if you should rent or buy, and you will hear success stories even greater than this one.

But seldom do you hear the whole story.

The Rest of the Story

There is a lot more to purchasing a house than just making a down payment.


The list of fees is long and nearly incomprehensible.  Many of them aren’t even clearly disclosed until you are sitting in an escrow office signing 80 different sheets of paper with onerous terms.  You want my first born? OK.  My kidneys? Sure. My dignity?  Be my guest.

A list of fees is boring stuff to read.  But in this case, I must insist.

Purchase Fees
Loan origination fee: $2,340
Title Insurance: $556
Settlement or Closing Fee: $510
Appraisal Fee: $410
Application fee: $375
Tax Registration Fee: $80
Sales Tax: $44
Recording Fees: $26
Credit Report: $21
Flood Determination Fee: $19
Courier Fee: $17
Sales Tax: $2
Total: $4,400

And of course, they don’t just get you coming, they get you going too

Sale Fees
Buyer’s Agent Commission: $11,685
County Tax: $6,933
Title: $982
Escrow: $625
MLS Listing Fee: $495
City Tax: $250
Sales Tax: $56
County Fee: $42
Courier: $25
Total: $21,093

Over $21k to sell a house?  WTF?  I had no Seller’s Agent Commission, because I did all the work myself.  Hiring a Realtor would have increased my sales expenses by another $11,685 (over $5k/hour, good work if you can get it)

Real Expenses

Once you move in, the expenses are just getting started.  A washer and dryer weren’t included in the sale, regular maintenance must be done or the value of the house goes to zero, and I made a few changes to improve energy efficiency.

A common estimate for maintenance expenses is 1% of the home value per year.   I did 90% of my own labor, and spent ~3% of the purchase price ($9,225), although I’ve surely forgotten suppressed some expenses.

Bonus: During the purchase inspection, rotten siding was discovered where water had seeped into a gap in the metal flashing near the fireplace. Repair estimates averaged $5,000.  The Buyer’s Agent very much wanted this to be a credit at closing, “so as not to impact the neighborhood resale value.”  I think she was more motivated by the 3% commission on that $5k.  Negotiating it as a reduced sales price saved me over $250 in commission and taxes


Part of the payment received after the sale was the return of principal payments, the portion of the mortgage payment often referred to as “forced savings.”  In my case, this was $15,949.89

Actual Gain

After including all fees, all real expenses, and return of principal, my incredible gain of $102k looks much smaller at $55,767

But hey, I still doubled my money!  How cool is that?!

But again, this isn’t the whole story

The Cost of Excess

What does a single guy need with a 3 bedroom + office, 2.5 bath, 2,000 sq. ft. house with a 2 car garage?

I probably lived in 500 sq. ft. of this house.  I used the home office, where I kept my computer and guitar.  I used 20% of the Master Bedroom and 50% of the Master Bath.  I used the refrigerator, microwave, and oven often, but the dining room only once.

My car and motorcycle each had 5 feet of empty space around them in the garage.  There was a shovel in the corner and a few cobwebs

Unused space costs time and money.  I couldn’t heat only 20% of the bedroom and 50% of the bathroom.  I couldn’t clean only part of the house.


Energy bills were substantially higher than if I had lived in something appropriately sized to my needs.  I also had bills for water, sewer, and garbage, services that were always included in our rent.  I estimate these cost $100/month more than renting, or $6,000+ over 5 years


My house was located 16.4 miles from the office and 28.4 miles from the airport, which I used for work travel at least 4 times per year

Compared to living in the City where I would eventually settle, I was driving an additional 3,800 miles per year in work and airport commute.  Public transit was as expected for a commuter community.

Using the IRS Standard Mileage Rates, I spent an additional $6,800 over 5 years on commuting costs


Back in 2000, interest rates were a little higher than they are today.  My 30-year fixed rate mortgage came with a competitive 7.625% interest rate.

As interest rates declined, I refinanced twice, first to 5.625% and then to a 5-yr ARM at 3.0%.  Each time $2,000+ in fees was added to the mortgage.  But at least there were no out of pocket expenses.  Banks are nice like that.

Property Taxes, Insurance, & Homeowner’s Association

Immediately after buying this house, the housing market softened in the area.  The County revised the property value downward twice, and my property taxes declined from $4,200 to $3,800/yr.  Neighborhood Homeowner’s Association Fees were $288/year

Insurance on the property started at $759/yr and increased each year after.   By contrast, I’ve never had renter’s insurance.  If my stuff was stolen or lost in a fire, I would simply replace it out of savings.

Mortgage Interest & Income Taxes

Over 5 years, I would pay $64,502.53 in mortgage interest

Because I was single, lived in a big house, and interest rates and property taxes were high, I saved over $16,300 in income tax.  Pay a bank $1.00, the government gives you back $0.25.  Seems legit.  Although you are still out $0.75…

Today, being married and with much lower interest rates, we would have zero tax benefit


I once spent a 3-day weekend of 12 hour work days installing 6 yards of cedar mulch with a wheel barrow and rake.  Staining the deck began with 2 weeks of evenings and weekends spent sanding.  I may still have splinters from this project.

Assuming 2 hours/week spent on house work, I would have lost 511 hours, 64 8-hour work days, 3 full months of work.

In that time at the office, I would have earned over $25,000

Total Expenses

$6,000 in utilities, $6,800 in commuting costs, $48,181 in mortgage interest after tax benefit, $19,483 in property taxes, and Insurance & Homeowner’s Association expenses of $5,148.

Not even considering the value of my labor, that is a lot of money.

I would have been much better off by renting

You Have to Live Somewhere

But you have to live somewhere.  Better to buy yourself a little home equity instead of throwing away your money on rent and paying somebody else’s  mortgage.  So they say.


My mortgage payment (principal and interest only) started at $1,676.56 and dropped all the way to $980.09.  At the time, the average rent in Seattle was less than $750.

Over the course of 5 years, I would have paid $47,568 in Rent.  That seems like a lot.  But it is a far cry from the $94k+ I paid out of pocket while living in the house with a lower quality of life

Opportunity Cost

How much better off would I have been financially by renting?

Investing the down payment and monthly savings each year in an 80% stock / 20% bond portfolio would have done poorly.  The stock market fell 11% over the 5 year period.  (DQYDJ’s new S&P 500 Dividend Reinvestment and Periodic Investment Calculator is fantastic for this analysis)

But even in this investment environment, and even assuming my labor was worth $0, I would have come out ahead by over $8,000.

Instead of receiving a check for $143,842 upon sale of the house, I would have had a portfolio worth $151,883.

Got Out Just In Time

Projecting forward to 2015, that $151,883 portfolio is now worth $560k.  Investing the monthly savings over the past 10 years would add an additional $270k.  I could buy that house today with cash, and still have over $300k in walking around money.

In practice the delta is even greater, as we never would have been able to move into an apartment in a walkable neighborhood and become car free.

Staying in the house we would have less than $160k (a ~$13k gain since 2005.)  We would still be working.

So, Rent or Buy?

Are you or someone you love thinking about buying a house?

Real Estate is a great way to make money.  Did I ever tell you about the time I made $102,000 on my house?

Do you have a Real Estate success story?

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174 Responses to How I Made $102k in Real Estate and Am Poorer For It

  1. Nick says:

    I appreciate you sharing your story so that others may learn from the experience. If it wasn’t for the PF blogosphere, I would have had a very similar story. Cheers.

    • I also appreciate the insights in walking us through all the details.

      I would be honest with you in that I want to buy a home where I put as little down as possible, and have mortgage be less or equal to amount of rent. The thing that scares me is the time spent for maintaining that home – I am not at all handy like you. If I spent this time researching the products of Diageo or Brown-Forman with my friends instead, I would have had a much better ROI on my time.

      Before reading your last two articles, I thought that my biggest real estate success story was buying some REIT shares in Realty Income in 2008 – 2009. Received some nice dividends of 6% +/year, plus the stock has more than doubled.

      After reading your latest two articles however, it looks like the best real estate investment I ever made was to rent all those years (despite throwing something close to high 5 figures), and buying dividend paying stocks with my excess cash.

      Good luck in your retirement!


  2. Interesting analysis of your situation. The analysis would likely been much more in your favor if you did not buy all the house you could possibly buy. If you were able to buy half the house and pay it off, you may tell another story. Yes, it may be financially better to rent, but in a lot of cases (especially outside of large cities) the quality of life in a home is much better than a rental. Definitely worth projecting out the costs before jumping into either scenario. Thanks for the post!

    • Go Curry Cracker says:

      I was scraping the bottom of the SFH market at this distance. To go much cheaper, I would have had to go out another 15 miles or so into the next county. Even then, it wouldn’t have been half the house, more like 20% less

    • Misty Mikes says:

      This was my first thought, but then I realized that this is MURICA. You can’t buy a modest, small house anymore, in most areas. Go big or go home.

      Even the older homes that you used to be able to get are being torn down to be replaced with inefficient houses that are larger than most people need.

      It makes me sad. I want to do like my grandparents did and buy a very small house (about the size of my current apartment), and live modestly, but the houses like that just aren’t out there to be bought, when I’ve looked.

      So I languish in rental hell. 😛 Maybe someday I’ll be able to afford to simply build the modest, energy-efficient house that I want to live in! But I doubt it.

  3. Kyle says:

    Thanks for sharing this, I know you mentioned it last week and I thought, “sounds like a good read, where’s that post”. I mentioned last week I’m trying to inform people renting is often better financially. Saturday I tried to explain it to my financially savvy friend that he may want to reconsider renting instead. Seems like he really wants the house though. I think people need to realize these downfalls, then if they still want the house, well at least they know the numbers. Knowledge is power.
    I’m a 2 year novice home owner but I think someday I’ll become a lifetime renter too.

  4. Chris says:

    Great article on showing the full costs of ownership. I think the mistake that was made though was not getting roommates. That could have made you an extra $40 – $60K at least and also helped with shared expenses.

    Some places it makes more sense to own and some places more sense to rent. I personally don’t think somebody should own until they get married, regardless.

    • Go Curry Cracker says:

      Roommates could work both ways. I’ve rented with roommates

      I did have a Room for Rent ad on Craigslist for a time, but not much interest

      • Tim says:

        I do the same… roommates come and go for sure and there are vacant times… but I’ve also met some great friends who are living across the globe now… It’s great to have friends and connection like this as they still pay dividend when traveling…

        Not to mention the 20-30K they helped pay down my mortgage.

  5. Wow, awesome post as usual, Jeremy. I value your willingness to go against the grain.

    I think most homeowners also keep larger cash buffers than renters do (for unexpected home repairs) and stay more liquid, and if they’re unable to max out their 401k(s) because of this, they could also be paying more in state and federal income taxes.

    A couple years ago, I was seduced by the freakishly low rates of a 15 year mortgage and refinanced into one from my 30 year. That was a really smart decision until I realized that having to make a larger principal payment was actually now preventing us from maxing out our tax-deferred accounts. We now had no choice: we had to pay taxes on that money.

    • Go Curry Cracker says:

      Wow, that is a really interesting scenario. Thanks for sharing!

      It is counter intuitive, but a really clear example of what can happen when trying to minimize interest rather than maximize net worth

  6. David G says:

    This part was absolutely chilling:

    “Staying in the house we would have less than $160k (a ~$13k gain since 2005.) We would still be working.”

    Especially that last sentence. But at least you’d have the approval of those who are your critics now.

    I have been a proponent of the dreaded, “better to throw our monthly payment into a mortgage than into the black hole to pay someone else’s mortgage off by renting”. Not sure where it came from, either, but it seems to make sense until you do the numbers and factor in the quality of life.

    I think my wife and I will be renters from now on. You and Winnie have inspired us, especially the palace you rented in Mexico for 1400 per month. We don’t have kids, so this is a realistic goal, we think. World travel instead of putting down roots and mortgage and waiting for the end to come…

    • Go Curry Cracker says:

      Mexico is awesome! We love it and are headed back this winter, I don’t think you’ll regret a life of travel

      This house would definitely have been a boat anchor on life

      I was also very generous in the current estimated value. There is currently a 4 br, 2.5 bath, 2,9650 sq. ft., 3 car garage house with amazing views for sale in the same neighborhood for $475k. I doubt anybody would pay the $500k Zillow thinks my old house is worth (3 br, 2.5 bath, 2,000 sq. ft., 2 car garage, slight view only from the office)

  7. brooklynguy says:

    Great job peeking behind the curtain and exposing all the hidden costs of home ownership (and transacting)! I’m not quite sure what your point is when you say “part of the payment received after the sale was the return of principal payments,” though — are you just clarifying why you only accounted for the interest portion of your mortgage payments as a “cost” in the cost/benefit analysis?

