Renters For Life

Photo credit, turkeychik -

Photo credit, turkeychik

“Beep you, you beeping beep!! I’ll kick your beepity beep!!!”

Hmmm, who is that? I don’t recognize her voice

“I ain’t lying, I can’t have you be talking to my Momma like that”

That’s Carl. Good for him standing up for his mother.

A few weeks earlier Carl had introduced himself by handing me a burger across the hedge separating our houses. He and his buddies were cooking out in the back yard and tossing back a few cold ones on a fine summer day, celebrating his release from prison. He had just moved in with his Momma while he got his life back on track

“Beep you Carl! You can’t have her treat me like this!”

That must be Carl’s new girlfriend. Classy

*BAM!!!* A door slammed, followed by the sound of crying and a car racing off. Then silence.  This would become a regular occurrence.

Several years earlier in a different house, I was finishing some work late at night when the doorbell rang

“Hi Rose, how are you?”  At this hour this must be some kind of emergency.

“Hey Jeremy… Umm… I’ve had a few calls… so, are you aware that the Neighborhood Homeowner’s Association Covenants stipulate a maximum grass height for lawns?”

“No, Rose. I wasn’t aware of that.”  I had been out of town for work and my lawn had grown 1/4 inch “too tall”

“Oh, I see. Yeah, it is in the Homeowner’s Agreement you signed when you bought this house. Do you have a copy? Here, you can have this one”

Carl was a good guy, I liked him. His parole officer was nice too

Rose… not so much.

It would take me years to sell that house and escape from Rose and her ilk; years of weekends spent lawn mowing, painting, landscaping, and performing all of the maintenance that comes with home ownership.

When it came time to say good-bye to Carl and his Momma, I simply handed the keys to the landlord

Rent or Buy?

I probably lost money by renting next door to Carl, and should have purchased that house instead.  After all, owning a house is always better financially.  Just ask… well, anyone

For example, the house I sold outside Chicago in 2000 for $178k ($240k in 2013 dollars.)  In 2013 it sold for… $178k ($132k in 2000 dollars.)  That loss of ~$60k plus the loss of every interest payment and maintenance expense along the way probably hurt.  Good thing they weren’t throwing money away on rent

The owners also never benefited from the so-called tax benefits of home ownership.  That privilege is reserved for rich people with big mortgages.  Rubbing salt in the wound, none of this loss was tax deductible

The couple who purchased my Seattle area home for $400k ten years ago fared slightly better on taxes, saving an average of $60/month.  They also fared better on capital gains, as Zillow estimates the current property value at $500k

“We sold our house for $100k more than we paid for it! What a great investment,” they might say.  “And the gain is tax free, too!”

But after realtor fees (6%, $30k), closing costs ($2k), Washington State transfer tax (1.78%, $9k), painting the exterior ($6k), replacing the cedar shingle roof (per CC&Rs, $30k), and remodeling the outdated kitchen ($10k), their actual gain is only $13k.

Factoring in inflation, they lost money.  Over the same period, my index funds have doubled

Maybe always was too strong of a term

A Case for Renting

The financials always seem to take center stage when evaluating whether to rent or buy.  Google’s first “Rent or Buy” search result is for the NY Times Buy-Rent Calculator.

The financials are important, no doubt.  As is quality of life.  After years of experience and excessive math, I posit that renting improves both

Note that renting simply means habitating a property that belongs to somebody else.  It could be a house/condo/houseboat/barn/closet, and does not preclude having a garden, painting walls, etc…

Renting Improves Quality of Life

You Can’t Choose Your Neighbors

Maybe next door isn’t a half way house for drug dealers and gang bangers.  And maybe your neighbor isn’t an insufferable busy body.  But what happens when 10 people move into the 1 bathroom house down the street?

Personal Time is Precious

Spend the weekend working on a side hustle to earn extra income, or fix the leaky pipe in the basement?  Go for a bike ride with the family, or mow the lawn?

I choose the former every time

Progress Isn’t Always Positive

Neighborhoods change.  Your favorite restaurant closes.  Eminent domain changes the local park into an overpass.

Building construction and incessant jack-hammering go hand in hand.  That will be a nice alarm clock replacement while the new condo building goes up, eventually blocking the view.

There are places I remember
All my life though some have changed
Some forever not for better
Some have gone and some remain
– John Lennon

Climate Change

As sea levels rise, parts of Manhattan will submerge.  California has a water problem of a different sort.  The transition will probably be slow and painful

3 years after Hurricane Sandy, homeowners land owners are still arguing claims with insurance companies.  Property values in Fukushima, Japan aren’t anywhere near all time highs.  Wells are going dry all over California.

Government Policies & the Economy

Political climate and a shifting economy can inflict painful change upon property owners.  Just ask the residents of Muskegon Heights, Flint, & the Tri-Cities of MichiganDetroit doesn’t seem any better.

Needs and Wants Evolve

As a young married couple, we were happy in a Studio.  With an infant, a 1-bedroom Apartment seems to be the right size.  When GCCjr is a young boy, we will expand to a 2-bedroom.  As our needs change, so too will our living arrangement.  As an added bonus, each move is an opportunity to reduce our collection of flotsam and jetsam.  Hoarders never move

The solution many adopt for these changing needs is to buy a 4-bedroom house in a good neighborhood with good schools.  This is somewhat like buying Adult size T-shirts for a toddler, since he will grow into them.  Or buying an SUV because we might one day go off-roading, aka driving through a puddle in the Costco parking lot.


Stability is one of those intangible concepts that Realtors love to talk about.  “You’ll want to provide your children with some stability,” they say.  But kids don’t come home and ask whose name is on the Title .  They just come home.

Stability isn’t always a choice. Acts of Gods and Men happen. Divorces happen. Layoffs happen. During times of change, the renter is flexible, nimble, agile, able to chase opportunity.  The homeowner wears concrete shoes.

Anecdotally, every time someone at work bought a house (“Congratulations!”) a coworker would say the company moved their name from the “need to re-recruit” to the “employee for life” list.  He was a bit jaded.  But he also had a point

You Can’t Go Home Again

Each country we visit and each person we meet expands our horizons, changing the way we see the world.  You can’t go back home.

You Can’t Go Home Again
– Thomas Wolfe

Renting Improves Finances

Renting Costs Less

At present, the Economist shows US housing is 20% over valued.  The Case Shiller Home Price Index also shows high valuation.  Prices are even more extreme in the UK and Canada, and in the cities of NYC and SF.  Renting costs less

Our current Taipei apartment rents for ~$1400/month. To buy, it would cost ~$1.5 million.  With a price-to-rent ratio of 89, buying this property would not provide a positive return on investment in this lifetime or the next

In the intro to this post, I shared two examples of houses I sold personally.  In the first, the buyer obviously lost money.  In the second, even with a $100k increase in home price, the buyer lost money.

Even selling a home for a significantly higher price can be a losing proposition

Cash Flow is Predictable

We know exactly what our expenses will be month in and month out.  An exploding pipe, major storm, or failed appliance has zero impact on our wallet

Opportunity Cost

If we had purchased a home 30 years ago, we would recently have become mortgage free.  No more mortgage payments in retirement! Many share this goal, but is it the best financial decision?

Let’s compare purchasing vs renting of the same property and find out

Mortgage: 30 year fixed, 4%, 20% down, 0 points, 0 closing costs; Payment = $382/mo.  $100k property value.  Property taxes (1%), Maintenance (1%), and Insurance (0.25%) increase with property values at the rate of inflation, while the mortgage payment remains fixed.  Total in Year 1 = $569/mo

Rent: Price-to-Rent = 19 ; Rent starts at $439/mo and increases with inflation.  1 month security deposit.  The 20% down payment and any rent/mortgage delta is invested in the stock market

Average inflation over the past 30 years was 2.65% and S&P500 growth (dividends reinvested) was 10%

RentBuy1In this chart, we see that the Home Value (Blue) increases over time, and the Mortgage (Green) decreases, eventually reaching zero.  At first, Rent Expenses (Purple) are lower than Ownership Expenses (Red) due to the down payment and overall higher cost of ownership

About 1/2 way through the mortgage, Owning becomes the clear winner as a greater percentage of the fixed Mortgage Payments is Principal and as Rent increases with inflation

But the picture is still incomplete.  Instead of making a large down payment on a house, the Renter invested an equal amount.  In the early years, the Renter also contributed small amounts to investments so cash flow was the same as the home buyer.

RentBuy2After 30 years, the home owner has no mortgage.  After 30 years, the Renter has a portfolio worth more than Twice as much as the House.

Based on the 4% Rule, the Renter could fund his current monthly rent of $961 and have an extra $688/mo to spend as they wish.  Alternatively, the Renter could purchase the house they have lived in for 30 years for cash and still have $257,000 remaining

Everything about this comparison is extremely generous to the purchase scenario.  The Renter lives in the same property for 30 years, rather than moving based on housing needs and job opportunities.  The owner never sells, and never gets tired of linoleum floors or the avocado colored refrigerator, and never buys a lawn mower or ladder.  Typical mortgage rates in 1986 were 10.89% with 2.3 points, and closing costs on my last home purchase were 1.5 points.  Long term Price-to-buy ratio is closer to 21.5 (per Fed, page 20.) and over 30 in cities like NYC and SF.

Let’s make it even more advantageous for the home buyer.  Maybe the house has appreciated faster these past few years due to cheap debt, raising the value an extra 40% per the Case-Shiller Home Price Index.  Renting still wins

Everything in our analysis is tilted to favor buying, and renting still wins.

Objectively, buying costs more than renting Click To Tweet

Landlords Get All the Tax Breaks

Why would somebody rent out a property for less than it would cost to buy it?  That makes no sense

Well, some landlords aren’t that good at what they do.  Case in point, Mr and Mrs NYC just penned a deal to sell their Manhattan home and rent it back from the new owner.  They will spend $1,000/month less for living in the same property, eliminate all maintenance responsibility, and have all of their equity available for more promising investments

Why would anybody agree to these terms?  Three words: leverage, subsidies, and (irrational?) exuberance.

Leverage and subsidies alone can make Real Estate a slow and steady long term path to great wealth.  It can also lead people to make short term gambles that can benefit renters

The US Government provides huge subsidies to landlords.  Need a new light bulb? Write it off. Need to drive to Home Depot to buy said light bulb? Write off the trip.  Insurance, basic maintenance, current expenses… all written off.  And the Granddaddy of them all: depreciation.  Nearly $4k of income can be earned tax free for each $100k in building value.

But wait, there is more.  All expenses for mortgage interest, property taxes, closing costs, etc… are all tax deductible immediately and with no need to Itemize.  Which reminds me…

The Home Mortgage Interest Tax Deduction is a Lie

Less than 1/3 of homeowner’s benefit from the deduction of mortgage interest.

More interesting than how many people benefit is who benefits.  A nice middle class family in the 15% tax bracket might save an Andrew Jackson or a Benjamin Franklin every month for the first few years of home ownership.  But a Senator might save $1,500/month at the 39.6% marginal rate on his new DC Mansion

The Middle Class often buys houses based on size of payment, per the common advice of, “Buy the biggest house you can afford.”  Since every How Much House Can You Afford calculator includes estimates for a tax benefit, the result is just higher housing prices.