    • Go Curry Cracker says:

      Yes, just clarifying

      And also pointing out I can’t just use the check I received and compare to my down payment and think I tripled my money. A big part of that check was just moving funds from A to B

  8. Andy says:

    You said “Instead of receiving a check for $143,842 upon sale of the house, I would have had a portfolio worth $151,883.”

    How did you get $151,883 number for your portfolio? I thought you said stocks fell 11% during that 5 year time?

    • Go Curry Cracker says:

      Periodic investment, dividends, bonds rising as interest rates fell, and bond interest. This is a graph of the stock only portion of the example

      • Andy says:

        Sorry, not that I don’t believe you, I’m still confused about this part.

        You said “Investing the down payment and monthly savings each year in an 80% stock / 20% bond portfolio would have done poorly. The stock market fell 11% over the 5 year period. ”

        How did you get your portfolio (blue line) up so high? I want to do the same in the future.

        I actually just signed a Lease to rent even though I already own a home (renting it out now). Is this a smart move?

        • Go Curry Cracker says:

          Go to this page

          This is a super simplified model, but the results are basically the same / close enough

          – Set the Start Date to Aug 2000 and the End Date to July 2005
          – Set Starting Amount at 60k (down payment)
          – Set monthly investment at 1500 (savings of renting vs owning)
          – Click Calculate

          You can download the CSV file to look at month by month performance and see what happened

          • andy says:

            Great calculator! How did get that number of $1500 for monthly investment?

            I understand its the savings of rent vs owning, but could you break it down for me? Is it calculated from all the expenses you paid and driving you had to do?

            I’m learning a lot and thanks so much!

  9. Mr. SSC says:

    We bought our first house at the ultimate peak of the 2008 real estate bubble, right before the crash, so our purchase price and sale price were $30k different, but in the bad way. Even with our company reimbursing/minimizing our loss to within 10% our purchase price, we still lost out. Thank god for relocation packages or we would have really, really lost out. 5 years of ownership, upgrades, time spent on yard/maintenance, lose, lose, lose. We did a cost breakdown and realized renting for 5 years would have been cheaper, even with the higher rental cost per month.
    When we sell our “now home” in 3 more years (fingers crossed) it may be the first time we see “profit” but adding in all the fees, etc… it will be interesting to see where it all shakes out.

    • Go Curry Cracker says:

      Relocation packages are one of the best benefits. It would be interesting to have the conversation with HR about getting a similar payout in cash and staying a renter

      I hope 3 years hence you make a profitable sale. Good luck!

  10. Semira says:

    Thank you so much for this post. I’m moving to Seattle from NYC this week and already fielding the “what do you mean you won’t have car?” and “why don’t you buy a house? It’s a great investment” questions. I love the detail in this post and you have once again given me an amazingly simple way to answer this housing question if an in depth discussion happens. Just send them this link. I always look forward to your posts. Keep them coming please!

    • StockBeard says:

      Hey Semira: We live in Seattle without a car, and we’re renting. We’re a family of 4, and our condo is small by most people’s standards, but we love it. We found a very walkable area, and I can’t help but smile when people who live outside of the city tell me about their commute time. I definitely don’t regret it!

      (We moved from Tokyo, a city very similar to NY in many aspects.)

    • Go Curry Cracker says:

      Seattle is a great city to be car free. There is great public transit in the core downtown, there is a great bike culture, buses have bike racks, and it is small enough that an Uber or taxi is always less than $20. Enjoy!

  11. Leiliant says:

    As a first time home owner who is now selling that 1st home – I very much relate to this article – it’s practically my story. Plus I did many renovations to the tune of about $40,000. I’m getting all that back with the sale and then some – but my true profit after all costs is relatively small. I always have renters – which is a minimum income of $1,000 a month. Am now trying to decide whether to buy or rent. My parents made so much money in real estate that it supported both of them during a 30 year retirement where neither worked and they did as they pleased. I’m not sold on renting – but I’m listening.

  12. EdD says:

    Another thing people miss is the refinancing. When moving from one 15 year loan to a new 15 year loan, or from a 30 year loan to a new 30 year loan, one gets to start all over again and repay the interest for the number of years they are already into the existing loan. Usually people use the excuse that one will always have a mortgage. I agree, people who think that way will always have a mortgage. I haven’t had a mortgage since 1999. And will never have another one on a property that l live in.

  13. Vawt says:

    This is definitely an article people should read and think about before they make the decision to purchase or rent. There are a lot of scenarios that can occur, but I now think most of them lean towards renting, depending on the cost of living in your area.

    I am willing to lose out mathmatically to have my own piece of land, but I did not stretch my budget and do most of the repairs because I enjoy the challenge. Either way, I enjoy the different perspective and I think you have affected my viewpoint (just a little bit).

  14. Andrew says:

    Great analysis, Jeremy.

    I’m living in an area where a typical 1br/1ba apartment also goes for about $750/mo and I bought my first (and last) house 3 years ago for $130k so the math in my situation looks better than yours but I’m still planning on selling and going back to renting before the end of the year.

    Owning a house is a lot of work. For some people, fixing/maintaining/upgrading a house is a hobby they enjoy, for me it’s just labor. Unsatisfying labor.

    As a renter I would spend my evenings and weekends reading books, going for bike rides, and just relaxing. Since buying a house I no longer have time for the things I really enjoy. My bike rides and books have been replaced by lawn mowing/yard work, cleaning gutters, fixing a buggy furnace, fixing doors that have shifted so they no longer latch, etc. Home ownership is job that doesn’t pay, or pays in grief. My life used to be worry-free, now I’m constantly worrying about what is going to break next, or what problem am I going to discover next that will require more of my precious time and money to rectify.

    Even if the math says “yes”, for me the lifestyle screams “NO!!!”

    • Leiliant says:

      That’s so true. I no longer have time for my passions. I have a 65 mile commute. I haven’t composed any music since purchasing a home – at least I can sing in the car. Weekends are consumed with a “to do” list and preparing for the work week. I pay handymen to help me and I have learned time management- but there is never enough time. My last two vacations were spent doing house stuff. At least I have a pool and palm trees in the back yard.

      • Go Curry Cracker says:

        > Home ownership is job that doesn’t pay, or pays in grief.

        When a house is more demanding than an oppressive mother-in-law…

  15. You really put this into perspective. It’s a wonder why people buy houses and then move after just 2 years (my sister, for instance). I suppose she will lose money over renting. After all, her home’s value hasn’t increased. Eeek. Poor, sis. However, she doesn’t like receiving financial advice from me. Go figure.

    • Go Curry Cracker says:

      Funny thing about advice, nobody is every appreciative of receiving it unsolicited. And then if the advice was just perfect and they realize it later, they may even resent you for it. Good times.

      And even when advice is asked for…

      Recently on Facebook, a friend asked, “Hey friends, should I buy this house or keep renting?”

      I replied with a link to Jim Collins’ excellent article about why your house is a terrible investment.

      But this was no ordinary request for advice, it was one of those “everybody just agree with me because I’m going to do it anyway” sort of things 🙂

      • Kalergie says:

        Yep. Very popular on FB is the “look at our new house” posts which are mostly followed by “congrats”. What is to be congratulated? Buying a house isn’t an achievement. It’s being able to sign your own name.

  16. Nita says:

    What about cases where you buy it low and rent it? A friend of mine purcased a home for 20k as a foreclosure and put out 30k to fixe up, then rented it for 900.00.

  17. Great post that makes you really think about where you should live, and what kind of housing you should select. For some reason the “white picket fences” call way too many of us to sub-optimal housing choices.

    We landed a house at auction 4 miles from the center of the city and had about a 25% gain on paper as soon as we bought it. I’ve never had a commute over 10-15 minutes and we paid just over $100k for the house. We can walk everywhere.

    The only downside is it’s not the best neighborhood in the city. Immigrants and minorities live near us. Which is awesome because we are totally okay with that and it actually makes the neighborhood even better. Asian and Latino grocery stores everywhere, inexpensive restaurants. Rarely any crime, though that’s contrary to the common misconceptions.

    Financially we would have been better off renting a smaller apartment somewhere. I definitely see our cost of maintaining a larger house versus something that was the perfect size (maybe 500 sf smaller). The problem is that they only make houses of a certain size if you want a single family house and a yard. In fact, many newer neighborhoods around here require a minimum house size of 1800 sf or more!

    Craziness. I wish more 1000 sf or smaller housing stock was available. That’ll put you in the multifamily condo/apartment/townhome market.

    • Go Curry Cracker says:

      1,000 sq. ft. SFHs would be great. I would rent one

      Nice find

      • Freedom35 says:

        We live in a 700 – 800 sq ft SFH and love it. A lot has to do with having a functional layout. Our house was built in the 1920s when this was the norm for the area so the architecture is thought out well.

        Even at this size, the cleaning can be more than we care for, because really, we only use one room at a time.

        We are lucky to have a relatively large lot which helps makes things feel bigger since we can walk in and out as we want. Yard work can take time but we enjoy it (for now). You don’t move to California to spend time lounging around inside do you?

        • Go Curry Cracker says:

          Very nice. Indoor / outdoor living is where it is at, and is one of the things we love about Mexico

          It is really interesting that in the 1920s you would have a family of 5 or so living in a 700-800 sq. ft. house and in 2015 you have 2 or 3 person families living in 3,000 sq. ft.

  18. Our real estate success story is about having a home that we live in and rent other parts of the building, it essentially allows us to live mortgage free while we take care of the place. That’s the short end, I would still advise those looking to buy a home they buy a duplex/multi-unit home, I think it is the best way to get into real estate.

    I think renting does give more flexibility when it comes to ER and I can see this being a possible move when we arrive there.

  19. cubs says:

    Good article I enjoy your site but a few aspects of your analysis seem a bit unfair please correct me if I am wrong – I am currently in the same position – I have enough for early retirement if I live frugally but should I?

    1) You are not making an exact comparison.To be fair your rent vs buy analysis you should compare the same product – what if you needed the larger home, the car for the baby and the schools in the suburbs. You should compare that home to a rental of same size in same school district/neighborhood – also car costs should not be included.

    2) You are not including the costs you would incur in selling your securities, if you sold the same amount of stock? Fund fees, taxes etc.

    • Go Curry Cracker says:

      Hey cubs, I don’t think that would be a fair comparison

      I would rather be financially independent than restrict life choices to do an exact comparison. The alternative of “buy this house” isn’t “rent a similar house in the same district”

      Fees for selling stock are $7.95. I sometimes spend more than that in 5 minutes at Starbucks

      • cubs says:

        So when you sell stock there are no tax implications?? cap gains etc. The stocks you hold don’t they pay corporate tax etc.

        When you hold mutual funds and index funds are there no fees during that time?

        • Go Curry Cracker says:

          Included in the analysis for this post is the VTSAX expense ratio of 0.05%. On the $60k down payment, this is equivalent to $30/year. On the $150k end value it is $75/year.

          All dividends were taxed at 28% From 2000-2002 and 15% thereafter. Also included

          There are virtually no capital gains to speak of in this analysis because the S&P500 moved sideways / downwards over the 5 years.
          But also on those, no tax

    • Diane C says:

      This is why it pays to read all the comments before replying.

      ^^ What cubs said! ^^

      In addition, there is

      3) the whole roots-in-the-community aspect along with the

      4) it’s my house and I’ll decorate/landscape/remodel/party exactly the way I want to

      5) and everyone who has a roommate declares that income on their taxes, right?

      6) leverage

      7) enforced savings

      8) and yes, tax savings. Yup, something sure is better than nothing. Just because it’s not huge or a person doesn’t understand how it works doesn’t mean it’s worthless.

      Jeremy, I love your blog and the choices you have made to live the life you want, but to quote you, “What does a single guy need with a 3 bedroom + office, 2.5 bath, 2,000 sq. ft. house with a 2 car garage?”

      The bald truth is that you bought too much house. Another aspect you missed is what the rent would be on that very same house NOW compared to the $980.09 P&I that your mortgage payment would still be.

      BTW, all re-fi’s are not 30 or even 15 years. You can set the payback time for almost any number you want. Most people just don’t know to ask for it and bankers generally choose the one that’s best known, easiest and in their favor.

      I wouldn’t be retired early with a lovely expensive paid-off high COLA house had I not purchased and held real estate and lather/rinse/repeated.

      YES, under very specific circumstances renting has merit, but by even early retirement age, winning renters are not the majority, primarily because 1) most people will find other ways to spend the “savings” and even if they do manage to save, 2) they do not have the knowledge to invest in a broad spectrum portfolio (for which I primarily blame our financial education system or lack thereof) or 3) the stomach to ride out the inevitable ups and downs of the markets.

      Bottom line: If you buy the right house at the right price in the right area that’s the right one for your needs for at least the next decade, you are far more likely to come out ahead over renting. If that sounds difficult, try choosing a winning stock portfolio, or saving enough for your kid’s college education.

      Finally, I hate that damn insurance commercial. Buying your first house is not as scary as the first lunar landing, blah x 3. All the information (including the rip-off transaction costs) is out there, you just have to do your homework. It’s not easy, but what worth doing (like retiring early) ever really is?

      Great, thought-provoking article, Jeremy. You made some excellent points. I simply disagree with your conclusion. Use better comparisons and you just might give yourself more of a break for the mistake of buying too much house. Nothing’s to say you mightn’t have bought too much of the wrong stock, either.

      • Go Curry Cracker says:

        Hi Diane

        Agreed, good discussion. Also agreed, I bought too much house. Had I purchased a lower priced house, this post would be called “how I made $50k in real estate and am poorer for it”

        I’m not sure how to follow your advice, to buy the right house at the right price in the right area that’s the right one for your needs. How does one do this?

        The house I bought was at the bottom of the price range for Seattle at the time. Due to zoning laws, I was unable to find a 1 bedroom or 2 bedroom house.

        I could have purchased a 2 bedroom condo, but with high HOA dues the monthly out of pocket was still similar to this house. I could have gone out another 30 miles for a longer commute, and saved 20%, the worst of all possibilities

        The P&I payment of $980.09 is only a small part of the payment. Add property taxes, insurance, and HOA fees, and the monthly payment is now $1,500. Add average maintenance, and it is now $1,750.

        The average rent in Seattle is currently $1,200+/-

        Based only on not having this house, I have a portfolio worth over $800k instead. I could buy this very house for cash, and still have $300k remaining. Or I could spend 4% of that 800k and rent a place for ~$2,750/month forever.

        Congrats on your RE success


  20. It is always interesting to read how the housing market in the US is so different compared to the Belgian one. In 2008 there was no burst of house prices, at worst, they stayed stable. We also have no history on foreclosures… At best, you find a couple in a divorce that has to sell.This leaves almost no room for picking up a house at a price way below its value.

    In my personal case, I bought an apartment in 2002 and after meeting my wife, we got a house. My mother and wife convinced me to keep the apartment and rent it out. As a result, I was able to sell it mortgage free. That money is now the basis of our portfolio, and it allowed us to finish most thin gs we wanted to finish in the house.

    What would have been the alternative scenario? Selling in 2006, taking some equity out of the apartment and having a lower mortgage. As I was not really into to PF and FIRE, the money would most likely have been used to do no frugal things.

    So, with hindsight, keeping the apartment until I matured in the financial goals in my life and the plans to FIRE one day, looks like a very good thing to me.


  21. MrFI says:

    We’ve done pretty well in the real estate market. Bought for $430k in 2001 and sold for $825k in 2008. Bought for $800k in 2011 and sold for $1.1M in 2014. Of course all of the expenses you mention apply but any gain is tax free up to $500k per couple. Can I replicate my results in the future? Probably not so it’s hard to beat renting for now.

    • Go Curry Cracker says:

      Very nice. It was fun riding that wave of irrational exuberance in housing from 2000 to 2008-ish, and now what appears to be round 2. Congrats!

  22. Dividend Mantra says:


    It boggles my mind why home ownership is thought of as the “American Dream”. Seems more like an expensive and time consuming nightmare to me. I consider carefree renting and living off of dividend income before 40 years old a lot closer to anything that could be considered a dream.

    BTW, what’s your thoughts on living in the PNW? I sometimes think how great it’d be to live in Portland, but the higher COL and substantially higher state income tax up that way (relative to SW Florida) always checks my desire. Does it really rain as much as they say? Is it the utopia some make it out to be, or are you guys much happier abroad?

    Best regards!

    • Go Curry Cracker says:

      We love Seattle… for 3 months out of the year. The summer is amazing, 70 degrees every day with crystal clear blue skies, beautiful bodies of water, 2 snow capped mountain ranges, and trees everywhere. There is nowhere more beautiful.

      But as they say, Winter is coming

      It doesn’t really rain by Florida standards. Instead it mists and drizzles and sprays. You don’t need an umbrella, just a Gore-Tex jacket. Everything will be moist all the time, and even though it seldom freezes the cold and moisture dig deep into your bones

      That isn’t so bad though, I’m used to it and rather enjoy it.

      But sometimes the sun disappears behind the clouds in December and doesn’t come back until March. The sun rises at 9 am and sets at 3 pm for much of the winter, which you only notice because the haze is diminished slightly. 90 days without sunshine makes some people hear voices in their head, so budgeting for at least a short winter escape to somewhere warm and sunny is mandatory

      Portland and Vancouver, BC have similar climates, and are also high COL areas. Eugene & Corvallis, OR are cheaper college towns, as is Bellingham, WA. There is no Income Tax in WA and no Sales Tax in OR

      In short, the ideal for us would be 3 months in the PNW and 9 months somewhere else

  23. jlcollinsnh says:

    “Those people who say houses are a terrible investment are idiots!”

    Et tu, Brute?


    This post is now an addendum link on that one. Your third!

  24. Two posts in a row that is really got me thinking about owning my personal residence.

    I have owned my home for most of my adult life. In hindsight this might not have been the best financial decision when I count the number of times I have moved. I did get assistance with 4 of my corporate moves that “in theory” made me whole on the transaction costs and the value of the home.

    I just can’t completely agree on why this logic for renting seems to be correct. I am not arguing with your math. It seems like we are forgetting something in the equation? How about the cost of moves due to a landlord wishing to sell or rent increases beyond normal? Is there some emotional opportunity cost we are missing?

    I am attempting this argument now with my wife, i.e. pitching renting. She is not buying into the thought of renting and I am losing that discussion. Some of her thoughts, icky carpet (we would find tile or wood floors), won’t allow our pet (will find a place that will), multi family living (we can rent a house but if we do then we have yard maintenance), temporary nature of tenants (not sure how to argue), etc.

    For me, the idea of being flexible to change my mind and move is very appealing to me now.

    • Go Curry Cracker says:

      Hi Bryan

      I don’t think I’ve ever had carpet in a rental, except one time when I rented a condo that was new.

      I’m not sure what you mean by temporary nature of tenants. If you want to stay a long time, get a long lease. As we saw in 2008, even putting your name on the title isn’t permanent as foreclosures gutted neighborhoods from coast to coast. Stability is an illusion

      But in all sincerity, a happy wife makes for a happy life. If anything, that is the missing component. I hit the jackpot in that regard

      • Jeremy,

        I guess to clarify, what I meant to say about the “temporary nature of tenants” is: if you are around a high percentage of people renting, perhaps in apartment complexes, I imagine that there is more turnover of those tenants.

        If you compare that to a single family neighborhood where most people own, there should be less transition of people moving. As a neighbor in an area where people own their homes, you would be more likely to get to know your neighbors and form long term relationships.

        However, this whole reflecting on renting has really got me thinking about doing the same. 🙂

        Take care!

        • Go Curry Cracker says:

          Ahh, I see what you are saying. That can be a good thing. I can see that going both ways.

          Back yards have fences, people work long hours and have long commutes, then at night all you see are TVs glowing in the windows. Houses are further apart and people just drive into the garage and disappear

          In our recent Seattle apartment experiences, we were friends with the building manager, talked with our neighbors almost everyday as we were coming and going, made impromptu plans for dinner or hiking, etc…

          I can see there being some difference maybe with children, but it seems kids have full schedules these days as well; school, soccer practice, music lessons, mandarin class, so they too just disappear into the garage and never come out

          I’m not biased (or jaded) at all though 😉

  25. RGPW says:


    My wife and I own our own business. We refinanced our home in 2012 from a 20 year mortgage at 4.5% to a 10 year mortgage at 2.75%. Our plan was to pay our mortgage off early and travel for a year or two after it is paid. After reading your article and some of the others’ comments, I feel like we have egg on our face. Before we refinanced, we were maximizing our 401k at 25%. Now, we are only deferrimg 10%. We lost our largest customer and have been struggling to make up the difference in income. At this point we have approximately 55% equity in our home, but really need to reduce the monthly payment. We really enjoy our home, but now see the enormous costs especially, with the repairs. I was reconsidering refinancing, but now I’m wondering if we should simply sell. What are your thoughts on our situation?

    • Go Curry Cracker says:

      Hi RGPW

      So sorry to hear about these challenges. It is really hard to say what the best path would be.

      Barry Ritholtz hasn’t updated his 100 year Case-Shiller chart for a few years, but this post & graphic from 2011 is worth checking out

      For up-to-date data without commentary, see here. (It speculates that housing prices are as much as 70% over priced)

      As the Fed raises interest rates later this year or early next year, mortgage rates will start to rise. This will increase monthly payments for new buyers, thereby reducing their max purchase price. In theory this will put downward pressure on houses for all but the wealthy. If that is the case, renting is probably the better path… but then again, if the stock market drops as well, it might be a case of 6 of these, 1/2 a dozen of the other

  26. Jeremy says:

    Five got the same story in the DC area. We sold over a year ago and are loving it. Where in Chicago were you? We lived in Lakeview and loved it.

    • Go Curry Cracker says:

      I was working at Motorola in Libertyville

      That whole area is mostly strip malls and parking lots. I do recall there being a good brewery though

  27. Elysian Fields says:

    Nice articles, Jeremy.

    I have an RE success story, and for the most part, I think we were just lucky.

    We bought a SFH in 1998, a property that had numerous inaccuracies in the MLS, including its address. We were headed to another house – one we rejected – when we happened upon ours. It didn’t need any work, we just moved in. It’s very close to public transportation and in a good school district.

    We paid $257k and got 80-15-5 financing at 7% and 9.25%.

    RE prices skyrocketed in the area soon after, especially in our neighborhood.

    We moved away in 2006 and started renting the house out.

    Several refinances later, we’re three years into a 30-year fixed at 3.5%.

    Current value of the house is probably in the $750-800k range, though the value has probably stagnated since 2008 or so.

    Also we’ve had to replace most appliances over the years and really need to upgrade the bathrooms and kitchens, which is an unreasonable request with tenants still in the house.

    We net around $7k or so each year after depreciation, cash return is about $13k. But 13/800 is only 1.625% return on value, much worse than the stock market’s long-term return. Even if our invested capital is much less – it’s probably in the $150k range with the multiple refinancings and improvements – our return on capital is maybe 9% and dropping.

    Furthermore, tax law is working against us – we’d pay big bucks in capital gains and have depreciation recapture if we sold now.

    Moving back into the house would be frightfully expensive due to the lost rents. I’m not even sure I’d want to move back to that area anyway.

    At some point we’ll have to bite the bullet one way or the other. We’ll need to renovate the kitchen and baths to sell the house, but would need to turn the tenants out to do so. Finding new tenants would be challenging for the same reasons.

    We probably should have sold and put the money in the stock market instead of becoming landlords, and got lucky due to local market appreciation. Timing in RE is just as important as location – we got both.

  28. Troy says:


    Isn’t there some income tax savings for property taxes paid? I don’t own a home but I have been told I should and the argument given is that there are income tax savings with regards to both mortgage interest AND property taxes paid. I didn’t see this (income tax savings for property taxes) in your analysis.

    Thank you for the detailed breakdown. Unfortunately all the conventional wisdom success stories I hear start with the difference between the purchase/selling price and end with how I could have made something similar instead of throwing away my money by renting.

    • Go Curry Cracker says:

      Hi Troy

      It is possible to get a tax deduction if the homeowner itemizes deductions on Schedule A. If the sum of all deductions, which includes mortgage interest, property taxes, state income taxes, etc… is greater than the standard deduction, then the tax bill will be smaller than if there was no mortgage & prop taxes

      In the example in this post, property taxes are a little lower than the standard deduction for a single person and I simplified by saying they were equal (which makes the case for renting a little stronger.) It is included in the analysis, I didn’t specifically call it out in the text.