For the rich, the interest tax deduction is a great subsidy.  For everyone else The Home Mortgage Interest Tax Deduction is a lie .  People in SF and NYC get their mortgages subsidized by the rest of the country

Hacking the System?

If owning were a priority, there is probably a way to have the best of both worlds.  Find a great friend and purchase two identical condos in the same building, or buy land and build two identical homes adjacent to each other.  Then rent from each other

Renters For Life

Perhaps if housing prices were to drop more than 50%, we could get a 0% down mortgage with an interest rate roughly equal to inflation, and maintenance costs were close to zero, we would consider purchasing.  But we already have that, it is called renting

With a superior quality of life and stronger financials, we will happily and gainfully be Renters for Life

What do you think, Rent or Buy?

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173 Responses to Renters For Life

  1. Great post , renting here in Taipei as well and I doubt I’ll ever buy regardless of where I am in the world. I did it once and ended up in a similar situation to your second case. I felt great at the time and later realized how dumb I really was. It’s like everyone has been brainwashed…and I guess they have.

    Unless you want to purchase for the sake of having the “thing” of a house (for whatever reason), great…but don’t pretend it’s a good investment. And stop telling me I’m throwing my money away.

    • Go Curry Cracker says:

      Hi Thad, it is always good to know another life long renter 🙂

      We hear the throwing money away on rent line all the time. It probably originates from somebody who sells real estate for a living

      • Thank you for writing this post GCC. It gives me a lot to think about.

        Your article reminds me that price you pay for anything really matters. How you structure transactions matters as well. Your opportunity cost set matters as well.

        For example, if someone manages to rent out the place at $569/month or more ( price rent around 14 -15), and they manage to put something like 5% down (rather than 20%), the numbers would likely favor buying…

        On the other hand, if the stock market was overvalued ( think 1999 – 2000), expected returns would be lower, so that would change the calculation as well.

        Of course, if the price of the home was overvalued (as is clearly the case in Taiwan), then it make take a while for the price of the home to actually increase in price. Real Estate in Japan is lower in price today, than it was in 1989 (when the imperial palace in Tokyo was supposedly worth more than the entire state of California).

        Do you by any chance have the spreadsheet you used ready for download somewhere?

        • Go Curry Cracker says:

          Hi DGI,

          Agreed, the price you pay, interest rates, size of down payment, all matter. And then we don’t really know what the results are until after the fact

          Many homeowner’s will probably be disappointed if they try to sell as interest rates rise above historic lows. On a 30 year mortgage, increasing from 4% to 6% interest rate increases payment by 25%

          My spreadsheet was quickly thrown together to illustrate the point, it isn’t presently setup to riff on values easily. The main variables are interest rate, and the delta between inflation and equity growth. Based on cagr for both from 1986, even a 0% down payment comes out ahead for renting for price/rent ratios above 19



  2. andy says:

    One thing you left out is you assumed rent only went up with inflation rates. If housing prices went up more then inflation, most likely the rent goes up more then inflation too.

    You said “Maybe the house has appreciated faster these past few years due to cheap debt, raising the value an extra 40% per the Case-Shiller Home Price Index.”

    Did you adjust the rent in this analysis too?

    • Go Curry Cracker says:

      The CPI includes rents (not housing prices), so rent is what is used in calculating inflation.

      I didn’t adjust rents upward 40% because it wouldn’t make a difference in the outcome, and this isn’t what has happened in the real world over these last 5 years. Look at the curve for “Renter Portfolio Value” It has already passed the knee where we have exponential growth from investments made 20 years earlier, the Renter will still be able to buy this house and have money left over to buy a Ferrari

      This is after I already skewed everything to favor the purchase scenario

      Also note that if housing prices go up faster than inflation, so will property taxes

  3. M says:

    Maybe I missed it – but the equations above leave out leverage. As in, my 20% down purchases me a 100% investment. I cannot do that with stocks (or, I suppose I could with a margin account, but it would not be the norm).

  4. Peter says:

    I struggle with this one – I cannot argue your analysis is wrong from a financial perspective. After moving out from the nest I first bought a house with a friend with the idea of growing equity and being able to buy our own homes down the road. I sold out to him and he still lives there so that did not work as intended. Then I rented for 8 years in 3 different places only one of which felt like home the others were just big crowded apartments. Then I bought my current house for $230k in 2002 and am still there It is valued at 500K+ in the overheated Greater Toronto Area. Mortgage was paid in 2012 so I am free of that.

    Recently I have thought of selling to rent – but personally my wife and I want a yard and some green around us I do not want to go back to an apartment. Renting a house would be fairly expensive where we are. I enjoy working on my property to a point and making it what I want. Not so much the costs but I keep them low because most work I do myself.

    So for us the decision is tougher and not just financial. Good article though you are not the first to write this up but another analysis always brings a little more perspective.

    • Alisa says:

      As much as I understand Jeremy’s view and can agree to a certain extent, I also agree with you, Peter. I’m from the Caribbean and the housing market is different from up north. It’s been consistently upward, so it seems a good way of investing. Flipping is not common here, but my husband and I want to try it though on a longer time scale than traditional flipping. This would allow for errant workmen that take a year to get around to starting a project, allow time for the market value to increase and should allow us to keep our dog that’s too big to live indoors.
      Since reading about Jeremy and Winnie, we’ve been constructing a path to achieve early retirement in the short term with no local precedent that we’re aware of and incredulous people all around. “Giving up your house?!” We’ve taken to being very brief about our plans. “We’re downscaling”.

    • Go Curry Cracker says:

      Hi Peter. Agreed, I’m definitely not the first to think this way. I enjoy reading Garth Turner’s perspective on Canadian Real Estate

      How do house rental prices look in your area compared to the return you could make on the $500k equity you currently have?

  5. David D says:

    Great post and I agree with it. I love contacting a landlord to handle something instead of me dealing with it. However, we will be buying soon (next 1yr or so). After decades of renting, we want stability for the kids, more freedom to change walls, yard, etc…, and we find that the homes we want to buy are 2-3 times the rent we currently pay (we rent in smaller homes, less desirable neighborhood/school district).

    We have no allusions that this will be a good investment (it took me a while to convince the DW of this), but it is something we want and have saved for. I could imagine renting again when we retire and kids have moved out.

    • Go Curry Cracker says:

      Hi David, thanks for sharing your ideas on this

      Why not rent a house in the school district you are interested in?

      I think a lot of people have a similar idea about providing stability for kids. For that purpose, what do you think is the main difference between having a mortgage and having a lease?

      • David D says:

        The school district is just one factor.

        We do not live in a high cost area of the country, thus similar to Justin’s @ Root of Good, we can buy at a much lower rate than rent.

        And, ultimately it comes down to an emotional issue…my DW wants a house to own. We don’t see it as limiting our future retirement, freedom, or other financial obligations. We’ll have plenty for all that too:)

        • Greg says:

          Precisely right — buying is at the end of the day an emotional decision.

          And Jeremy, it’s not always 100% correct to rent rather than buy. One should always run the numbers and consider all the factors you mentioned above before making the decision.

        • Go Curry Cracker says:

          If DW wants a house, DW gets a house. I put that in the Quality of Life category, because we all know if DW isn’t happy then nobody is happy lol

  6. Mr. 1500 says:

    Hey GCC!

    The bad news on our end is that the renters in the “10 people/1 bathroom” house just renewed their lease. Since we watched the repo man come get one of their vehicles a couple months back, we knew that they were staying. No landlord is going to rent to these crazy people with awful credit in a white hot rental market. It was still disappointing though since there seems to be no end to their ridiculous behavior. Actual things they have said: “Look at this English Bulldog we just bought for $2500!” “Look at this new motorcycle I just picked up. Since it was last year’s model, I only paid $12,000 for it!” And then, there are the daily family feuds when the patriarch of the family unloads a very loud, obscenity laden tirade on other members of the household: “What the f***!! All I asked you to do was pick up the dog s*** and you couldn’t even do that!!! WHAT THE F*** IS YOUR PROBLEM!!! F***!!!!!!”


    Completely agree on the ridiculous mortgage deduction. Way overrated. I don’t think folks understand that the deduction doesn’t put them that far ahead of the standard deduction they would get anyway. Also, an awful lot of folks I talk to have somehow come think that the tax deduction works like a tax credit too. WRONG!

    We do own though. We bought the cheapest home we would be comfortable living in (cost less than than our annual income) and mortgaged 80% at 3.25%. We could have paid cash, but thought the money would be better put to work in VTI. Since we bought our home 2 years ago, this has been a great decision (9K in interest paid while $41,000 in VTI appreciation).

    I still put in a lot of time swinging hammers and setting tile while you’re probably out hiking some beautiful part of the world. Sometimes when I’m working outside, I look West at the snow capped Rockies. Then I get back to mowing the lawn. I’ll see them next week or next month when all of the work is done. Sigh.

    Want to buy a house? 🙂

    • Go Curry Cracker says:

      Maybe your neighbors know Carl? If not we could introduce them

      Your offer is tempting. I’m going to have to sleep on it 😉

      • Mr. 1500 says:

        They very well could know Carl. I thought I spotted a prison tattoo on my neighbor.

        The thing I have found is that you really can’t escape bad people. On my current street, the average house price is probably $300,000 with a couple that would sell for $500,000. That doesn’t change the fact that a slumlord has owned the house across the street for a decade and is only interested in cash flow. Those trashy people may get their vehicles repo’d, but they’re apparently smart enough to come up with rent.

        Before we came to our senses, we lived in fancy Geneva Illinois in a very pricey ‘hood. Shortly after moving there, our next door neighbors bought a dog. The problem is that they had no interest in the animal at all, so they stuck it in the yard all day where it would bark non-stop for attention. They would go away on vacation for the weekend and just lock the thing in the backyard. It was then I learned that dogs don’t lose their voices like people do.

        So, there are trashy people everywhere.

        • Mr. 1500 says:

          OK, I can’t make this shit up. Here is what happened today with our neighbors:

          At about 1pm, I hear a bunch of commotion out the window. I look out and the trashy neighbors are getting this massive TV delivered to them from one of those scammy rent-to-own places. Always a good idea.

          At about 4, I hear cars revving their engines. Two of them then drag raced down our quiet, 25mph residential street.

          What. The. F***.

        • NN says:

          So ttue! I went through the same thing after three houses, I’ve realized no matter how much I spend or how ritzy the hood, there will always be at least one neighbor that doesn’t get it.

  7. Mr. SSC says:

    That’s a great analysis on buying versus renting. It definitely makes me rethink buying our ER house outright, instead of keeping most of that money invested and growing. Especially after reading Mr. 1500’s comments with the difference in interest paid and VTI appreciation, and hopefully his neighbor’s don’t have family in Virginia. It’s a lot to think about, but we’ve still got 3 years before we head down that road, so it’s something else to build into the spreadsheet and analyze. 🙂

    In our ER place, we want some land for gardening, fruit trees, good views, and a bit of a rural feel. I haven’t looked at rental options, but I guess I know what I’ll be doing on Zillow this evening.

    • Go Curry Cracker says:

      A few years ago I saw a rental listing for a big piece of land North of Portland, OR that was part of an old orchard with a farm house. The options are definitely out there

  8. David G says:

    We are renting right now. All I think about is the 1175 disappearing into the void every month. Can’t invest it, can’t pay off debt, can’t save it. Can’t write it off. It’s gone and it’s not coming back to me.

    I read all of your article, trying to find something I could use to justify buying our retirement home. It doesn’t look like there’s any good financial reason to buy a house. There might be other reasons, but not sound financial reasons.

    The one question I have is this: if you are renting into senior citizen age and beyond, don’t you want the stability that you don’t get if you rent? Who wants to be carefully walking up your front porch with your cane and find a letter from your landlord saying they are selling the property, get ready to move?

    I hate moving right now, I can’t imagine how I’d hate to move when I’m 75. I’ve always felt like an itinerant vagabond while renting, which is OK, but I don’t want to feel like that when I’m older and a bit less vigorous.

    I suppose this would be a non-financial reason to own, then. I guess your article still applies to owning in the later seasons of life, right? I can’t think of a reason that it would not, but I guess my programming takes a while to erase.

    • Go Curry Cracker says:

      The only justification you need to buy your retirement home is that you want to. I outlined the reasons I think renting provides a higher quality of life, but that isn’t necessarily the right answer. It is just our answer

      Security is a bit of an illusion. Have you seen the movie Up?

      Mr. Fredricksen was kicked out of the home he owned free and clear, which led to great adventure and self discovery

      • David G says:

        Security is definitely an illusion. I suppose, though, that the only way you can be sure you don’t have to move when you are 75 is to own.

        Problem is, now I know that it isn’t financially the smartest move! It seemed so obvious before!

        • Go Curry Cracker says:

          Or to sign a multi-year lease with an option to renew. Include a right of first refusal with option to buy

  9. Great analysis, and it definitely doesn’t make sense to buy in many areas where buying is way more expensive than renting.

    I’m fortunate to live in a place where owning is way cheaper than renting, even after factoring in a theoretical rate of return on invested capital. ($140k ish house vs. $1,200-1,300/mo for rent)

    All of the hassles of homeownership are still present for us – mowing the yard, occasional DIY maintenance tasks and very infrequent long term upgrades. We don’t really spend that much time on it though. Landscaping is also easily outsourced for a few hundred dollars per year in our area.

    The upside is we get to enjoy a big yard for the kids and our own festivities. And we don’t have neighbors right next to us making noise. We’ve been very lucky with our current neighbors for the last 10 years and at least one plans to die in their place (hopefully a decade or two from now). She’s feeding our cat for us now while we’re in Mexico for 2 months.

    Overall, it’s been a pretty decent choice in hindsight, though I’ve never run the numbers. We have always paid less on average than rent including maintenance, taxes, and insurance and long term renovations. And now we have a house that only costs around $400/month for long term operations (taxes, insurance, outsourcing lawncare, long term and short term maintenance) versus $1,200-1,300 for renting. Yeah, I have to manage it myself but I definitely don’t spend $800/mo worth of time doing so.

    I would love to live in an apartment one day though. 🙂 Perhaps when the kids go off on their own we’ll downsize to a 1-2 BR apartment somewhere swanky in town or elsewhere in the world. It may not save a lot of money but as you point out, needs and tastes change over time.

    • Go Curry Cracker says:

      A price to rent ratio of ~10 is definitely low.

      It isn’t so much the $800/mo of time, it is the alternative return your $140k could be making elsewhere. Which you know, I’m just mentioning it for clarity 🙂

      • Right – I’m basically accepting a 6.9% tax free rate of return on my home ($800×12/140000) plus 0-1% real growth on the $140,000 if I’m lucky enough to have average long term growth on my real estate (citing Shiller’s 0.7% real long term returns on real estate).

        I’m taking those odds, since it seems more of a “guaranteed” return each year compared to investing in the stock market.

        I’m with you on most of the other reasons to rent, and I understand it’s really location specific. I’m a huge cheerleader for renting in high COL areas (NY, SF) where it makes almost no sense to own, and actually costs you tons of money (like the Mr and Mrs NYC example you cite).

      • Shane says:

        I guess the one thing I am having a hard time understanding is $140k could be making money. Instead of paying rent he was paying a mortgage. If he only had $1200 a month to spend on a place to live and used that to buy this house or pay rent where would he get the money to invest? A mortgage is a fixed price where rents in my past experience rise. Not trying to pick a fight because I definitely believe in simplicity but the amount you can spend on a place to live will either go to a property you own or to someone who owns the property where you will reside.

        Glad to see your back to a decently posting schedule!

        • I’m with you here. I rented for 5 years in the Minneapois area – after multiple consecutive years of rent increases between 9-21% per year, it was obvious that rent has the (high) potential to increase much faster than inflation – obviously depends on where a person chooses to live. Fixing housing expenses was a priority, and buying a newer house reduces the risk of having significant maintenance costs. With leverage, I need a 1% home value appreciation to offset the growth my 10% down payment would have received via investment.

          If a person can secure monthly rent below a mo they mortgage payment and be assured that rent won’t dramtpatically increase, then I can see renting being a better financial decision than buying. However, in the 4 cities in 3 states I’ve lived during the last 15 years, I haven’t seen that scenario present itself.

          • Go Curry Cracker says:

            It is hard for me to envision a scenario where buying would come out ahead when living in 4 cities in 3 states over 15 years. Leverage works both ways, which is why so many people were able to buy foreclosures and short sales over the past 5 years

  10. I currently live in Manhattan and rent as it’s almost a no-brainer (plus helps that I couldn’t afford a 20% down payment for quite some time at the prices NYC real estate is at right now). I’m glad Mr. and Mrs. NYC were able to pull of a sale/lease-back which seems like it will propel them into financial independence. Great analysis and I’ll be sure to share with those who are always itching to buy a home ASAP.

    • Go Curry Cracker says:

      Manhattan is a very strange place for Real Estate. I think the Wall St guys use the same fuzzy math when buying property that they did when pricing credit default swaps in 2007/8 🙂

  11. Ravi Raman says:

    Wow, you can rent $1.4Million USD apartment for only 1,400???

    That’s a crazy good deal.

    The rent vs buy decision really depends on where you live and the quality/type of life you want. Where I lived (Seattle) and now currently live (Golden, CO) rents are out of control – as are home prices – and any affordable rentals are in undesirable places or don’t have things (like a yard) that I want.

    By purchasing you can ensure that you have a roof over your head in a place you like. You can also easily AirBNB a room or the entire house when you leave town. You can subside a lot of your mortgage this way. Also, create your own small biz and write off your home office.

    If you rent forever, you are really rolling the dice on rental prices (which go up far faster than inflation in most urban/semi-urban areas). This could be fine if you don’t mind moving around to cheaper locales every few years but I don’t think it’s practical.

    I prefer a strategy of buying the least expensive house you can find in a place you like. Save up so you can buy it with a lot of money down (or 15 year fixed mortgage).

    Explore neighborhoods that are adjacent to your ideal ones to find lower prices.

    I’ll also say that having a roof over my head isn’t about financially coming out ahead…it is about having this thing called a “HOME” that favorably impacts my quality of life.

    Right now I am renting, having traveled the world for a few years (I own a house in another city that is generating income) but plan to buy in my current city in the next year or so.


    • Go Curry Cracker says:

      Hi Ravi,

      Property values in Taipei are crazy. There is a lot of cultural pressure to buy real estate. We see our friends getting insane pressure from their families to buy, even when it means spending 60-70-80% of their after-tax income on mortgages.

      Long term renting isn’t rolling the dice on rental prices. It is betting that businesses will grow their profits faster than inflation or rents, which statistics and history make as close to a guarantee as one can find

      We also enjoy having a sense of home. We get that from each other and feel perfectly at home in our current rental. Having our name on the title doesn’t seem to enhance the experience

      All the best


      • Ravi Raman says:

        Don’t understand your connection between businesses growing profits and rents being a better deal.

        Particularly for those of us with a reasonable amount of investments, owning a home (when bought at the right price) can be a great thing for diversification.

        At any rate, I enjoy your posts as they give me something to think about.

        • Go Curry Cracker says:

          No worries, Ravi, there is no right answer. Your next house purchase could be a financial boom or financial disaster, but if you are happy with the home and living in it, then you’ve probably made the right decision for quality of life reasons

          The bet is that long term stock market growth (business profits) will grow faster than land (rents)

          For diversification, I would rather own REITs. A house is basically a depreciating asset (don’t do maintenance and its value goes to zero.) It is tied to one market, one location, one neighborhood, so not a great source of diversification. It would take thousands of fires to harm a REIT portfolio but only one to wipe out a house

  12. brooklynguy says:

    “People in SF and NYC get their mortgages subsidized by the rest of the country”

    Very true. Thank you, rest of the country!

    “Find a great friend and purchase two identical condos in the same building, or buy land and build two identical homes adjacent to each other. Then rent from each other.”

    Clever idea. Or, like me, you can take a more common approach that gets you halfway there — buy a duplex, live in one half and rent out the other.

    • Go Curry Cracker says:

      A duplex is a great way to go. A 4-plex too, as you can still get financing as if it is a SFH

      We almost bought a 6 unit in Seattle to use as a base. The penthouse was a 2000 sq ft unit with private rooftop terrace with views of Lake Union, full chef’s kitchen, etc… Fortunately we didn’t do it as I would have had to cash out a lot of stock to make it happen

      • brooklynguy says:

        My financing was a bit more expensive than it would’ve been for a SFH, but in NY a two family house is the cutoff for avoiding additional headaches (having 3 units takes you into a different regulatory regime). Having a single rental unit lets me dabble as a landlord and hedge my bets a bit on the benefits and drawbacks of home ownership, but I don’t think I’d ever want to be a bona fide rental real estate baron with 5 rental units.

  13. Great article! I was enlightened about 10 years ago. It was perfect timing as well. My overpriced $800K house I bought in California was AND still is upside down. I didn’t fight for this bad debt during my divorce so I walked away a winner! Even my ex now admits that! Today, my hubby and I think about doing land and small house he will build and renting out while we travel. Still looking at the numbers on this. It would be a spec house, mostly off the grid living, recyclable etc.. may lead to others wanting to purchase. Think, Tiny House movement. But we are renting now and love it! Our kids are older and we are only 44yrs. old. We travel a lot with our freedom of maintenance free living and the house was brand new when I moved in. There are a lot of new homes being bought by investors and leasing/renting going on in my neck of the woods. My hubby and I always discuss the fact that what you own can own you! Love your posts!

    • Go Curry Cracker says:

      I have a soft spot for Tiny Houses and off-grid living. Not so much for underwater $800k houses. It sounds like you are on the right track!

  14. I always like a good rent vs own, invest vs mortgage debate. I can’t seem to look at these the same way as everyone with our situation. We have a home we bought and rent the other 2 units in the building, it essentially frees up money to either paydown the mortgage(s) or invest. Mrs. Even Steven wants to pay off our other rental with this extra money that comes in and I’m perfectly OK with this.

    Once that other rental gets paid off, I am considering making regular payments only after that and invest the remaining for some of the reasons you mentioned above. I want to run the numbers again and see where we are at when that time comes around, we may even end up selling, tough decisions ahead I suppose.

  15. Without renters, there are no landlords. It is a symbiotic relationship that’s healthy!

    My biggest regret was not buying a 2/2 condo off Madison Park in Manhattan for $799,000 back in 2001. It had a view of the chrysler building and two decks. At 1,300 sqft, I think it’s worth around $2 million now 🙁

    The rental yield in Taipei is atrociously low. I’d definitely rent all day long there as well!