    • Mark says:

      Yes, if you itemize, you can deduct property taxes the same as mtg interest. It doesn’t really make that big of a difference unless you have a huge property tax bill.

      I don’t want to buy but I’m having a hard time justifying renting from a financial perspective. I own a house (former primary residence now a rental) that rents for $1300 a month and the market value is maybe $160k tops. The price to rental ratio is not really in favor of renting in the Tampa area.

      Maintenance is something that is highly dependent. Thats part of the reason I bought a new house. In 11 years, I’ve had less than $500 in maintenance costs. A small repair that was $120, probably about $10 year in gas for the free mower I got and $20 a year for AC filters. Mowing the lawn is definitely a PITA but even in Florida I typically only had to mow once from the end of Oct until end of April.

  29. Kevin says:

    I always enjoy your articles, and I really enjoy the way your mind works. You are logical and methodical in your analyses and you often make me think about things that I “know” in greater detail than I otherwise would. However, I think your experiences with owning vs. renting have been bad, and that has colored the data that you use in your last two articles. For this one… you do a very good job of showing how you could have done better by renting and investing that money even in a down market, but it isn’t an apples to apples comparison. To really do that you would have to have picked a rental in the same neighborhood as you were in with the same amount of space. I say this because many of the costs that you cite, such as Cost of Excess, Utilities, Distance, Homeowners Association costs, and even to some extent labor, are not really a part of the “rent vs. buy” equation. You can buy a very small house or apartment, near your work, with no homeowners association, and the same utilities as you pay at the rental. Your difference in labor cost will then only be the things that your landlord repaired. Also, for your investment scenario, you are assuming that a person puts in their entire down payment, is disciplined enough to keep investing in a dropping market, and avoids transaction fees while doing so. This would put them in the top 10th percentile of investors, (even if it is functionally easy). Someone treating a home like an investment with a similar level of discipline might find a home in an excellent location, that is valued at well below its intrinsic value (because of cosmetic flaws) and spend a similar amount of time fixing it up to what you spent on repairs for your much larger house and gain an immediate 100% return on that down payment. Anyhow, I think your point that most people who think they have done well with housing appreciation have done much less well than they could have elsewhere is correct and valid. Buying vs. renting is a much tougher question, though.

    • Go Curry Cracker says:

      Hi Kevin

      Thank you, I’m glad you’ve enjoyed this and previous articles. My main goal is just to make people think, no problem if you reach a different conclusion.

      Many people say buying a house is an emotional decision. Therefore I write in an emotional tone. This shouldn’t be confused with my own emotional state and potential irrationality as a result.

      I don’t think doing an apples to apples for buy vs rent is the logical comparison. “Buy the biggest house you can afford” is standard purchase advice. “Don’t throw away your money on rent” is standard rent advice. It is very common for people to buy a bigger house than they should. It is less common for people to rent more than they should in a location that is not ideal

      The alternative of “buy this house” isn’t “rent a similar house in the same neighborhood.” The alternative is rent anywhere. There is no need to rent the big house in a good school district because you might have kids someday. But people buy with that thought in mind

      In this example, there is no smaller house near work with no HOA. Such a thing didn’t exist. Homes close to work were 4 bedroom 3,000 sq ft starting at 550k. I was “someone treating a home like an investment with a similar level of discipline might find a home in an excellent location, that is valued at well below its intrinsic value (because of cosmetic flaws)”

      As for being in the top 10 percent of investors, people who are in need of forced savings through a mortgage don’t read this blog. And if they do, it is because they are looking to become financially independent and ready to make changes. I don’t need to dumb it down for people who would rather spend the money on hookers and blow. (Btw, even the term “forced savings” is just marketing. You can’t buy groceries with forced savings.)

      For the Rent or Buy decision, we are definitely Renters for Life. Quality of Life makes that decision for us, even if there is a time in the future where the numbers don’t (I have yet to see that case.)



      • Kevin says:

        Thanks for taking the time to reply! Also… I would never accuse you of being irrational. 🙂 As I mentioned, you make me think a lot, and I don’t think a lot about the ravings of irrational people. I think you did an excellent job of disproving the “truism’s” of home ownership that you mention.

        On the renting anywhere vs. buying where you did… I was coming from the perspective that most types of places that you can rent, you can also buy. It sounds like that wasn’t the case where you were, but if it were, then you would just want to compare renting the condo to buying the condo and those other aspects would disappear.

        Also, on the investment side. I wasn’t really meaning the “forced savings” aspect of buying a home. I was meaning the investment aspect. There is a bell curve distribution on the return that people get from their homes. (It’s why you always get the “But I live in Palo Alto and have seen 400% return on my house in the last 10 years ” comments on these articles, and why all of my relatives in Southern California are quite wealthy.

        That being the case, it isn’t fair to compare the average return of a homeowner after expenses, to the total return of the stock market. It is more fair to compare the average homeowner return after fees to the average investor return after fees. Investors, on average, are very poor. (the difference between investor return and market return between 1991 and 2011 was 2.1% vs. 7.8%)

        I agree with you that readers of this blog would do far better, but I think they would do better with their homes as well.

        All that being said… I still think you are right. I think that in the majority of cases, it takes less effort, and there is a higher likelihood of success, to rent and invest than to buy.

        On the quality of life aspect… I think it really matters where you are on the spectrum of flexibility vs. stability. You guys are adventurous, fearless, and love to move from place to place, and I can see why you are “renters for life!”.

        If you want to be in the same place for a long time, though. There is definately something to be said for not having someone else be able to tell you what to do in your own home. (which is why HOAs are the worst of both worlds. 🙂 )

        • Go Curry Cracker says:

          A thought on the average investor

          I think that would be a poor metric to use, for two reasons:
          a) using average data without other statistical info is a poor choice. 10 is the average of 9 and 11 but also 2 and 18
          b) If you personally choose to put assets in actively invested mutual funds, then perhaps comparing to the average investor is a fair metric. If you choose to invest in low-cost index funds, then compare to the index (I included fees & taxes in the analysis)

          Inflation is the fair metric / index for housing prices nationally (again, poor use of average; agreed, local results can & will be different)

      • chris says:

        I clearly recall being told by two realtors and my father-in-law that we should buy a bigger house. The kids will need bigger bedrooms, they said. You need more storage, they said. You will want a finished basement, they said. Et cetera ad infinitum. Donkey hockey. We have 1600 sq. feet. 3 bdr, 1.5 baths, large galley kitchrn, big dining room (we have 5-10 friends over for dinner a few times a month, so that antique table from the auction that seats 12 people really earns its keep). Our 3 boys share a room and we keep their stuff to a moderate level so one dresser and a few shelves and a 1950’s size closet (aka not very big) is plenty for all three. That leaves a room for us and a room for our office for our business. Compact yet plenty of room, it was cheap, it is paid for and nothing is wasted. If we had bought what others were insisting on we would never have had the ability to start our business, i.e. take that risk. We’d still have a mortgage! Bleh.

      • Brandon says:

        I still think it’s not fair to compare a 2100 sq. ft. home to a 1000 sq. ft. apartment. I am currently looking into whether or not it makes sense to buy. I don’t really want to go above 1200 ft2 for the excess energy costs, maintenance, etc., and will either rent or build on the lake near where I live. The problem is I want to be on the water, with a slip, and it’s harder to find that with rentals. Then, rentals tend to be more (so far) than I would pay, all things considered, otherwise.Notice, I’m not considering it an investment, but rather where I want to live to support the activities I do most often. I’ll do my own CBA but I think the comparison is still skewed toward renting based on bad advice for buying. I think the mentality should be “buy the least expensive home you can afford if it makes the most financial sense”. I do agree that all of the things listed above should be counted in any cost analysis. It’s not just PITI. (principle, Int., etc)

  30. Emma Healey says:

    Ouch. That is a very comprehensive break-down. It’s part of the reason we rented for a decade whilst building up our property portfolio (all rental properties). But now we are forced to move into one of them. At least we can take comfort in the fact that the cost to rent in our area is much higher than to buy.

  31. I love real estate investing, but you have to do it right. I buy based on the financials, not emotions. I also stick with condos in downtown walkable areas that can be rented out for cash flow. I would never buy a big unit, for the waste factor you mentioned and I hate selling for the reasons you stated above. I am buy and hold. I also put money into the stock market, but I like to be diversified with something that I can physically manage and that provides a real value to someone.

  32. Bridget says:

    This is an AMAZING post. No one understands why my fiance & I don’t buy a house and choose to rent instead. Our city is really expensive, and we prefer to live close to our jobs, but houses in the centre of the city cost $700,000+. Even a 2-bedroom condo is $400,000. Everyone tells us to just move to suburbia and get a 3-bedroom home for $400K but that would more than double our commute, force us to get a second car, we’d both have to pay for parking at work (easily >$500/mo), our utility bills would increase, and we would have so much more maintenance to do (and it would be our responsibility instead of our landlord’s!)

  33. Have you seen this rent vs. buy calculator from the NY Times? I’ve looked at a lot of these types of calculators, and this is the best one that I’ve seen with regard to factoring for 1) the opportunity cost of tying up your downpayment; 2) maintenance, repair and HOA costs; 3) rental increases vs. property tax and insurance increases, etc., etc. This helped me decide whether or not to buy a property when I recently moved.

    While I’m a proponent of rental properties (when analyzed wisely and approached as a true business), the buy vs. rent scenario is far less clear-cut for owner-occupants. A primary residence is not an investment, it’s an expense. The only question is: is it more or less of an expense than renting? — and the answer depends largely on where you live.

    • Go Curry Cracker says:

      Hi Paula!

      A primary residence is not an investment, it’s an expense… well said.

      The NY Times rent/buy calc is the best one out there. I linked to it in the last post about why we will be Renters for Life.

      The default values are definitely skewed towards buying, and the average home buyer probably doesn’t change assumptions for Home Price Growth Rate, Investment Return Rate (4%, seriously?), etc… which can change the Renting is Better threshold by 30% or more. At least it isn’t as bad as the Zillow break even estimates which assume 8% annual increase in home value the first few years

      I’m in complete agreement with you on your statement about rental properties. When approached as a true business, rentals are a great path to wealth



  34. Jim Wang says:

    Great post, I think for too long folks talked about these types of things in person without much mathematical rigor. If you’re hanging out with some friends and just chatting about real estate, no one breaks out the spreadsheet and itemized list of expenses and so this doesn’t get talked about enough.

    You also have the propensity for people to talk up gains and not mention failures, so you only hear about how someone made a bundle of cash on their sale.

    We bought a house, loved it, lived in it for 8 years before selling and lost $50,000 on the sale after everything was factored in. On the surface, it looked bad until we realized we lived in a great house for $520 a month. In my case, we lost $50,000 and was totally fine with it. 🙂

    • Go Curry Cracker says:

      Hi Jim, I love your take on this. $520 is a great monthly rate 🙂

      I know I never did the mathematical rigor before prepping to write this post.

      I had assumed because the S&P500 was down 11% over the 5 years I was living in this house, that I actually came out ahead with the house. The math says otherwise

      Thanks Jim!


  35. Jason says:

    I applaud you for getting people to think before they make the biggest purchase of their lives. That’s arguably the most important part of the financial battle.

    Like any asset, a person must buy right. Do you pick any random stocks? Real Estate has created more millionaires than any other investment vehicle. 80%. A quick google search validates this.

    Every rental I own, the renters pay all my expenses (Taxes, Insurance, mortgage, repairs, long term improvements, vacancy loss, property management fees etc etc). Its built right into the rent. Plus I get the added benefit of depreciation, appreciation, and tax savings. The difference between rent and my expenses is their costs of limiting liability and the work involved with owning a home.

    This post has phenomenal tracking of expenses and clearly shows your purchase in this one scenario was a poor decision. You would have been better off renting. I think you fail to look at how you could have made this a better purchase, made money renting out rooms, purchased a duplex to have your expenses paid, or even used your equity to purchase other investments.

    Please keep up the quality posts, this clearly got people thinking and no one can argue about the positive results from that.

    • Go Curry Cracker says:

      Always good to stretch the “think different” muscles

      No amount of renting out rooms would make up for a wealth difference of ~$700k

      Sounds like you have some nice rentals. Congrats!

  36. Travis says:

    I fell into the trap of home ownership as well, and I’m still in it. At the age of 23 I was making good money and didn’t have anything to spend it on, so why not build a house? The American Dream. Yay! Every single guy with no kids needs a 2,500 sq.ft., 4 bedroom, 2.5 bath, 2 car garage, right? I built the house, paid cash for it, and kept all that money out of the stock market. This was 2005 and I felt like a genius by the time 2009 rolled around. Here I was, rent/mortgage-free for a few years, and the stock market was in the toilet. Fortunately my house was still worth more than I paid to build it, but only because it was me and my dad doing most of the labor (thanks, Dad!). Then the stock market started doing better, and better…and my house recovered 1% for every 10% gain in the stock market. Oops. If I had sold the house in 2009 I wouldn’t have made much on it, but by putting that money into the stock market I would now have over $1MM. Oops, again. Good ol’ hindsight.

    I don’t know why I’m still keeping the house. It’s a nice 20 minute walk from work, but there are plenty of decent rentals in the area. I really like that it is MY house — I know everything that went into it, nobody else lived there before me — but that is obviously a ridiculous reason to keep something worth ~$300k. I really need to get this thing sold before interest rates start rising enough to hurt home values…

    • Steve says:

      A rise in interest rates might also lure buyers to get off the fence,and buy.Remember we are at historical lows when it comes to mortgage rates.

  37. Lee says:

    I currently live in Seattle and own a home purchased in 2011 with a 20% down mortgage (purchased at 266k). We also were aggressively paying down the mortgage for a time, so we now have about 250k in equity in the home (market value might be 400k). Now, my wife and I are ready to sell due to the crazy appreciation in this town. We will rent…..

    After selling, we will have non-retirement cash of about 400k, so if we would like, we could buy another home, but it certainly doesn’t seem to make too much sense if the prices keep on moving higher while rents aren’t moving at the same pace.

    Anyways, I like your analysis and your write-ups. Thanks Jeremy

    And for all the itemized deduction believers out there, he is right, it is a complete joke…. I’m a CPA and have done quite a few returns in my life and have come to the conclusion that it’s not the deal your realtor/mortgage broker claim it to be…… Further, financial advisors/planners want you to have the mortgage so you will have more money to invest with them so they can make more money on you from their fees they charge….. especially if you are in an AUM fee based situation.

    Sure, there’s some benefits to have the leverage to then be able to invest, but nobody ever talks about the risks involved. Some may take out a huge mortgage and their emotional framework may not allow them to be aggressive with their investments to make up for having to pay an interest charge since they are scared due to that mortgage and thus, don’t want to risk their investment capital…. So, it’s like a circular reference that keeps screwing them even more.

    There’s so many interesting ways to look at the whole home ownership vs. renting vs. buying out-right vs. loading up on a mortgage. I always find it an interesting conversation and articles to read.

    I think the bottom line is live well below your means…… either renting or buying, your housing costs should be less than 20% of your income. If you’re at 40%, good luck accumulating a stash of cash.

  38. vc says:

    This scenario is for buying a house to live in.

    Seems like buying investment property would be a different story. Would be interesting to get you to weight in on that.

    • Go Curry Cracker says:

      Buying investment property is definitely a different story. Night and Day

      See what Paula Pant over at Afford Anything has done with her Real Estate Empire. Rental real estate can be a great path to wealth

  39. Jarad says:

    Thanks for the great article(s) on this topic. My wife and I were considering “upgrading” to a bigger home a couple years ago but held off for other reasons. With the new perspective I’ve gained from these articles and others, I’m glad we held on to our very small and, relatively speaking, inexpensive home.

    Have you considered how your scenario could have been different if inflation over the past 15 years had not averaged the very modest 2.3%? What if inflation was 5%? Or 10%? I realize 10% is an extreme stress test but I’m just curious.

    When you buy a home, you lock in the purchase price, so inflation has no impact on your monthly mortgage, while rent prices go up with inflation. Buying a home doesn’t completely mitigate inflation, as HOA fees, insurance, maintenance, etc., will likely go up with inflation as well, but it seems the overall “roof over head” costs will increase a lot slower if you own your home.

  40. CF says:

    Great post as always. Check out the first graph on the following article which shows where people would invest money that they didn’t need for 10+ years: Pretty scary…not only that real estate tops the list, but cash is 2nd and gold is right behind stocks.

  41. US says:

    How much equity did you have after about 2 years? What if you’d taken a HELOC and invested that money? What kinda rate would you have gotten? Most banks offer introductory HELOC rates that are often better than the current mortgage rates.

    Usually people are afraid of investing HELOC money because they’re afraid of losing their homes, but if we’re comparing to renting, I think it’s a non-issue.

    I’m relatively certain you would’ve made money on that investment, whether done in one shot or steadily over a period of time, even after accounting for the HELOC interest. And the difference might well have been enough to push your final return at the end of 5 years above your estimated portfolio returns.

    • Go Curry Cracker says:

      Interest rates on HELOCs were over 6% at the time. The S&P500 was down 11% over 5 years, ~20% over 2

      • US says:

        Thanks for the quick response. Been busy going through the rest of the site. 🙂

        So that would tell me that the market went up over those last three years. I put some numbers into the calculator provided above, and it tells me that from Jan 2002 to Jan 2005, investing any amount through dollar cost averaging would yield a return of 11.647% (before capital gains taxes). Assuming you could put in 50K piecemeal over the course of those three years, you would have ended up with 57828.6 after deducting capital gains taxes. Dollar cost averaging is important though, otherwise the returns are closer to 3%.

        The point I’m trying to make is that in a way you’re still comparing apples to oranges. You’re comparing, in hindsight, perfectly thought out investment choices you would have made while renting (not suggesting that you are implying you would have put all your money into Google or Apple at that time, but still, would have not made mistakes similar to the ones made in actual life vis-a-vis home ownership) to a deal-with-things-as-they-happen chain of events similar to what most of us live out that you actually went through. If you had been super concerned with maximizing your investment you would definitely have invested your home equity in some investment vehicle or the other.

        I think pointing about how you didn’t really end up making a profit of 102K is absolutely valid, and is definitely thought provoking for those of us (including me) who think of or have thought of real estate transactions in that way. But with the absence of factors such as the HELOC one, I don’t know if we can consider this to definitively say that you would have come out ahead renting. It just depends way too much on market performance.

        • Go Curry Cracker says:

          Sorry, no. Borrowing money at 6% to invest in the stock market is something I wouldn’t do. The risk adjusted returns make this a highly irrational move

          • US says:

            I was waiting for you to say that. A large majority of people would consider the notion of renting when you could own highly irrational as well, no matter what the numbers say.

            But even if you didn’t want to put it directly into the market, you could’ve used it for all those expenses that kept on coming up. It’s just shuffling it around, but homeowners use home equity for repairs etc all the time, and I believe it is tax deductible up to a point as well (although that only applies if you itemize).

            I think in most cases, under most economic circumstances, ownership will come out ahead *if* the person is willing to stay for a while (or if he’s willing to rent out instead of selling off if he’s moving). So it really comes down to pride of home ownership vs freedom to move around rather than the financial benefits of one or the other.

            • Go Curry Cracker says:

              A large number of people will also still be working to fund basic life expenses when they are 65.

              If you were going to go down that path (funding life with debt) then a HELOC wouldn’t be the way to do it

              Take out a 0% down interest only 30-year mortgage. This will give you the best cash flow and interest rate

  42. I love this blog and I agree completely that people need to consider the big picture when they are considering buying a house. Renting can be a much better decision as GCC has explained here and in other posts.

    Here is an article posted today from Time magazine, showing how buying a house when you are younger has resulted in a significant loss in personal wealth over the last 15 years.

    “Researchers conclude that younger families would be better served by maintaining a personal asset mix that more closely resembles the asset mix of older families—less debt and less real estate relative to their other assets. In other words, stretching for that first home when you have no other savings and little ability to save going forward is a huge mistake”.

  43. Diane C says:

    I commented way upthread and have been thinking about this article ever since. A major point that was missed was that a homeowner always has the option of buying the worst house on the block for below market pricing and then carefully adding value. A renter never has that option.
    I have never lost money on a property (even using your math) because I buy something not a pretty and make it so over time. The classic upgrade is to buy a 3+1 in a solid neighborhood with good schools and then add a second bath. It’s important not to over-improve for the area, but a 3+2 always commands a higher price than a 3+1.
    DH and I are in the process of doing our first flip, using the skills we have acquired over the years on our own houses. We paid 550k, which was below market due to the condition of the house, and put about 65k worth of materials into it. We have a buyer and are in escrow for 750k, which is merely market current market value. Not bad for 4 months of nights and weekends work. As the housing stock in this country ages and people stay in their houses even longer but don’t maintain them, opportunities such as this will continue to exist.
    What I’d really like to know, Jeremy is how to go about minimizing the tax bite on this lovely mound of ordinary income.

    • Go Curry Cracker says:

      Care to elaborate on your holding and purchase/sale costs?

      • Diane C says:

        Sure. Just let me get the darn thing finished first! Appraisal is scheduled for tomorrow with inspections to follow and closing 10-12 days hence. Since this is our first flip, what would you include/how do you calculate holding costs? We paid cash for the house and improvements. That money was just parked in a bank savings account from the sale of a previous residence, so other than the small amount of interest lost, plus utilities, what else should I consider?

  44. Heywood says:

    The rent vs buy discussion is typically compared over a 30 year timeframe
    then time seems to stop.

    How does rent vs buy work out over a 60 year span when the
    mortgage was for 15 years or 20 years?
    How does the 40-45 extra years of paying rent work out over the long haul.

    • Go Curry Cracker says:

      At present, I could buy this house with cash and still have over $300k in party money, solely from the delta of choosing to sell this house 10 years ago.

      I would prefer to have a house AND $300k rather than just a house. Or better yet, no house at all

  45. Hi, I’m Brazilian and my english writing maybe looks very bad. I had listened a similar history here in Brazil. the title was “Live like a renter and become a rich man”. I’m a public employee, I and my wife are trying make saves. I read your history in a e-magazine. When you decide come to Brazil, try pass at my Home. In Rondonópolis, MT, Brazil. Will be pleasure have you like visitors.

  46. Vivianne says:

    $700 rent for 1 bedroom in seatle sounds too cheap. Are you sure it’s not in the hood some where or you have to take on roommate. Back then you were in your 20 with an active lifestyle, you wouldn’t want to bring gf home with a house full of roommate. Any how, I have a roommate now, and even if I take a loss on the current house. I’d still break even.

    We rented house while I was in high school, it’s the same pain when things are broken down.

    • Go Curry Cracker says:

      I don’t know Vivianne, most of my best relationships began by giving my gf a ride to my house full of roommates on the back of my bicycle

      I’ve found that communicating openly and honestly, having similar core values, and sharing a common sense of adventure to be much more important than the lifestyle advertisers try to sell via commercials and Sex and the City

  47. Steve says:

    Let me first say that I have really enjoyed much of your writing. You have done a great job of finding an approach for lifestyle and income that makes sense for you, and the way that you have minimized the income tax impacts within your plan is phenomenal. I do not doubt the numbers that you put together for the housing scenario, and I think a valid conclusion that the real estate situation you had did not benefit you.
    Like you mentioned, you owned for a short time, causing disproportionate transaction costs. You bought more square footage than your really wanted, and you created a commute for yourself. That said, I think it is a stretch to say that renting is better than buying. It seems like it is more likely that poorly chosen real estate offering benefits that the owner doesn’t value much, makes for a scenario that is less likely to be successful.
    As a rental property owner, it caused me to look at it from the reverse side…if Jeremy says that it makes more sense to rent, then it must not make sense for anyone to own, ever. So, I did a little deeper analysis of a rent versus buy situation using a piece of property I own (so, I know the costs fairly well), and taking it out through 50 years, with the general thought that we will all need to provide for living space for the long run. The analysis assumes that the renter can take what would have been the down payment, and invest it in the market, and add to it yearly with the amount that homeownership costs exceed rental cost. On the flip side, if renting at some point costs more (i.e. some years down the line), then the shortfall comes out of the renter’s portfolio. I didn’t make assumptions for any intangible benefits such as size of yard, close commute, quality of schools, stability versus ability to pick up and move, etc., as those weightings are typically specific to the individual buyer. Just a simple starting scenario of 10% down on an $800K house, with a 30-year fixed loan at 4%, with PMI needed for the first 5 years.
    I generally assumed that the rate at which rents increased would apply equally to insurance, maintenance, and property valuation. Since I’m in CA, I held property taxes to a 2% annual increase. I made allowance for the tax benefits of interest and property taxes, but did not include a capital gains assessment, as it didn’t seem to change the picture much. What I found was that the “which is better” assessment was very sensitive to the inflation rate and the market return rate, which I suspect that you have found doing any sort of investment analysis (i.e. compounding 8% over 30 years yields a very different result than compounding at 7% or 9%). So, results:
    **At 2% inflation & 7% investment return, cash flow break even yr 26; at year 50, R/E is $2M; investments $2.4M.
    **At 2% & 8%, cash flow break even yr 26; at year 50, R/E is $2M; investments $4.7M.
    **At 2% & 10%, break even cash flow in year 26; at year 50, R/E is $2M; investments are $13.9M.
    **At 3% & 10%, cash flow break even yr 14; at year 50, R/E value $3.2M; investments $7.9M.
    **At 3% & 8%, cash flow break even yr 14; at year 50, R/E is $3.2M, investments $969K.
    **At 4% & 8%, cash flow break even yr 8; at year 50, R/E is $5.2M, investments -$3.7M (you went broke in year 35)
    **In the short run, real estate is a crap shoot, kind of like the stock market.
    **In the long run, there is not a clear “rent vs. buy” winner. However, as an owner, it does allow you to lock in the benefit that you would not be in that “broke” scenario. As an investor and property owner, it is a way to broaden and balance the overall investment portfolio, smoothing income flows over time when combined with income from the market.
    Spreadsheet available upon request.