    • Go Curry Cracker says:

      That would have been a sweet purchase

      Totally agree about the symbiotic relationship. I’ll happily be the Yin to your Yang

  16. Diane C says:

    In my adult life, I have been renter, a property owner, and landlord. I respect your argument, but there are two sides to every story. I appreciate being able to do whatever I want to my house and the fact that there is no landlord who can decide to sell out from under me. A fixed rate mortgage is predictable and rents are not.
    I also get a stronger sense of belonging in my community when I own vs. rent. Less quantifiable, but certainly valuable in my day-to-day living.

    I would not be FIRE now had I not owned Real Estate. I made the money on my primary homes, not rental property. I am also in the process of flipping a house and since it’s in escrow to sell, I can safely estimate that three months work will net roughly one year’s salary. We did most of the work ourselves with skills we obtained by maintaining our homes, not by calling the landlord.

    The adage in equities is that past performance does not guarantee future results and it applies to the rent vs. buy argument as well.

    While I agree that your position has its merits, the impact of forced savings wasn’t really discussed. Sadly, we know from mountains of evidence that people tend to be far less disciplined about saving money than making their mortgage payments. The rent vs. buy argument only holds up if people actually save the money, invest it properly and do not spend it. All three must happen for renters to come out ahead. Not everyone can be as badass as GCC. Possible, yes, as you and Winnie so have eloquently proven, but sadly, you are far more the exception than the rule.

    However, if your well-reasoned argument keeps anyone from buying a house they cannot afford, and potentially walking away from simply because it has temporarily gone down in value, then it is of significant and lasting value.

  17. I certainly don’t disagree with your analysis. All of it is true. I also think that like everything else – it is a matter of personal preference and priorities.

    For instance, I have dogs, I will always have dogs. It is much harder to find a decent place to rent, at a decent price, if you have dogs. I also enjoy gardening and learning new skills by completing home improvement projects. Both are much easier to do if you actually own the property than if you have to get buy-in from a landlord.

    It also helps that I live in suburban Buffalo, NY, so the price of housing stock is much more reasonable than in many other areas.

    There will come a time when I am sick of the aspects of home ownership that I DO NOT like (lawn mowing = barf time) and make a different choice, but for now it works best for me.

    • Go Curry Cracker says:

      I’ve heard this idea before, that to have dogs it is better to own. But the majority of our friends that have dogs are also renters, so it seems dog owners are able to choose

      On the gardening side, in our current rental we just grow herbs on our balcony. There are community gardens here as well, where people grow anything and everything. We used to have a plot in a community garden in Seattle where we grew tomatoes, kale, lettuce, peas, beans, etc…

      I have a similar distaste for lawn mowing

  18. I think there are too many scenarios to definitively declare a clear winner, though I do believe you can run numbers for each individual situation and come up with the right choice.

    In my area, I have never seen rent lower than mortgage costs like your scenario, nor is the 20% down payment requirement an industry standard anymore(though it should be). I am a landlord and rent out a house for $900/mo and the mortgage is $600/mo. Similarly, I own a home with a $900 monthly mortgage but the house down the street of similar size rents for $1,400 per month. Also, renting a single family house in our area means you take care of everything like an owner: yard maintenance, small repairs, utilities, etc. Only the larger potential costs of a/c, roof issues, water heater, etc. are the responsibility of the landlord.

    I don’t know how that would look in your model, but with lower initial outlay requirements than the 20% and substantially lower monthly costs from day one, I feel like we are in a better position to invest and save for retirement. It’s completely dependent on the situation though. A different location or economic period could produce different outcomes.

    Flexibility is undisputed. The renter wins every time.

    • Go Curry Cracker says:

      Do you happen to be in Tuscon? It looks like price to rent ratios are really low, so financially buying would be more appealing at current interest rates

      I still choose renting for the flexibility, and for the free roof repairs

  19. Robert says:

    I don’t even need to see the numbers to believe that renting is financially superior.

    Think about all the financial illiteracy, and the huge emotions people place on their house and homeownership, and the massive marketing efforts from multiple industries to encourage house-buying. All these things point toward irrationally high demand to own.

    As just one example of the illogical nonsense out there, one of my friends recently commented on how her older sibling was choosing to rent instead of buy — “but shouldn’t they be looking at buying at their age?” Huh??

    With all those factors in play, it’s hard to imagine a scenario where renting isn’t the superior choice (on average, of course).

  20. Moon Kruska says:

    “After 30 years, the home owner has no mortgage. After 30 years, the Renter has a portfolio worth more than Twice as much as the House.”

    A huge assumption that was being made is that the renter invests every single penny he saves from the difference between mortgage and rent payment. Reality is that a lot of people don’t invest the difference, instead they spent it on eating out, traveling, etc. After 30 years, the home owner has no mortgage. After 30 years, the Renter is still renting and has nothing else to show for it.

    I am not saying everyone is like that, of course there are some people are very discipline. But I also know many others that the only reason that they rent (they may tell you otherwise with all the reasons you listed above) is that they can’t afford to buy. If they are not disciplined enough to save up for the downpayment for a house in the first place, I can tell you they are not going to be the ones who will save the difference to invest and have a portfolio worth twice as much as the house.

    • Go Curry Cracker says:

      Even if the renter fritters away any monthly savings, they still come out ahead solely from investing the down payment

      If a person can’t come up with the down payment, then we aren’t having a rent vs buy discussion, we are having a basic personal finance discussion.

  21. Suzanne in Seattle says:

    I find being a renter to be immensely frustrating. I’ve had to move twice in the past year – once because the homeowner wanted to move back into her house, and once because they wanted to sell it (something that is happening to a lot of people here). The rental prices just keep going up. I had to take a MUCH smaller house and am now trying to figure out what to get rid of, because I have so little storage space.

    Moving is expensive. Getting a property immaculate so that you get your deposit back (or else forfeiting your deposit) time after time is expensive. Coming up with first and last and security deposit every time your house is being sold from under you is expensive.

    I also don’t have the freedom to get whatever pets I’d like. They approved the cats we have, but they are against other animals. So no dog for this family. Not to mention how hard it is to find landlords that are accepting of any pets, that won’t totally gauge you with extra non-refundable deposits or additional monthly rent.

    Others have mentioned things like altering walls, yard, etc. This yard is full of holes. Will the landlord fix it? No. Do I invest in a property that isn’t really mine? I’m not thrilled about it. There are other things too. If something isn’t considered mandatory, they won’t bother fixing it.

    The market has gone up considerably since we moved here (Seattle area) five years ago. If we had bought a little house when we arrived, we’d be in better shape than we are now.

    And as others have mentioned, some places are different. Some markets just don’t have many rentals. Smaller towns in the area where I’m originally from have very few rentals.

    I appreciate the values in renting, particularly if you might move, or if you just don’t want to deal with home ownership chores. But my eventual goal will likely be to buy.

    • Go Curry Cracker says:

      We were in Seattle as well. If we were to go back, we’ll rent

      Sorry to hear the rental market hasn’t been treating you well. After owning two houses, I found that the idea of owning is much better than actually doing it

  22. Lynne says:

    I rented for many years in foreign countries (didn’t want a mortgage in a foreign currency different from the one I earned my salary in), and bought for the first time about 10 years ago when I moved back to U.S. and it became clear I’d stay a while.

    Although NYC is a crazy, overpriced market, the mortgage + monthly co-op maintenance fee were less expensive than the rent I would have paid for a comparable place, and still are.

    And yes, I ultimately might have made more if I had invested all the money I saved for my 20% deposit, but I think it’s unrealistic to assume most people really do that. If that money had been available for me to spend, rather than tied up in a mortgage, I would probably have bought more stuff, rather than investing it all.

    Remember the scene in Sex in the City where Carrie realizes she can’t buy an apartment because all her money is invested in her (gorgeous) shoe collection? If I hadn’t bought my apartment, I’d likely have a lot more shoes.

    • Go Curry Cracker says:

      I’ve never watched Sex in the City on purpose. I don’t think I am the target audience

      Forced savings is often cited as an advantage of having a mortgage. It sounds a bit like forced starvation as a means of weight loss, when lifestyle design is a healthier long term solution in both cases

  23. JT says:

    Once I started into the realm of of FI I quickly learned that Renting is cheaper than Owning (in most cases). Luckily for me I didn’t know that 4 years ago when I bought my house because it’s doubled in value since then (with basically no effort on our part). It’s always nice to be on the positive side of a statistical outlier!

    The one thing that holds me back on switching over to renting however is that fact that I can’t stand it when people tell me what to do, especially in my own home! Until I can wrap my mind around that one I think I’m doomed to a life of ownership :-/

    • Go Curry Cracker says:

      Your investments would have doubled over the last 4 years as well, although with leverage you may have come out ahead by owning (not counting the cost of selling.)

      • JT says:

        Even after the cost of selling we would be walking away with around 100k. Our “down payment” (including all closing costs and upfront repairs) was less than 10k. Hard return to beat!

        I’m really appreciating your break down on renting vs owning though. With this much equity rotting away in my house I’m SERIOUSLY tempted to sell my house and move down the street to a rental.

  24. I agree that renting is not always that bad, but I have had success with real estate investing. I never assume appreciation or that the tax advantages will stick around. I base it on cash flow alone. I actually find it to be a more meaningful investment than the stock market. For example, I provide a real value to people: A clean, safe place for people to live, which everyone needs. I ALWAYS put people before profit. I would rather make less money and know that I am good to my tenants. I buy small condos in walkable areas and only places that I would actually live in myself. Condos are great to live in and then rent out when you want to move or travel. Plus, high density living is much more energy efficient.

    I do also put my money into an IRA, however, I feel the stock market is just kind of made out of ‘thin air’. I will admit I don’t know nearly enough about it, but I feel that I am lining the pockets of multi-millionaire CEOs who don’t give a darn about the employees or the environment, because they have to put profit of shareholders first. I still do it though to stay diversified, however, if I were to start investing in individual stocks, I would only want to be involved in responsible companies.

  25. Tracy says:

    I decided to buy because in the Midwest, renting would be $1000 per month for a small apartment. Instead I can have a house for $700. Quality of life and cheaper monthly numbers is enough for me.

  26. I had always thought home ownership was the way to go but I know that neither Mr. Crackin’ nor I came out ahead financially in our first home purchases and I lived in my first house for 12 years! We are seriously considering becoming renters in the next 10 years (a long time, I know). At that point, we will have $230K + (the house value now) sitting in our house and still be paying property taxes, insurance, maintenance and repairs! It just doesn’t make sense! $230K could be invested and pay a lot of rent for a very long time!

    I do see the value of owning a property for someone like my parents. They have a small house which is their only asset and their income is $20K per year. There is no way they would have ever accumulated the funds to cover renting if they didn’t own their home. They get a homestead exemption for being over 65 so property taxes are lower. They are not able to upgrade or remodel but when repairs are needed we provide the free labor!

  27. Jenny says:

    I live in Arizona and have personally experienced the collapse of the housing system. When I bought my second home, I was reminded repeatedly that housing had only “gone up” since WWII. I was fearful that if I didn’t buy, I’d never be able to get into a better home (I owned a townhouse in a bad part of town). The second I bought my home the housing market collapsed. To make things worse, my NEW home was one of the “cluster homes” that are wildly popular in Arizona. They have small lots and are built very quickly. I almost immediately started having problems with the home. Some things were under warranty, others were not. I ended up losing the house to foreclosure when my teacher’s salary was frozen also the same year I bought, but my insurance and pension deductions went up, resulting in a much smaller paycheck. My $212K home was now worth $98K and at one point about every third house was in foreclosure. The neighborhood did eventually partially recover and housing prices are about what they were in 2008. Cluster houses are popping up everywhere, and people are still buying. I’m not falling for this trap ever again. I still have some issues with renting in my area. I now pay about $1350 for a house which is very difficult on a teacher/ professor’s salary. I still don’t have a perfect solution, but I do know buying a very poorly made, overpriced home isn’t the answer either. When my child is older, I will .likely just rent an apartment or condo.

    • Jenny says:

      I also am curious to know what is going to happen when all of these new homes that have a ton of issues age. I imagine houses between 5-10 years old beginning to fall apart, with homeowners still owing a lot of money. My guess is we will see a second wave of foreclosures.

  28. middle_class says:

    I think the dream of home ownership is a relic of an era when most people worked at the same company all their lives and houses could be purchased on one middle class income. Nowadays neither job security nor raises are a given. It’s very easy to get yourself into a situation where you can’t afford your mortgage or have to sell in a bad market.

    Having said that, I do worry a little about where we’ll be living when we’re old. However, I found that many landlords are very happy to have a good, long-term renter (i.e. a lifer).

  29. Andrew says:

    I’d like to see a “Bachelor(ette) for Life” version of this that compares dating to marrying. There’s probably a lot of overlap in the arguments.

  30. KumaSan says:

    In an ideal world, I think you might be right Jeremy. The mathematics of the situation you describe in the situation seem plausible. Unfortunately my own experience with renting is not so good.
    Ever have a landlord who decides to jack-up the rent well beyond the inflation-rate at lease renewall time? This can often cause a ‘move out’ situation. This has happened to me multiple times. Landlords occasionally sell the property and you have to move-out at lease renewal time.
    In my experience, a ‘smart landlord’ places his regular rate increase at above inflation, knowing that many people will not move out given a reasonable increase and thus over time increasing his profitability. Sure, sometimes he has to deal with a rental ‘turn’, but that’s just part of the business. Typically you can even find ‘teaser’ rates that disappear at the first renewal. This same business model you can see in the insurance industry.
    Moving isn’t exactly free either. Typically you either hire someone ($$), or go rent a truck ($$) and move stuff yourself….it’s hard work. Definitely a young man’s game. When I’m 60, I don’t really want to be moving around furniture every 6 months or year.
    Now in a case where you rent a furnished apartment…I could see how that could be better. But how much of a premium do you pay for a furnished place?

    • Go Curry Cracker says:

      I’ve been kicked out of a rental when the corporate owner of an apartment building decided to convert it to condos. I rented a truck for $100 and moved. I’ve also had rent increases, it’s a normal part of renting

      For the case when I’m 60, my housing needs at that time are probably substantially different than they are today. I would want fewer stairs and fewer bedrooms than during the time of raising a family. At that time, I can sign a long term lease if we choose to stay in one location for a longer period

  31. donebyforty says:

    Here, here. I honestly wish we were still renters. I’ve pitched the idea to the missus with a lot of the same points you made…nothing doing.

    Got to pick your battles, and you can’t win ’em all, anyway.

  32. Jared says:

    A good analysis of the rent/buy decision and obviously in Taipei the odds are strongly on the renter’s side. I certainly like the idea of maintaining flexibility in living arrangements and to adjust your needs as you cycle through life.
    However, to say that your assumptions include a highly favorable purchase option, I would strongly disagree. First and foremost, if your payments for a mortgage + tax + insurance + maintenance – deductions are more than an identical home rental, logical folks (a majority of this sites readers), would choose the obvious better option of renting in that case. Starting off the example of paying more per month for owning is skewing the analysis in favor of renting. I get that some people make terrible landlords (NYC example), but most landlords know how to run a business and part of your rent has to be going to them for their profit if they are to make it a business.
    Furthermore, the whole reason behind purchasing a home it to make the final payment, thereby eliminating not only the interest, but future principal payments (living rent free). Choosing a 30 year mortgage guarantees a higher interest rate and longer payment terms than a 5, 10 or 15 year loan and a relatively short period of time that the actually homeowner enjoys the benefit of living rent-free. Even if homeowners don’t take 100% of the advantage of the write-off for mortgage interest, many do and a lot pay enough to make it significantly more affordable (I know my total deductions top $22,000). Add to that the property tax deduction you’re gaining some of the benefit back. Additionally, I didn’t see any renter’s insurance in your calculation to cover your belongings, much as homeowner’s insurance covers the property and it’s contents.
    I’d be interested to see how the example goes if the initial payments are more realistic for rent vs. buy, the mortgage term is shortened, tax deductions are considered and rental insurance is factored in. Then we’d have a ball-game.
    My biggest reason to own vs. rent to is to reduce the total expenses I need when I am FI and also to not lean completely on my investments as my only option should a black swan event reduce my investments. Through returns in real estate are generally lower than investments without leverage, it does diversify the risk going forward. Admittedly, that risk is not as acute if you have a really substantial nest egg, vs. just barely over the 4% SWR threshold.
    I know there’s no one “right” answer for everyone and I definitely appreciate analyses like this one to point out how much emotional marketing is going on in selling the American Dream of home ownership. Thanks for sharing the article!

    • Go Curry Cracker says:

      Hi Jared

      Maybe we can find some agreement in our disagreement

      80% of US citizens live in metropolitan areas.

      High population density tends to drive up price-to-rent ratios, more so in times of easy credit and low interest rates. I used a price-to-rent ratio of 19 in the analysis, whereas the majority of Urban markets are substantially higher (SF = 45.)

      A price to rent ratio above 15 or so is where buying costs more than owning, but depends partially on property taxes, cost of insurance, etc… I chose a higher number to be generous. So not only is it realistic for people to choose to purchase when it costs more than renting, it is the norm

      Rational people often do things that are not rational. That is an oft cited reason we have bubbles

      A 15 year mortgage does save interest, but the larger payments in the early years actually make the case stronger for renting. With the same cash flow, the renter is able to contribute more to savings and thus have more money earning a higher rate of return

      Renters insurance is included in this analysis. I assumed that homeowner’s insurance is more expensive, and only included the delta. The NY Times Rent/Buy calculator defaults show homeowner’s insurance costs 10x what a renter pays, so again I was being generous

      For diversity, I don’t see owning a single house as a great source of diversification. See the examples linked above for the 3 cities in Michigan as an example. A REIT can provide Real Estate ownership with greater diversification advantages

      I addressed the idea of living rent free after paying off the mortgage in the post. There really is no rent free period, there is a cash flow. Taxes and maintenance will continue to be real costs.

      Hope this clarifies some of the disconnect



      • Jared says:

        Thanks for the clarification. In reading my previous comments, I almost look like a troll, which I had not intended. I really appreciate the article and it was good for me to go back and reevaluate at my analysis-which I think is good for everyone to do. In my own case, my price to rent ratio was under 11, so I understand my situation is outside of the norm. In my area, my homeowners policy runs about 2.5 times was a similar rental policy. In my zip code there is not a single house for rent on Craigslist, Zillow or (I’m in a city about 150,000). Every time I moved cities, my new employer covered the realtor fees and closing costs, which I realize is not always available.
        My other question with your analysis, was did you factor in contributions of the home owner after the mortgage was eliminated? I didn’t see a line in your graph where the owner uses his mortgage payment to invest after he owns the home free and clear starting in year 16. In my case of paying the home off in 7 or 8 years, I would catch up in about 16-18 years from start.
        My point on the 15 year mortgage was that a year’s worth of payments works out to about 8.3% of the initial mortgage amount (assuming a 15 year loan at 3% APR), so if you pay it off earlier than that, you’re essentially getting a return of 8% as opposed to a 4% SWR for investments.
        The point about diversification was just that home prices are not directly correlated to stock prices, with 2008-09 being a case where they both tanked together. You would have the option to use a home equity loan in the event that the market dropped and you didn’t want to sell stocks at steeply discounted prices, though I admit home prices do not keep pace with stock prices in the long-term. For me, my home is essentially my “bond portfolio”, allowing me to invest everything else in stocks and sleep easier at night.
        I can’t argue with the care-free lifestyle benefits of renting, though in my experience, it hasn’t been too much of a hassle. Again thanks for the great article and keep up the great work.

        • Go Curry Cracker says:

          No worries Jared, it is a good discussion and your questions made me think through things a different way

          With a price-to-rent ratio of 11, cash flow wise buying might be the right answer financially, assuming you stay in one place for awhile. It is certainly better than a ratio of 30+

          The graph above includes the home owner investing the entire mortgage payment once the home is paid off. In the same way that starting to save in your 20s is much better than saving in your 40s, having more $ invested in the stock market early in a mortgage results in a larger ending value than dumping the whole mortgage payment in 15 to 30 years later

          Thanks for the discussion

  33. Greg says:

    Manhattan and Manhattan adjacent pricing are indeed in their own little world and it is quite similar to San Francisco where antiquated housing laws isn’t allowing development of housing to meet the demand.

  34. Would it be possible to turn your analysis into an interactive simulator (a la FIREcalc) so people can put in their own numbers? There are so many variables, it is hard to look at one example and come to the conclusion that every situation favors renters, or is so punitive to buyers that the ‘intangible benefits’ outweigh the financial difference. I would certainly argue that, in the short run, renting and investing the difference beats buying, but then again most people rent to save up to buy, and thus must invest more conservatively. In a high inflation world or one where the stock market stagnates, home owners with fixed mortgages would win. I would also argue that buyers do better in the final years of paying off the mortgage and beyond, especially if renters are stuck with high fixed costs and an uncooperative stock market.

    In the real world, the real problem is that most people do not stay in the cheap rental that they started in. Lifestyle inflation and all that. But people that buy, if they cannot sell at a profit or increased income, will typically ride out the fixed mortgage and that may lead to a better outcome.

    Just saying that renting is not always the right answer, although the simplified example you presented might lead people to believe that it is. Whenever I see smooth curves depicting 30 years of market returns, I feel more like I’m back in college than in the real world 🙂

    I’d love to be able to run simulations though, and understand the sensitivity of higher inflation, lower market returns, etc. Oh, if only I were retired (and computer savvy…).

    • Go Curry Cracker says:

      The NY Times rent vs buy calc is a pretty good simulation already. Or the math is easy enough, I just built a simple example to illustrate the concept.

      I could have left it at inflation is x%, long term equity growth is y%, y>x therefore renting is better but the illustration makes it more clear. People will still have profit or loss in the short term

      Rather than make it too nuanced, I just made all of the assumption extremely favorable for the purchase case (good luck getting 0 closing costs, 0 sales costs, property taxes that only rise with inflation, etc…)

      • Steve@EscapeVelocity2020 says:

        Thanks. Even in these favorable conditions for renters, my current market situation has put me slightly ahead by having bought in 2009 (considering a similar school district apartment). I think, although the 2.875% mortgage will be paid off in 2022 and I hope for the best in equity returns, that I will still be further ahead by being a mortgage holder… but it takes pretty sophisticated tools to know and relies on assumptions. If the market tanks, the renter is screwed.