    • Go Curry Cracker says:

      Thank you Steve, I appreciate the compliment. That this post has made you think makes me happy, no worries at all about the conclusions

      No need to share the spreadsheet, we are just doing simple projection of an amortization table and inflation/investment return. I think we can summarize your conclusion as: As the real return of equities decreases, assets that correlate well with inflation will provide greater long term wealth. If you can get taxpayer subsidies on mortgage interest and property taxes, even better. (And better still if you can get taxpayer subsides on future property taxes, as in California)

      But before concluding that there is no clear rent vs buy winner, I would put some probability weightings on the scenarios studied. It is simple enough to change estimates for future inflation to 4% and future real investment returns to 4%, but how likely is this scenario to occur? Also, as we saw in 2008/9, having your name on the title isn’t the same as having protection from going broke

      Presently, the market believes long term (30 year) inflation will be less than 2%. Over the past 40 years, inflation has been <3%. Over that same period, equities with dividends reinvested have returned ~12%, or a real return of <=9%. Over recorded history, inflation is roughly 3.2% and real equity return closer to 7%. 4% inflation and 4% real return over the next 30-50 years would be unprecedented on both accounts. It has never happened. However, if this were to occur, it doesn't say housing would be the ideal store of wealth. TIPS or REITs or commodities or the companies that own them would likely perform better and with greater diversification. The Silicon Valley housing market is interesting, in that you have many people with high incomes or stock option gains due to working at innovative and/or profitable companies such as Apple, Google, Facebook, etc... Whether you pay $1 million or $2 million for a house near work isn't that big of a deal when you just cashed out $20 million in stock options. Innovation in these companies drives higher housing prices in the immediate area, as it translates directly to higher income for their employees. But innovation is also what drives stock prices. I would much rather own AAPL, GOOG, and FB, then any house in Cupertino, Mountain View, or Palo Alto. Over the next 30 years, those companies and the new ones that they spawn will drive incredible market wealth. The homes nearby will provide shelter from the (increasingly infrequent) rain

  48. Paul says:

    What a sobering story, I never knew there was this many fees involved in a house sale and purchase in the USA. I am used to the UK market where the transactions are far simpler, unfortunately $292,000 converted into £ won’t get you a rabbit hole here in London!
    I guess you live and learn.

  49. N says:

    I have been reading your blogs for a while (and been reading Winni’s as well). I admire your dedication of saving enough to retire early and have enjoyed reading many of your articles. However, for this one, I have to say that although I find your point to be pretty interesting, I disagree with the idea that buying a house is not a good investment. On the other hand, I think you just need to buy it at a right price, a right location, at a right time, and also hold it for the right amount of time (which is the same for any investment).

    I will share my own real estate story with you, which will illustrate my point and give a different perspective. I purchased a place in a densely populated area in a big city about 3 years ago for approximately $1.7M. It was a fix-upper (trust me, even in the over $1M market there are plenty of fix-uppers), and we put in a couple of hundred dollars to fix it (material, labor…etc. we did not lift a nail ourselves although we did manage the entire project including all the material/labor cost). At the end of the day, the total cost of the house (including reno) came to slightly less than $2M. Now, 3 yrs later, the house is worth over $3M, which means that we have made over $1M for our $725k investment over 3yrs time (25% down +300k reno). Besides the broker fee, my fee of selling a $3M house is not much different from selling a $500k house….There is also very little income tax involved because we have lived in this place as our primary residence for over 2 yrs (which qualify us for married couple – primary residence $500k capital gain break), and the remaining gain is deducted by cost of fees (both when buying/selling) and the renovation cost, which increase the cost basis of our house and decrease taxable gain. At the end of the day, net of all fee & tax we would still make about 700ish net gain, which is close to 100% return of our investment.

  50. Ravi says:

    Nice analysis! One quibble is that I don’t think you should be subtracting your principal payments from your gain. To take an extreme case, suppose the day you bought the house you prepaid the entire mortgage of 234K. Then your logic says that instead of a gain of 102K, you would have had a loss of 132K (ignoring all the other expenses for now). But prepaying the mortgage the day you bought the house is essentially the same as buying the house all in cash (no mortgage). And buying all in cash would have led to a gain of 102K (again ignoring all the other expenses for now).

    If you wanted to convince us that you didn’t triple your money, you could have added the principal payments to the down payment to get an amount that you put into the house. But that’s addition, not subtraction.

    • Go Curry Cracker says:

      Yessir, that would have been a poor move on my part

      But I didn’t subtract the principle from the sale price, I subtracted it from the $143,842 check I received at closing.

      My apologies for not making that more clear

  51. RichUncle EL says:

    It is a good story and thanks for sharing the details. Home ownership is expensive but it comes with some perks over apartment living. There’s two issues that I have,

    1. is if the average person didn’t have the mortgage payment how do we know they will invest the difference of the mortgage payment and the savings they get from the cheaper rental. (highly unlikely and only exceptional investors/ PF bloggers)

    2. This story might pertain to a single family home, but if you change the scenario to a two family home, with a tenant paying half or more of the mortgage. In that sense real estate makes sense to me. OR buying in a lower priced market and renting it out as an investment, where the tenant pays for it all. Not all real estate is bad.

    • Go Curry Cracker says:

      #1 – We don’t; but if they are reading this blog, they are at least open to the idea of saving 50-70% of after-tax income. Average people don’t read GCC.

      #2 – Not all real estate is bad, which isn’t the same thing as saying it is best/ideal/great. Owning multi-family real estate as a business can be a good source of income and a long term wealth builder. The average home is not a two-family home, per zoning laws. REITs provide ownership in a more diversified manner, without the responsibilities of a second job

  52. Ray Ray says:

    Thank you for this post. I think the real estate investment would’ve turned out differently if the approach had been different. I’m not sure what the Seattle market is like but in my area multi-families are plenty. if you were able to get into a multi-family (e.g. duplex) and have renters carry the mortgage or at least most of it for you and in addition you would’ve been able to take a depreciation deduction every year on your taxes because part of the property is not your own personal living space (i.e. the apartment you’d be renting out). Your gain would’ve been much higher. You could argue that you don’t want to deal with tenants but the way around that is to select highly qualified tenants via a process of credit score checking, background checks. Seems like a shitload of work but it’s worth the small amount of hassle. Good tenants are require little work to keep happy. This is speaking from experience. I think its a good idea to have real estate in the portfolio in addition to equity and bond holdings. Everyone needs a place over their head in a dense city so the demand is always there in the foreseeable future.

  53. BeSmartRich says:

    I am renting at this point as I love only 5 minute short walk to work but I would love to buy a house at some point. The housing in Toronto is insane at this time though (Avg single detached is close to $1 million )so I may have to wait.

  54. Scooby says:

    Great post. I think many people are getting defensive because they own property and seem to take this article as an attack on them. I see it as a story that is often not told. The truth is we are being sold this american dream and frankly we buy into it all too often. Some people want a home and that’s great for them if they can afford it However just because you buy a home doesn’t mean you are better for it. I think that is what this article really is about. Make sure to do your homework.

    In your case you bought too much home as you willingly admit. I basically did the same thing. What most people, you, and I didn’t even factor is in is the true cost of ownership before we bought. We didn’t factor in that you have to maintain a home. We didn’t factor in that you have to also spend some of your free time doing labor. We didn’t factor in the extra cost (money and time) of the commute or the fact that not much is walking distance to our purchased home. We didn’t factor in the fees to sell or refinance. We didn’t factor in the headaches and stress.

    I rent now and probably will for the foreseeable future. I just did not get any joy out of constantly maintaining my property. I always had an urge to improve it as well. Drive around any neighborhood on the weekend and all you will see is people doing yard work and working on their homes. If they enjoy it I think that is great for them. It is just that I personally didn’t find it rewarding. I did convert my place to a rental for a few years but the numbers where bad and I never did any better than breaking even. That is my fault for not doing my homework. In addition I hated being a landlord so I sold it recently. Again, this is not to say it can’t work out. In fact I am confident I know the true costs and how to factor them in now so I could buy again and do much better. I also know the time and stress factor and I am just not wired for it so I won’t buy again anytime soon.

    Bottom line is I think a home should not be looked at as an investment because if you factored in true costs of ownership often we would do better placing our money elsewhere over the same period of time and renting. However a home can be a great place to live, raise a family, and make your own and that has value you will not find in a spreadsheet. I am not saying home ownership is bad and you will loose money. I’m just saying that it should not blindly be considered a good investment and a smart decision. It is a life choice not a investment. If you want to truly invest in real estate I think you are much better off looking at it like a business and buying rental properties.

  55. Headed West says:

    This is a great point to consider as I plan to move to the PNW next month, especially since housing prices are skyrocketing there…

    On a different note, if you and your family are still in Taiwan, I hope you got through the typhoon without any major problems.

    • Go Curry Cracker says:

      We survived the super storm without any problem; we slept through most of it. There is some mud in the city water supply that will take some time to sort out, so we are drinking bottled water this week. No big deal


      • Kalergie says:

        You know what? I have noticed that this blog attracts particularly good people for some reason. Not much hate or trolls. I hope, as your blog becomes more and more mainstream, this won’t change. For now, it’s a joy to not only read your posts but also to read the comments. That’s something not to be taken for granted in the Internet. 🙂

        Keep up the good work!

        • Go Curry Cracker says:

          It is great, right?! I learn a lot from the comments too, the discussions are my favorite part

          Every once in awhile some angry/nasty/racist/hateful stuff gets past the spam filter, particularly after big press days, but I ruthlessly filter it out.

  56. z says:

    Thanks for the detailed analysis. You are absolutely right in your situation. I just did the same analysis of my house and owning yields an annualized return of 8% on invested capital.

  57. Bill says:

    Great article. Lots of interesting comments too. I can only imagine how frustrating it has to be to answer the same handful of critiques, considering so many comments don’t read the comments and notice 10 other people have already covered what they are about to say. If people want to own so badly to “fix” their living costs (not ever really fixed as you say) then save and invest as a renter and once your portfolio is big enough then buy the house you want in cash. Done, costs “fixed”. Then you save tons of money on interest too. Yes, it will take a long time presumably a decade or more, but its certainly doable. Maybe by then you will realize you would rather have that additional $300k in your portfolio continuing to grow.

    Also people mention wanting to be able to do what they want to their house and yard. You can’t really do that many times because you have HOA to deal with. I know many people who were prohibited from adding to their house or putting on a certain type of siding because the neighborhood association said it didn’t go with the style of the neighborhood. So you have more freedom than a renter, but not total freedom.

  58. says:

    I find this to be an interesting argument, but I wonder about some of the numbers.

    Your mortgage at time of sale was presumably $223.5k (initial purchase price minus downpayment and principle paid over 5 years) + $5k added for refinancing fees (twice at $2.5k each time).