        Anyways, at the end of the day, after having lived overseas for 5 of the last 8 years, there is still something about having a place to call home, where the kids can grown up and form lifelong friendships and memories…

        • Go Curry Cracker says:

          As a renter, I would love for the market to tank.

          • Steve@EscapeVelocity2020 says:

            Sure, like right now, in your case, but in 5-10 years after being flat… that might suck for some more than others 🙂 Great article by the way, thanks for stirring up so many great comments

  35. Dividend Mantra says:


    Couldn’t agree more. Another (VERY happy) lifelong renter here.

    Stocks vastly outpace residential housing in terms of total returns over the last 100 or so years, so I’d much rather own the former and rent the latter.

    The finances have tilted in the favor of renting every single time I’ve run the numbers when moving. But I think, as alluded to in a number of comments, it’s largely a qualitative/emotional decision. I personally couldn’t hate anything more than home maintenance/repairs, but to each their own. Some couldn’t imagine life without owning their own home. Of course, nobody really “owns” anything. You’re just living there as long as you’re alive and paying your taxes.

    I’ll be enjoying my carefree lifestyle right alongside you guys while my landlord works for me. 🙂

    Best regards!

    • Go Curry Cracker says:

      I’m in the same boat. Every time I’ve looking at the numbers, renting has always been the winner

      Even if it wasn’t, I find the renter lifestyle to be far superior to owning that I would happily pay a renter premium. I’ve never had to though, instead getting great return from investing my renter’s savings

      Not included in the above post is all of the income you are able to generate by writing instead of mowing laws, trimming trees, painting, etc…

      Cheers to carefree living 🙂

  36. Julia says:

    There are clearly cases where it is advantageous to buy even factoring in maintenance, investment of down payment etc. Hence the need for a buy-vs-rent calculator in the first place.

    In a place like the US which is preferable really depends on location and effective tax rate etc. etc. Zillow has a great series of posts looking at the data on its blog, e.g.:

    Of course there are places where due to societal factors such as the pressure to own so the ratio is always skewed to one side like Taiwan or India for example. There renting seems to always be a no-brainer….

  37. Jill says:

    A major point you miss: you rent, you get smaller spaces, no garage, no privacy or yard.

    You buy, you get twice or three times the space; 1000 sq ft or 2500 sq ft? It’s really mostly about this. Being young you don’t understand. When you have more kids and older ones, you will understand.

    Yes, you can still have ahole neighbors in houses, and I have them too.

    You also assume, you can’t do both. Invest in the markets AND buy a home. Why is that?

    • Go Curry Cracker says:

      Rent a 2500 sq ft house with a garage

      You can do both. If u rent and invest more, you will have more than if you buy and invest more

  38. Mel says:

    Another annoying point of home ownership is even if you don’t need to you can’t help looking around for things to fix up and improve. We have nice laminate. Let’s get hardwood. We have a decent kitchen. Let’s redo it to get nicer cabinets. It goes on and on. We DON’T need any of this but because we sit there starring at it and it’s ours we create this stupid list. I’ve had some crappy kitchens when renting and NEVER cared. It’s not mine. I don’t care. Let’s go out to eat. LOL.
    We currently own and have rented our home out in the past putting aside about $500 above our mortgage payment. We’ll probably get back to that when we move on.

    • Go Curry Cracker says:

      Good points, Mel

      Here is the obligatory Robert Shiller quote:
      “People forget that housing deteriorates over time. It goes out of style. There are new innovations that people want, different layouts of rooms,” he told me. “And technological progress keeps bringing the cost of construction down.” Meaning your worn, old-fashioned home is competing with new, relatively inexpensive ones.

      (From this Washington Post opinion, also with 900 angry comments)

  39. MarciaB says:

    Have you read this scary New Yorker piece about “the big one” that the seismologists predict will hit the west coast at some point (perhaps in our lifetimes)? Scary as hell! I live in Oregon (ground zero!) and I know you were in Seattle (Puget Sound is not going to fare well either).

    If hell comes to us in the form of liquefaction, inundation, total destruction and such…we property owners won’t recover. Makes me want to sell up now to reduce liability.

    • Go Curry Cracker says:

      I tweeted that article out earlier today, it is hauntingly beautiful. It is some of the best writing I’ve read in a long time

      I love how the author explained when (not if) to expect the big one:
      Recurrence intervals are averages, and averages are tricky: ten is the average of nine and eleven, but also of eighteen and two.

      I think I would be more concerned about loss of life than loss of property.

  40. Heywood says:

    Rent in this area is 2x to 3x more than our mortgage payment used to be.

    Our kids had friends whose parents rented and were moving every 6 to 12 months.
    They were never in one place long enough to call it home.
    They lived like urban nomads, constantly packing, moving and unpacking.

    Another family nearby rented the same home for 24 years.
    After their kids were grown and gone they downsized to a condo.
    Had they applied that 24 years of rent to a purchase they could
    have gotten all that rent back and more by selling the house.
    Investing the sale proceeds would have more than paid for the condo rent.

    • Go Curry Cracker says:

      The urban nomads sound just like us. Good for them

      Since the stock market has grown 8x inflation over the past 30 years, maybe they could buy 8 condos but choose to rent because of the flexibility. That is what we will do

  41. Jeff says:

    Hey Jeremy I agree with some of your renter points and definitely your stock market advice in general, but totally discounting ownership is a bit extreme. Reading your past posts it seems like you have had some bad personal experiences with property ownership and it may be clouding your logic.

    One aspect that’s been missed in this comments discussion is parabolic rise in rent costs in certain areas. Specifically your favorite, and my home, the SF bay area. Renting in SF vs buying is not a “no-brainer” by any means, it depends on when you get in the market. Rents have doubled and even tripled in just the past <5 years. Hell, there is a guy locally here who made national news last week because he is renting a camping tent in his backyard lawn (and one shower a day in the home) for $900/mo, and getting multiple takers! One of the biggest problems in the region right now is people being kicked out that have been paying say $1200-2000 a month for years, and the landlord raising the rent to $3000-5000 a month after "rennovating" the building. Then that person is on the street and EVERYTHING anywhere near here is way too expensive for their renter budget. Then what do you do? Move away? People are having to rent a room in someones home, move with family (fun, NOT!), or downsize to a "cheap" $2000 Studio unit to get by. They are even having to abandon their pets at shelters because no landlord they can afford will accept pets. Meanwhile my 30yr mortage in one of the most expensive ZIP codes here is $2500, no one can kick me out and I can do whatever I want when I want to (except move quickly, I'll give you that LOL). If I had been renting the whole time I would be now paying double my mortgage for the same type of home rental. The high-end 1bed apartment we rented prior to buying our first home in 2003 went for $1500 then and we thought it was high. Now it's $3200 (and they are currently sold out). Now if you are mobile and willing to move around like GCC, you can move away from these areas when parabolic rise in rent occurs, but not if you have kids in school etc tying you down and/or you just love the area and don't want to relocate yet. This is when a fixed mortgage comes into play.

    On our houses, the two we have owned have given us the ability to be early retirees. #1 bought in 2003 for $533k, sold for $695k. Spun that equity and other savings into #2, in a $1M+ neighborhood in the down market of 2010 for a $965k fixer-upper home that is now worth $1.7M. Minus our renovations we are still +$600k in only 5 years and +$750k between the two over 12 years. Could we have made the same money or more in the stock market? Maybe, but the home also provides a nice place to live (no trashy neighbors in a $1.5M-2.5M neighborhood). Plus my tax write off gives me about $10k a year to re-invest that would otherwise go to Uncle Sam.

    Even when we cash out of this crazy market to retire early we still plan to use some of our assets to own a smaller property in a cheaper area of California as part of our total portfolio (maybe 15% or so) and a place to call home other than wherever we are travelling. One last thing to note is that everyone should view buying a home as a long-term investment, just like stocks. If you keep you house long term there is little to no risk to principal, just like stocks. If you panic and sell your home in a down market, you lose, just like stocks.

  42. Kate says:

    I always enjoy a rent vs buy analysis (me = geek). But as a few commenters already pointed out, markets vary. When I rented my 1 bd apt in manhattan, the rent went from 2100 to over 2600 in 4 years, then down to 2000 the fifth year (yes, this was 2009). So one major reason I bought was to have some control over my housing expenses.

    Also in the very popular neighbourhood where I bought, there were very few rental options. And I do enjoy the freedom to customize my apartment.

    But I do miss the flexibility of the annual lease. It’s rather scary having so much of my assets tied down in illiquid form.

  43. Jacob Enis says:

    Hi Jeremy,,,Thanks for taking the time to share your thoughts/strategies. I would appreciate yours and/or any other reader’s analysis of my current situation.

    My wife, 9 and 5 year old live in a 1600 sqft 4bd2ba in an old neighborhood in Central Austin. We bought the house in 2004 for a very low price and have spent close to 80k over the years on an addition and re-model. My estimation is it is currently worth about 3 times what we currently owe on it. We do not have an emotional connection to this house or this particular neighborhood but my wife and I have been in Austin for a long time and have very deep roots here. A very close network of friends and some family in town. We travel a lot and hope to increase our travel over the years but we always want to have a home base in Central Austin. No desire to leave this city or live in the suburbs. This is an emotional desire but it also must play into any financial decision as where a person lives is such an important part of day to day happiness.

    I love the idea of selling and walking away from the day to day battles of owning an old home. I play with the idea of selling out and renting now or in the not too distant future but when I price comparable rentals in Central Austin, the rents scare me away. As much as 2 times what we currently pay for a 15 year fixed-rate mortgage(including taxes and ins). Being a very popular young persons/college town, the rental market is and always has been very tight in Austin. If we were to sell, we would have the 300k in cash to invest and help buffer the high cost of rent, but I find it hard to believe the ever-increasing rents would not eventually outpace our investment returns and/or squeeze us out of the city we love.

    So given the limited details I have provided; do you think we could sell out, commit to renting in Central Austin the rest of our lives (size needs will decrease in the next 15 years) and still come out ahead compared to if we just stayed in our current house for the next 40 years?

    Thanks for any input.

    • Go Curry Cracker says:

      Hi Jacob

      Historically, houses have increased at x%/yr on average, and equities at y%/yr. y>>x, therefore equities with a high degree of probability (and volatility) will provide the greatest long term wealth.

      I don’t see long term rents growing faster than long term equities in any universe

      You can weigh this against the quality of life pros/cons of living in your current location. Money/wealth really has only one purpose, and that is to enable each of us to do what we want. You want to be in Austin



  44. Heather says:

    I think the huge mistake people make is saying , “oh, buying a home is an investment…”. But they buy a house at a fair market value and when they go to sell, they would be lucky to break even- just like your math shows.

    The alternative is to ACTUALLY make home ownership an investment. Buy an undervalued property, fix, sell for profit. No capital gains if you live there for 2 years. Plus you have a place to live. In our situation, we bought for $173k, investing $60k, plan to list I’m the low $300k range. Home in this culdesac are selling for $289-345k.

    So, the whole ‘living in a home we also own’ is almost secondary to the fact that we are living in part of our investment portfolio. 🙂

    First time commenting, always enjoy reading.

  45. Hannah says:

    The way to come out ahead with real estate is definitely being a landlord. We rent out half our primary home, and get a ton of deductions even though we don’t have a mortgage. Our other rental has been a nice cash cow too. If we move out of our current place, we can rent it for even more money, and either rent, or buy another future rental. Even with our conservative cash only investing, we’ve managed to do well for ourselves. However, this is definitely the buy and hold strategy. Our properties have barely appreciated in value, and they’re definitely trailing the S&P 500

  46. You are 100% correct, renting is cheaper than buying, if you maximize the rental experience.

    Rent only what you need now, you can upgrade later.
    Rent close to your job, or where you frequent. Save commute costs and time.
    No need to buy lawnmowers, snow blowers, rakes etc.
    Move to where the jobs are, or the cost of living is cheap.

    Of course, you are at a disadvantage in later years when many people’s home would be paid off. Or if you lost your job, and eviction is faster than a foreclosure.

    • Go Curry Cracker says:

      I was with you up until the end

      The home owner with no mortgage will have lower cash flow but I’ll have more net worth. I would call more net worth an advantage

      I’ve never seen somebody say having a mortgage is an advantage in a layoff. The foreclosure might take longer, but it also takes 100% of your forced savings and down payment with it. The renter has a much wider net to cast for new job opportunities

      • Great point, assuming you have been saving the difference. And in a layoff, you could go to a smaller apartment, or live with friends a lot easier.

        With a house, you have a payment no matter what… You cannot jettison the payment as easily as a renter can.

  47. Mr. FSF says:

    Hey Jeremy,

    Cool overview, we did a similar analysis a while back to figure out what we should do once we arrive back in the Netherlands. Came to a very similar conclusion, albeit our scenario is a bit different and we may want to added another property to our portfolio. So we may still buy a house to use until we become financially independent, after which we will start renting all over the globe and will rent our our original primary home.

    Hope the little one is doing well.

  48. Kalergie says:

    Hi Jeremy!
    When you look for apartments, do you generally go for fully furnished and equipped ones? You wouldn’t want to buy new plates, pots and pans every time you move, right? I’d assume you keep your life as simple as possible to facilitate your nomad life.

  49. Gavin says:

    Jeremy – is there a price point where you would change your mind on renting vs. buying? i.e. you find a nice small home for $50K in a place where you want to stay for multiple years (5+)…

    • Go Curry Cracker says:

      Probably not, for quality of life reasons.

      A house is a collection of wood, metal, plastic that deteriorates with each passing year, and requires constant care and attention. I prefer using my time for other things

      If the property was worth $50k, I could rent it for a low price. If the house was worth $250k and I could buy it for $50k, I would buy it, sell it, and rent

  50. Andy says:

    What do you think of this rent vs buy calculator from NY Times? Is it accurate?

    • Go Curry Cracker says:

      It is a good tool, but it is only as accurate as the data and assumption we put into it. Garbage in = garbage out

      What will the next 10 years look like for home price growth rate, inflation, investment return? What is your marginal tax rate? What will actual closing costs be on both purchase and sale? Variables that have major impact on outcome are unknowns, and at best we are guessing

  51. Tony says:

    I don’t buy your mortgage vs. rent numbers. I live in a very low COL area, so I was able to buy my house for $57k, and my mortgage is $550 a month. With a price to rent ratio of 19, I’d only be able to rent it out for $250. A smaller house in the same neighborhood is asking $675 for rent, so in reality I could probably get around $800 to $900 a month for my house. Not to mention one bedroom apartments in the same area go for $450 a month, almost twice as much as the 19 ratio would say my 3 bedroom/2 bathroom house would go for.

    It just doesn’t make sense for rent to be less than a mortgage. If that were the case, why would anybody rent out a house? An investor who bought the house to rent would be losing money. In a situation where such prices existed those who owned the homes they rented out would either raise rents or sell the house, increasing the supply of houses and decreasing the cost to buy. Either way it would shift the market until buying was favorable over renting.

    It’s economically impossible for renting to make money over owning (assuming you live in the same place for a long time) in the long run, since market forces would always be working against you if the real estate market created such a situation. If you live a transient lifestyle then renting makes more sense, but if you want to live in one place the rest of your life owning is better.

    • Go Curry Cracker says:

      That’s OK, I’m not selling

      See in the post where I addressed why landlords can rent housing for less than it would cost an owner to live. Subsidies, taxes, and exuberance. Also see the case study for Mr. & Mrs. NYC, linked in post, where rent costs less than own. Not only does the economically impossible happen, it is the norm.

      Simplified text book market forces apply generally to many products, but housing isn’t one of them. If demand for breakfast cereal suddenly goes up, food companies make more cereal, demand is satisfied, and prices reach an equilibrium. Not so much with housing. Zoning laws, construction times, government approval processes, all massively complicate matters

      • Tony says:

        The NYC post shows exactly how the “impossible” can happen, because it’s not breaking the laws of economics. The owners of that property are getting additional “income” via appreciation on the asset, as you said in the post. My sister is about to buy a house in Denver for $320k that was sold 20 years ago for $70k. That person made $250k in appreciation alone. If they had rented the place instead, even if the rent was less than the mortgage, they would have lost out on that $250k. Of course the renter doesn’t benefit from the appreciation, in fact it’s the reverse, where their rent will go up faster than in markets that aren’t growing.

        Those factors, along with the large transaction costs of buying and selling property, do slow down the market forces, but they create only temporary situations where renting is better. Eventually the zoning laws will change, construction will happen, and the market will balance out.

        Like I said, I can just look at my own market and see how superior buying is as long as you don’t move. In a market like San Francisco or New York cost to rent is higher, but it’s made up with higher appreciation. Either way, the only way renters win is if they life a transient lifestyle or the housing market collapses.

        To your example, according to your source the average price to rent ratio is a hair under 12, making the rent on that $100k house $694, about 58% more than the value you used. Now instead of the renter having extra cash to invest, the owner has about $125 every month to invest over the renter. I’m too lazy to do the math, but invest that $125 every month, plus the value of the home, and I bet it far outstrips the value of the renter’s original $20k invested over that time.

  52. OK – after most of my life owning homes and rental properties, I can see some real logic in your math. And unfortunately our numbers are backing that up. 🙁

    We have certainly have less than stellar results with our personal residences based on timing, location, what we put into remodeling, etc. Our overall financial return, by the time we have sold, is less than what it would have provided investing in a S&P 500 index fund. We probably would have been better of renting and a lot less work and risk.

    The whole location independence thing is now changing our thinking about “if” we should own. Should we live at inexpensive, acceptable, and cheaper location renting or owning? If we did, then we could put more focus on travel and experiences other than maintaining our home.

  53. Marcia says:

    I struggle with this one too. We bought our house in 2004, and it’s still not worth what we paid for it.

    Considering what our rent was before, and reasonable increases, it would have been MUCH better to remain a renter. We put $170k down and at least $100k into into over the last decade.

    However, after a few refinances, we’ve finally got our payment down to “rent” status. Meaning, we could rent the place for what we are paying for mortgage + prop taxes.

    Our experiences with renting were – that rents kept going up at a very fast pace. Sometimes you get a nice landlord that doesn’t stay with the market, but that was never our experience.

    Eventually, I assume that rent on a house like ours (shoebox) will be higher than our mortgage. That’s not exactly breaking even though. Financially, it was a bad move, but of course, hindsight is 20/20.

  54. Jerome says:

    I understand your point, but i dont agree your assumptions are generous. I recently bought a house without downpayment and 2,5% interest rate (5 year fixed). That makes renting hard to beat. Plus you are aware of the Shiller house index, but what about the Shiller PE? With the S&P at record levels, you might be glad to get a positive real return in the coming 10 years. Surely a 10% nominal return is too optimistic. This would completely alter the conclusion of the story above.


    • Go Curry Cracker says:

      Hi Jerome

      0 down payment and 2.5% interest rate is pretty nice. At maximum leverage, hopefully house prices don’t go down or even rise slower than inflation. But if your payment is lower than rent and it doesn’t work out, you could always just walk away

      > Surely a 10% nominal return is too optimistic.
      Maybe. That’s probably what they were saying in 1986 too

      Take a look at this article. Changes in accounting, preferred methods of shareholder payback, and relative value of other assets all make the Shiller PE in current form an obsolete metric. (not the same as saying stocks are not over valued)

  55. Fiby says:

    Certainly it is important to run the numbers of renting or buying, while incorporating the opportunity costs of investing the difference. And in some markets it may be better to buy. But at the end of the day, you can only know that with an oracle – you can’t actually know the appreciation rate of your home.

    I think unless someone wants to lay down roots, they probably shouldn’t buy a home. The exception is if the appreciation required for buying to make financial sense with very conservative appreciation assumptions, and they’re willing to deal with the hassle of buying, selling, and repairing the home.

    • Fiby says:

      Oh yea and in the absence of an oracle, the long term national average home appreciation is not much more than inflation. Of course, any given real estate market may have home appreciation greater than the national average, but if we apply the law of large numbers, the chances of picking a real estate market that has appreciation higher than the national average are slim.

      • Jerome says:

        I dont perceive my house as an investment. Rather i see it as a way to live more comfortable and as a way to save 500 euro monthly on my living expenses (yes renting in my case is that more expensive). I will be content as long as the price of the house keeps up with inflation. Even if this means that i lose out on a hypothetically and risky 10% return in the stock market. This does not mean that i dont invest in stocks, i still do it with the money i save from not renting.

  56. Kyle says:

    Nice, If anyone is interested, I did a similar post recently. His results are very accurate and repeatable, done the same way I did. Thanks for writing all this, it’s very information packed. Every bit of it is true. Our calculations don’t even bring up utilities which are often quite a bit higher for homes.

    I started to program a rent vs buy calculator, I just checked out the NY times one, it seems overly generous on buying.
    My calculations have found, it’s dependent on how cheap of apartment vs home(I know that’s obvious). my home is $155k but I was previously in a $750 per month apartment. apartment wins hands down. But the calculations show that if if the apartment is $900, my home starts winning in the long run. Although if the home didn’t even fully go up with inflation, that would piss me off as an owner and make my calculations optimistic. Plus I’m stressed out struggling to find time maintaining the home properly with everything going on in my life.

    Home ownership has already been a problem for missing opportunities for me. Most engineering jobs are an hour away and I hate driving with a passion. On top of that I’m considering moving out of state for work and the home just makes me feel like I have a big anchor tied to my leg. It needs a lot of work before I feel like I can sell.

    I know financially it sucks, maintenance sucks, mowing the lawn, etc. But I know I would miss the space away from neighbors, my big garage and being able to do carpentry work freely and other projects. Is there anything you miss about being a homeowner or have you not lost any of the things you love to do renting?

    By the way, I like that idea of switching homes and renting from a friend. Wonder if its illegal to pretend to switch homes and rent each others home.

  57. Errol says:

    i agree the numbers favor renting vs. buying. i have been on both sides many times. The reason we recently repurchased again is we live in Bellevue WA where there is no rental inventory or much purchase inventory for that matter. But, the main reason is we have a had terrible luck in finding decent landlords that honor their end of the agreement; maintaining the property. But, to be fair they have always done a fantastic job of accepting the rent on the first though. There are courts but it is just too stressful. I don’t have to ask anyone to do basic maintenance any more. Ultimately I am paying a premium for peace and that is worth it to me.