    Sale price – final mortgage = $394.5k – $223.5k = $171k. You didn’t get a cheque for that much because fees were taken out to pay agent commissions etc. After $21,093 in seller’s fees, thats ~$150k. Your cheque was smaller than that, so you may have had other costs that came out of the final cheque to drive it down to ~$144k (perhaps you forgot to mention a cost like taxes that you paid on the sale, otherwise you may have double-counted other costs that you enumerated separately but which were already reflected in the $144k figure).

    From that $144-$150k, $74,450 was return of principle (downpayment + principle paid), leaving ~$70-75k “profit”. Subtract from that buying costs ($4400), maintanence ($9225), mortgage interest after tax benefit ($48181), property tax ($19483), and HOA fees and insurance ($5148). That leaves you with net -$11437 to -$16437

    I’m not convinced we ought to count excess spent on utilities ($6000) and excess spent on commuting ($6800). Doing so makes renting seem more favourable, so to be conservative about the buying argument, let’s include them for now. That means your net is now -$24237 to -$29237.

    In other words your initial investment of 58500 + ongoing investment of $136280 (all out of pocket costs + principle) was a real total investment of $194780, and you walked away with only $144-150k. So you paid roughly between $403.95/mo. and $487.28/mo. +value of your labour put into the house, in order to live in the house for 5 years.

    Had you not spent any of the money that you did on the house and diligently invested all of it, you would have had $58.5k to invest initially, plus a monthly cashflow of $136280 / 60 months = $2271. Part of that cashflow has to pay rent, and the rest can be added to your portfolio. I would estimate rent at $905.25 on average in the 2000-2005 period. doesn’t go back beyond 2005, when median rent in Seattle was $960, but based on the trend in rental inflation during that time (~13% increase over the course of 5 years), $905.25 would seem a decent in between number. I am going to ignore security deposit on the rental, which will tilt this a little bit more toward renting.

    $2271 – $905.25 = $1365.75 /mo. to invest. I didn’t know what month you moved in or what month you sold, so I picked the midpoint of Y2K (June). Using your S&P returns calculator, investing your entire down payment and then adding $1365.75/mo. between Jun 2000 and Jun 2005 would result in a portfolio worth $143,181.

    So, buyer finishes with $144-150k cash, and got 5 years of housing in a home that was ~40% above the median home value in Seattle at the time of purchase (about 33% above the median home price in Seattle at the time of sale), with extra costs for utilities and commute time taken care of.

    Renter finishes with $143k in stock (which would cost 15% in capital gains tax to convert to cash) and 5 years of housing in the median Seattle apartment. Even with assumptions that tilt toward renting, I think you came out on top financially by buying.

    In terms of QOL, I doubt the median-price Seattle apartment is a nice place in a hip and convenient area like Belltown. More likely it’s a very average place in a very average part of town that may or may not be significantly more convienient than your house was. Even as a single guy I may have enjoyed the QOL more in a 40% above median-value house (with extra rooms for guests or the possibility of renting out a room to improve cashflow) than I would have in a median apartment. If you aren’t living alone, it’s even more likely you’d favour the QOL in the house vs. the apt. (for reference, median values in 2000 and 2005 found here =

    The caveat to my argument is that I generally agree with your overall point re: buying vs. renting and therefore I think that you were very lucky to have the outcome that you did — your house appreciated at ~2x the rate of historical norms year-over-year while the stock market fell over the same period. During most 5 year periods, i.e. those with more typical house price appreciation and stock market appreciation, the numbers would have been vastly in favour of renting (ignoring whatever QOL difference there is between the median-priced apartment compared to the 40%-above-median-priced home).

    Thanks for making me think!

  59. Ari says:

    I appreciate the point of your article. It’s is true that real estate investing isn’t some sort of magic catch all investment, but the numbers you use are suspect. First and foremost, your use of the “average rent” in Seattle is in no way an indication of what your home would have rented for. It’s hard for me to come to an exact number without knowing what neighborhood your home is in, but a quick search of craigslist homes for rent in Seattle showed that a 3 bedroom 2 bath house could rent for upwards of 3,000 a month making your rent over 5 years $180,000. Also, you said so yourself that you didn’t need such a big home. It seems to me that the trouble with your property was that you bought beyond your means. Perhaps if you had purchased a smaller home or condo closer to the area you wanted to live in (perhaps something that would have realistically rented for $750 a month) your numbers would have turned out differently.

    • Go Curry Cracker says:

      I didn’t buy beyond my means. The smaller home closer to the area I wanted to live doesn’t exist. It is a fantasy.

      • Ari says:

        If you were concerned about the cost of heating and cooling portions of your house that you didn’t use, that’s a problem. Perhaps it wasn’t necessarily beyond your means, but it was certainly beyond your needs.

        • Go Curry Cracker says:

          Ya think? You just described 90% of houses built since 1950… bigger than people need.

          But you may be confusing me with someone else. Nowhere did I say I was worried about the cost of heating/cooling.

          • Ari says:

            Did you not say this?

            “Energy bills were substantially higher than if I had lived in something appropriately sized to my needs. “

            • Go Curry Cracker says:

              My wife weighs less than I do.
              Jupiter is larger than Earth.
              Energy bills were higher than in an alternative environment.

              Those are just facts. I’m not worried about any of them. Energy costs are just a factor that needs to be included in a comprehensive comparison.

              • Ari says:

                If you weren’t worried about it you wouldn’t have mentioned it at all.

                Look, I’m happy to nitpick with you if you’d like, but the fact of the matter is that your article misuses information and your conclusion in incorrect. I fully understand that there are many costs to home ownership that people are not properly educated about and I commend you for trying to bring those to light, but you can’t just pick and chose your numbers to prove an incorrect theory.

  60. Bill says:

    You can nitpick the assumptions used if you want. They were just trying to illustrate their situation. No one else will be in the exact same situation so each person will have to develop their own model and assumptions to input in the model. Ari, disagreeing with the assumptions isn’t faulty math. I suspect you aren’t taking issue with the model (the math part), just the assumptions. Each person can develop their own assumptions and debating them is not that worthwhile because every scenario is unique. Use the model here, change the assumptions to ones you are comfortable with and move on with life.

    • Ari says:

      Hi Bill, I am in fact taking issue with the model. I think he makes good points about the unexpected costs of homeownership, but I take issue more than anything with this specific portion:

      “At the time, the average rent in Seattle was less than $750.

      Over the course of 5 years, I would have paid $47,568 in Rent. That seems like a lot. But it is a far cry from the $94k+ I paid out of pocket while living in the house with a lower quality of life”

      The cost of renting a home similar to the one described in the article would not have been $750/month it would have been, conservatively, $3,000 a month and a total of 180,000. Nearly double the out of pocket expense that the author describes from living in the house.

      Thus, his conclusion that buying made him poorer than renting is false, plain and simple.

      • Lee says:

        Ari, he arrived in Seattle in 2000. Back then, rents were a whole lot lower than they are currently.

        On another note, what’s your net worth?

        • Diane C says:

          Ari, thank you for breathing fresh air into this thought-provoking discussion! And Lee, asking Ari’s net worth is completely irrelevant and not even borderline impolite. His points are as valid as Jeremy’s and neither of their net worths “proves” the principles being discussed.

          Seattle rents were undoubtedly lower in 2000. However, this example assumes five years of zero rent increases. Pretty sure that does not reflect the reality of the Seattle rental market, then or now.

          In fact, an examination based on current Seattle prices might cause Jeremy to draw a completely different conclusion, but that wouldn’t accurately reflect his experience.

          Po-tay-to for Jeremy, Po-tah-to for Ari.

          • Lee says:

            Net worth is always relevant!!

            Why would I listen to someone that has a lower net worth than I do….. I can’t think of any reasons, there may be possible situations, but usually it’s one ear out the other. I typically look to ones that are higher up on the chain.

            Based on current Seattle prices, I think someone would be looking to a lower cost locale…. at least that is my plan.

          • Go Curry Cracker says:

            No. Rent increased every year with inflation.

            But agreed, this is based on my experience and a different experience would warrant a different story. Yet today, we could buy our old house with cash just from the advantage of renting vs buying, and still have a couple hundred thousand dollars worth of walking around money.

        • Ari says:

          That’s a fair point. What do you think would have been a reasonable rent on a 3 bedroom 2 bath house in Seattle in 2000? I’m willing to run the scenario again for any numbers that you feel are realistic.

          Diane’s point about rent increases is also an important addition to this conversation. Would you feel that a 5% increase per year is reasonable? Another factor to take into effect is utilities and expenses on a rental. In a single family home utilities are rarely included. I’ve even encountered ones where lawn care was the responsibility of the tenant, so we should be adding in additional expense for that as well.

          Also, I’d be happy to tell you my net worth, though I agree with Diane that it’s both irrelevant and impolite, but only if you’ll tell me yours and your age so that we can be sure we’re making a relevant comparison.

          • Lee says:

            Mid 30’s. ~640, no personal property thrown in, cars, etc.

            For a 3 bed 2 bath house, rent in 2000, of course that depends on location, but 16 years ago, times were certainly different. Back then, $1,000 to $2,000….. Sure, I would say a 3% to 6% increase.

            It’s been a while since I read the post, but I think one of the points was that a smaller living space would have made sense, so there would have been savings there…You’re kind of hung up on having a comparable living space as a rental. In 2009, I rented a studio in Seattle for $900 a month including parking and the only bill I received was electric which never topped $20. Those were the days, then I bought a house, 2011, sold it Oct 2015….. Currently, I am finding renting to be a better option in seattle.

            I think Diane and you are off your rocker for thinking net worth is irrelevant. Impolite, yeah, probably, but I prefer bluntness and that usually comes across impolite. Net worth is relevant. You’ve made good decisions, of course some may have lucked into it in various ways, but overall, I would listen to someone with a $5 million stack versus a person with $50k. It’s kind of like taking financial planning advice from someone with no investment assets, that makes zero sense, in my opinion.

            In the end, to each their own. For me, I liked the post, especially since so many believe home ownership is the end all be all.

            • Go Curry Cracker says:

              Yes, Ari is stuck on the logical fallacy that there are only two options for places to live: a house you buy, or renting that exact same house.

              But I don’t think Ari’s net worth is relevant. An idea is either correct/beneficial or not. The person sharing the idea doesn’t make an idea more or less correct, although it is important to understand their motivations to see if they are true to their beliefs. For example, real estate agents seem to have a harder time believing that it is often better to rent.

              • Lee says:

                To me, and I am allowed an opinion, net worth is relevant when the discussion starts to revolve around financial decisions.

                Why do people give Warren Buffett validity…. because his net worth is ridiculous. If he was broke, who would listen to him, maybe some. Anyways, I was interested to see where he was coming from and his financial situation is part of the puzzle for me.

                Yes, “the person sharing the idea doesn’t make an idea more or less correct” is true, but I like to know a little bit about the messenger, I guess.

              • Brandon says:

                Aren’t you kind of doing the same thing with regards to only considering two options? The only two options were buying an above average home, in an above average area, vs. renting at an “average” rate for an apartment with a much smaller floorplan.

                Did you think when you bought your house that you would never need “this much room”? I really think that is part of the equation that really needs to be explored. If I bought a “tiny home” for 40k, then I would have no rents to pay for at all, and a roof over my head.

                I also don’t think you can consider the QOL to be less in a house vs. renting. As a person that thoroughly enjoys cars, a depreciating asset, I know, I would still like to have a garage. I would still like to go out an get in my car without frost on my windows, or without having to walk through the cold to get in. That’s not usually something available to renters. That is my experience in NC, anyway.

                I think this is more about buying what you need, vs. what you want. Now if you could have bought a similar sized house to what that rent would have paid for, would it have been economically more feasible to rent still? I’m not saying any of what you posted is wrong, I just think some of the initial conditions need slightly further examination.

                • Go Curry Cracker says:

                  Not at all.

                  These are the 2 options I used. Others can and should weigh all options.

                  You are misinterpreting the information here… I didn’t buy an above average home, I purchased at the low end of the market. That would be a below average home.

                  You can rent a garage.

                • Go Curry Cracker says:

                  I think buying what you need versus what you want (or is available) is generally sound advice.

                  How does one do this in practice?

                  Should a single guy rent or buy?
                  Let’s assume buy. Maybe we want a 2 bedroom house, but we only need a studio condo. As you say, he doesn’t need “this much room.”

                  Now you get married.
                  Since buying is better, we sell the studio condo and buy a 1 bedroom condo.

                  Now you have a child. Sell the condo and buy a house.

                  Now you have a second child. Sell the house and buy a bigger house.

                  The kids go to college. Sell the house and move back to a condo.

                  Life is good.

              • Brandon Abernathy says:

                I think “in practice” is dependent on each individuals needs and wants. I just don’t think there is a hard and fast rule that buying is better than renting, or vice versa.

                In a situation where someone will likely move 10 times in their life, buying doesn’t really make sense unless you can get someone else to pay for it. Such as a company relocation.

                I just think the best scenario is for everyone, or anyone that approaches this from a purely logical point of view, to compare what renting for what they want/need is in their area to what it would cost them to buy.

                I’m not saying you are wrong at all, I’m just saying that each scenario is different and there may be times where buying causes less expenditures over time than renting. That being said, this “buy all the house you can afford” is just stupid.

            • Diane C says:

              @Lee “I would listen to someone with a $5 million stack versus a person with $50k.”

              No way in hell am I going to share NW figures with you, but based on your scale, you should most definitely be listening to this someone. Which only proves…nothing.

              This conversation is most beneficial as general food for thought, not a specific blueprint for “Lee” or anyone else. Buying, renting, or some combination of both can all be paths to wealth. The variables are so many that there is no one one-size-fits all answer. The key is to be open-minded. Learn and understand before you act.

              • Lee says:

                @Diane C I didn’t ask for your net worth, I asked for Ari’s.

                Based on my scale, I should most definitely be listening to this someone…… I don’t think I follow you there.

                Sure, it is food for thought and I do not recall saying it is a blueprint. I think it can help someone rationally look at renting vs homeownership vs vagabonding vs rv lifestyle vs whatever living space you want to go with…..

                I like your last paragraph. Just a FYI, I am not close minded on living spaces. Where was I closed minded, just because I asked Ari his net worth makes me close minded?

            • Ari says:

              The only logical fallacy here is thinking that you can compare the “true” cost of home ownership to the cost of renting a not comparable apartment.

              I’ve said again and again that I appreciate the sentiment of the article. There are many people who go into home ownership uneducated about what it really means and I commend you for trying to bring many hidden costs to light, but the logic of the way you have attempted to prove this point is flawed. Not everyone get rich on real estate. It isn’t magic, but generally speaking it’s a better idea than renting. I commented only because I wanted to makes sure that others were correctly informed.

              My net worth is about 150k and I’m 24. Please feel free to discount my ideas because of my lower net worth or my age, but before you do so, I hope you’ll take a minute to think about what your net worth was at 24.

              And, Lee, if you’re so hung up about the importance of net worth, perhaps you’ll find this article interesting food for thought:


              • brooklynguy says:

                Ari, there is no flaw in Jeremy’s analysis, which never claimed to be an apples-to-apples comparison. He compared renting an apple to buying an orange, and concluded that renting an apple was the better option. No fallacy there.

                You, instead, are insisting that the only valid comparison is between renting an apple and buying an apple, when, in fact, in the real world, there were no apples for sale.

                • Ari says:

                  You cannot compare apples and oranges and then try to make the sweeping assumption that renting is better than buying. It is possible that in Jeremy’s situation renting an apple would have been the better option for him personally, but buying an apple would would certainly have been better!

                  I don’t claim to know everything about the Seattle home market in 2000, but I can assure you that this claim that “there were no apples for sale” is an over generalization.

                  Had he really wanted to make a good real estate investment (because not all real estate is) he could have found a more appropriately sized and priced property, again, something that could have rented for $750 a month. (because that would make for an actual apples to apples comparison that could be used to draw a larger conclusion)

                  Had he done that, he would have come out ahead.

                • brooklynguy says:

                  I don’t see where Jeremy made any sweeping conclusion that renting is always better than buying without exception. But you seem to be making the reverse assumption when it comes to buying or renting comparable living spaces.

                • Go Curry Cracker says:

                  brooklynguy, I think your comment accurately and succinctly summarizes this comment thread. Thanks.

                  There are no sweeping conclusions here, just one guy’s story and experience. With real numbers.

                  Nobody should read more into it than that, which is why the post isn’t called Buying a House is Always Stupid. I wrote a completely different post for that.

                • Ari says:

                  It’s clear to me that we are not going to come to an agreement on this. It was never my intention from the beginning to change your mind. You are entitled to your beliefs and I simply wished to present the flaws in your logic to future readers of your article who might be deciding for themselves between renting and owning. I’m just going to make a couple final points and then I will be logging off. Jeremy, I hope you didn’t think you were going to lure me into debating more of your pseudoscience by posting a link to your other article.

                  First, of course net worth is relevant to life, it’s jut not relevant to this conversation.

                  Second, When you have your portfolio worth a hypothetical 3 million dollars, you’ll still be paying a hypothetical rent of 5,000 a month whereas a homeowner will now be paying almost no monthly housing expenses.

                  Third, I am a real estate agent and I became one because home ownership betters people’s lives. I’m not the sort of person who can sell something I don’t believe in. I also pride myself on being the sort of agent who encourages people to buy well within their means and have even discouraged clients from buying in situations where I didn’t believe it was good for them. I do it because real estate is proven to be the best way to gain wealth and I want to help people do that. I don’t do it to get rich. I have real estate investing for that.

                • Go Curry Cracker says:

                  Ari, that link wasn’t for you (none of this has been.)

                  But thanks for sharing with people what can happen when you sell your soul to the american religion that buying is always better than renting.

              • Lee says:

                Ari, congrats on the net worth at 24. I would have to dig into quicken to pull up my figures, but I remember at 25, I was about 115k. Keep on researching and learning and you’ll hit a million in the next 10 years or sooner, well, depending on what your income looks like etc…..

                “hung up on the importance of net worth”……… Seriously, you don’t think net worth is important? How is it not?!?! Maybe I am jaded due to being around ultra high net worth people for my job and such, but net worth is really important. I’ve also seen high income people with no net worth. Incomes of a million plus with nothing in the bank, it’s crazy to me…. So, yeah, net worth is important, but maybe that is my personal need for “security”. Others are more risk adverse than me and don’t mind paycheck to paycheck living. I would not like that.

                If net worth isn’t important, you should just blow your stack on having fun, live it up, buy a lot of meaningless stuff and have a crazy good time!!!!

                The Forbes article is the typical myth of home ownership = good, renting = bad. I think a lot of people that bought in 07′ are probably not wealthier today just based on their home, unless they are in an area that has gone on a tear in the last 4 years and are equivalent to 07′ prices….. but, they still have shelled out interest/property tax/insurance/maintenance/etc… They may have come out ahead if they would have been renters…..

                Anyways, I am not 100% opposed to home ownership, I owned a house and it did improve my net worth, however, I am not 100% convinced that I was better off owning vs. renting. Especially since the market did some amazing things during my time owning, which I may have missed out on as I was plowing money into paying down my mortgage, which of course, 20/20 hindsight was the improper choice, I should have been plowing it into the market, but I was very focused on not having a mortgage…..So, in the end, some sort of balancing act to some degree. Now, if I want to buy a house, I will just pay cash. Does that make any sense considering what I just wrote? Not a ton, but, as I said, I am probably less risk averse than others, owning a house outright is a good feeling.

                Anywhoot, as Diane C said, there’s lots of paths. You should go prepare for the path first and determine how solid the path will be to get to your destination.

                So, are you a real estate agent or what? Or something in the real estate industry?

          • Lee says:

            Are you a real estate agent? You sound like one.

  61. Am I wrong or did you leave out the utility costs of the rental? I assume if you rented a house the size of the one you purchased, your utilities would be the same. And Ari is right about apples and oranges. You’re comparing a small apartment to a big house?? And the commuting expense? How can you blame the house for that? And by the way, you paid very high costs on all your transactions. You can refinance cheaper and find lawyers cheaper. And $750 was the average rent in Seattle, really!? What can you rent for $750 in Seattle? A closet in a slum?! Yes, there are risks in real estate investing, but by comparison, in general, you will get rich owning and poor renting. Remember that your rent will increase every year. After 30 years your rent will have probably tripled but your mortgage will have remained the same, AND THEN you are done altogether with the mortgage. Zero a month! If you had rented a comparable apartment, in 30 years I project the rent would be in the $5000 a month range. That’s $60000 a year down the drain! I bet your mortgage at less than a grand a month would look pretty good. That’s a savings of $50,000 a year! Plus, you now own a house worth probably a million dollars. I made a small fortune in real estate. Sorry you didn’t.

    • Go Curry Cracker says:

      Congrats on your real estate success and your small fortune.

      We made our small fortune through investing the dollars we didn’t spend on a house. It’s nice.

      When (if) rent is $5k a month and the house is worth $1 million (maybe) that portion of our portfolio will be worth $3 million and generate $10k/month in dividends. Good times.

  62. Tyler says:

    The takeaway from this article should be what NOT to do when buying a house: don’t buy more than you need, especially when you can rent a studio or simply a room. And if you are going to buy more than you need, you need to start looking at the extra space as an “investment” and renting the excess out to house hack and subsidize your housing.

    I found all the calculations to be interesting, but ultimately irrelevant due to the poor upfront decision. No, a personal residence doesn’t have to be viewed strictly as an investment, but it should also make more sense than renting, else why wouldn’t you just rent? The moral is that you went in guns-a-blazing without a real plan. That’s not to say that renting will always be worse than buying in your situation, just that it obviously doesn’t fit your lifestyle.

    So it’s an interesting anecdotal collection of information, but it’s not an article anyone should take seriously if they’re actually considering renting vs buying. Directing people to those types of unbiased articles would make the most sense so they neither blindly rent or blindly buy.

    • Go Curry Cracker says:

      > The takeaway from this article should be what NOT to do when buying a house

    • Diane C says:

      Amen, Tyler, Amen.

      • Go Curry Cracker says:

        Yes, let us pray.

        Dear Lord of Real Estate

        Please empower all future home buyers with perfect foresight and expert knowledge.

        And if anyone makes a mistake in this process, or is led astray by conventional wisdom, and dares to share their experience, please grant me the strength and courage to attack, ridicule, and disparage them anonymously via the Internet.


  63. Sam says:

    Strangely I have the exact opposite story! I moved to Seattle 5 years ago and started out in cheap 600 square foot apartment in a neighborhood that was mostly students. It was a great neighborhood and there was easy public transport to activities down town and on the UW campus.

    Got married two years later and it turns out my wife actually works in one of those suburban communities you were talking about. From my apartment she had some awful commutes (if she was at work a half hour later then normal her drive home went from a half hour to about an hour and 25 minutes!).

    Anyway a couple years ago we bought a 2 BR 1200 Square foot house in one of the older suburban neighborhoods. My wife’s commute is now around 6 miles, and I am still able to take the bus into Seattle so we still only need one car (and we could get by with none if we really wanted to). Our new neighborhood isn’t quite as fun as our old one, but it still is pretty nice. We also got lucky when we bought the house because we got low interest rates and avoided some pretty extreme rent increases at our old place. Plus we have been on the right side of the RE market (though the stock market has done well too….).

    I don’t plan on leaving this house for a long time, it is perfect for us while we accumulate savings but maybe I should start a running financial comparison like this just to see what could have been! We have put a decent amount of sweat and cash into fixing this place up so even with the rent increases, lower commuting costs and real estate price increases I may still have been better off renting right now!

  64. Russell says:

    I think that the best benefit of renting is the ability to up and leave if needed, or wanted. Homes are not liquid assets, especially when nobody wants them during certain cycles in the market. There are so many cash buyers now that when they need to raise capital, and they will at some point! They’ll sell at almost any price. Buyers today in late 2016 better watch out.

    • Diane C says:

      Your point is 100% valid, but the other side of the coin is that your landlord can chose to sell at any time without your consent. Or, as is happening in the Bay Area, your rent can skyrocket with little warning. Home ownership, especially if purchased wisely, provides significant security advantages that may not have been fully examined in the original article. It may simply be less important to Jeremy than it might be to others in different situations. Not saying he’s wrong, just that there are a lot of angles to consider on the topic of rent vs. buy. There is no one-size-fits-all-answer.

      Not exactly sure about your last sentence. Is the sky set to fall in late 2016? As they say on Wikipedia: Citation needed.

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