  58. Dave (Inland NW) says:

    All real estate is local. Blanket rent vs buy assumptions or no more valid then assumptions the real estate market is up or down. What works in Seattle or San Francisco does not necessarily work in Fargo North Dakota or Billings Montana.

  59. I have to quibble with your best of both worlds scenario: It seems like you’d be taking the imputed rent that homeowner enjoys tax free (at least in the US) and replacing it with taxable rental income. It might be that the tax deductions for maintenance and depreciation offset all of that income in some cases, but you can’t guarantee it. I’ve seen others analyze this same scenario you have and argue we are letting the home owners off too easy on their taxes ( .. I think other countries do in fact tax this imputed rent.

    On your bigger point, I agree that people too often default to thinking of purchasing a residence as an investment. It is a consumption choice, that might have some resale value in the future. Of course, renting a residence is also a consumption choice. If we were only looking at financials, there would probably be many choices that always came out on top of both of them: living in a van, couch-surfing, house-sitting, etc.

    The choice to purchase or rent a particular residence is a consumption choice, and most people probably choose to consume too much residence as tends to happen, and I think that is a bigger down fall then whether they purchased or rented.

  60. We rented for the first 10 years the hubby and I were married, and saved tons of money because of it. And I loved it. 4 of those years we lived in Germany and could devote all our free time to traveling around and never deal with any maintenance. Now we are back stateside in a high rent area. And I’m so happy that we bought 3 years ago. We had signed a lease a week before we found our house at a steal of a deal. It’s a big part of the reason we can retire this year. For us their are some intangible benefits. Raspberry bushed that are just getting their first good crop. 7 ducks that live in the backyard. And some security in a rental market that is crazy right now. While I still think renting is a great deal most of the time, every once in a while, the numbers work the other way. And I get ducks.

  61. lifepirate says:


    I agree 100% with what you say. I however believe you left out a scenario where owning “may” be advantageous.

    For example, I purchased a condo downtown and walking distance from my work (thanks MMM for the much needed push). I looked at renting in proximity to where I worked and noticed an interesting trend. The key finding was rental rates in my area are actually higher then purchasing a similarly sized condo. I understand this may not be the norm but based on my math it is a scenario where renting actually loses out (money wise).

    In the end I save a few hundred bucks a month when compared to renting (comparing average rental rates for a similar sized apts to my entire mortgage+prop tax+hoa). I also pay down the principal and may (let’s hope anyways) see some appreciation. Not to mention I live in Texas and the tax break on property taxes combined with interest makes the savings even greater.

    Even if I invested the 20% down in some overall market index fund the gains still wouldn’t outpace the savings I am seeing every month. As I mentioned this not even factoring in principal pay down, appreciation (if any), and tax breaks (which are slightly more helpful here in Texas).

    Granted I lose some benefits associated with renting (like being able to pack up and move whenever) and I may have to fix/replace an appliance or two over the next few years. In the end though I think the money saved is well worth those inconveniences.

    Who know maybe my math is all wrong… Either way I still like your blog and overall message! Hope to be traveling the world soon as well. Hopefully I can rent the condo for some nice cashflow out once I can make the jump.

  62. stunta says:

    None of my friends/family is comfortable plonking down six figures of cash into the stock market. However all of them have no issues using that amount towards a down payment. Stock market volatility is not something easily handled by most and emotionally a house is a more tangible asset. Pride of ownership, inviting family and friends over for house warming parties, giving the impression of being settled etc. all play into this somewhat peer-pressure driven “investment”.

    I work with some incredibly smart people but I am shocked at their financial IQ. They hoard cash and don’t even think twice about it. A CD is as far as they would go. And it has to be FDIC insured. One can invoke history all they want, but not everyone is emotionally equipped to see their net worth take steep dives and still sleep well at night. Housing market declines are more palatable because the thinking is – “hey, we still live here so we will stick around ride this out”.

    My wife and I bought a townhome 10 years ago and we still live here. We have twice as much in home equity as after-tax investments. Not the smartest move in retrospect given the the low (3%) interest on the mortgage, but the thinking was that principal payments give a guaranteed 3% savings. If the stock market had declined during the same 10 years, we might be patting ourselves on the back. As they say, hindsight is 20-20.

    Renting is not for everyone. Logic doesn’t apply when one half of the family wants to feel rooted and not be at the mercy of a landlord.

    Fiscally correct decisions song always translate to happiness because one is logical and the other is not. Regardless of which way one swings, being aware of the pros and cons before deciding is the key. This is where articles like this one from Jeremy are really helpful.


    • Go Curry Cracker says:

      Fortunately, risk tolerance is more like weight than height. It can be changed

      Unfortunately, like weight it can only change if a person truly wants it to.

  63. z says:

    Put the legality aside, and just focus on the economics Suppose I can rent to myself, then I – the landlord will be happy because I get all the tax breaks for the landlord; and I – the renter will also be happy because I shift all the burdens of ownership to my landlord self. So it appears I am double happy.

    But now think about this:

    As a landlord, I have to pay taxes on the rental income I receive, but thanks to our government, I get all kinds of tax breaks – I get to deduct mortgage interest, property taxes, and depreciation against my rental income. At the end of the day, I can receive my rental income almost tax free. Technically, depreciation only defers the tax, because when I sell, I have to pay 25% recapture tax on the total depreciation.

    So it it clear that as a combination of renter/landlord of the same property, I have to pay tax, albeit a small amount of, on the ‘rental income.’

    Now I as a straight home owner, I am guaranteed to pay zero tax on my ‘rent’ to myself. Sometimes I do not get to deduct the mortgage interest and property taxes, but when I do, they can offset my other income, whereas for the landlord, they can offset the rental income.

    So a home owner is strictly better than a landlord who rents to himself. This shows the opposing interest of the landlord and the renter. If it makes more sense to rent, then it is at the expense of the landlord.

    How do you think of this logic? 🙂

    • z says:

      I want to clarify a few things I said above. A home owner is strictly better than a landlord who rents to himself, for two reasons.

      1) For a home-owner, his rent to himself is never taxed. For a landlord who rents to himself, his ‘rental income’ is taxed.

      2) The tax deduction is more valuable to a homeowner. As a landlord, I can always deduct mortgage interest, property taxes, and depreciation, but I can only deduct them against my rental income – that is to make my rental income more tax free. As a home owner, my rent to myself is automatically tax free. I might or might not be able to deduct mortgage interest, property taxes, and depreciation. But when I do, I am able to offset my other taxable income.

      So a home-owner is always more favorable than a landlord who rents to himself.

      Therefore, financially if a renter is better off than a home-owner, the landlord has to be worse off.

  64. While I very much appreciate skepticism about whether owning is better than renting, your numbers are astounding to me. A $100k house in my area would rent for around $1000/mo. The rental price ratio tends to be higher the lower the property price. We are looking at buying a duplex as an investment and I would absolutely expect to receive $1400/mo on a $100k investment. I ran the numbers on my house and my $192k house (now worth $222k) costs $1265/mo for mortgage, ins, taxes and repairs. It would cost $1500/mo or more to rent a similarly sized house. It’d be hard to make an argument to rent in my case. Funny thing is, when we bought we chose an ATL suburb county known for low property taxes. Our same house in another county would easily have double the taxes and change the figures dramatically. And we bought our house before the huge run up in prices around here.

    We have also been grateful to own a house because we run a welding business out of it and save ourselves around $2k worth of rent each month. Granted, our situation is not the average person’s but there are plenty of areas where the numbers you cited aren’t reflective of reality.

    I decided to run the numbers on our house. We put $25k down 8/01. If we invested that money in S&P 500, it would now be worth $56.9k (remember that huge stock market drop on 9/01? I remember losing enough value to have bought a luxury car. Or two. Timing counts!). We spent ~$1265/mo for our house. Renting a similar house would cost $1500/mo. So, we paid $39.6k less since ’01 to live in our house. In the meantime, we now have $111.1k in equity and appreciation on our house. All together, we spent $101k on ownership (costs minus equity and appreciation) and would have spent $195k on renting (costs minus invested down payment). So we came out ~$94k ahead. And that doesn’t include the ~2k/mo of rent saved over 10 years of owning a business.

    And now I’m feeling pretty darn good about this place. 🙂

    • andy says:

      You said the rent would cost $1500. Was the rent consistent for all 14 years? Wouldn’t rent have been cheaper in 2001 or when the housing market crashed 2008?

      Does the $1275 a month include repairs such as replacing the hot water heater, appliances, roof, etc?

      If you sell the house for $222,000 you would have to pay a 5% Brokers Fee, attorney fees and other misc expenses.

      After all expenses did you still come out on top?

      • We’ve been in the house for 14 years. Rent quoted was from 5 years ago when the housing market crashed so I doubt it was much lower before then. $1275/mo includes 1% of purchase price maintenance costs and that figure has been fairly accurate. So yes, still came out on top. If you add in the savings in commercial rent, $2000/mo for 10 years (and yes, commercial rents have been crazy around here), we came out WAY ahead.

      • Man, I wish I could edit my response to make it make more sense. 😉 I would say the lowest house rental value would have been $1200/mo. We always knew we wanted room for a shop in the house so we purchased accordingly. Again, I acknowledge our situation isn’t like everyone’s.

    • Go Curry Cracker says:

      It sounds like you’ve come out ahead by buying, and you are happy with where you live long term which is what matters the most.

      With a delta in monthly price of $250 today, I would choose to rent and invest the down payment. I could still run a business out of a rental property.

      Many areas of the country have low housing prices (e.g. Atlanta) and a corresponding lower price-to-rent ratio. This is typically due to lower population density, which is partially due to lower average incomes. Good maps here.

      re: the stock market drop after 9/11.
      The short term performance is volatile, but largely immaterial.

      You lost enough post 9/11 to buy a luxury car (or two.) But today you could buy 4. Similarly, in 2008 I lost enough to buy a house (or two.) But at present I could buy 4. Historically, long term equity growth has outperformed property growth by a wide margin

  65. scott says:

    Hi, I appreciate your post and analysis. In the US, married couples who sell their home pay no tax on the first 500K profit. So if we have a home with a cost basis of 500K and sell it later for 1 million, I get to keep 500K tax free! How would your analysis change with this very favorable tax treatment included. Also, did you include in your analysis the fact that dividends re-invested are taxed first?

    I really love your site, and I hope to someday have a lifestyle like yours.

    • Go Curry Cracker says:

      Hi Scott

      The Home Sale Exclusion is nice. It isn’t as great as it first seems, as any repairs and general maintenance aren’t deductible, but overall still a nice bonus. It is factored into my analysis.

      Taxes on dividends are also included in my analysis here. Most people won’t have to pay any (Federal) tax though. A married couple filing jointly & contributing to at least one 401k can make $120k total income and pay no tax on dividends. That is Top 20% of households

      For the top 20%, they would pay a 15% tax on dividends. Top 1% would pay 20%. Using VTI / VTSAX, which pays a 2% dividend +/-, that would be a 0.3% load. (2% x 15% = 0.3%.) Any capital gains through appreciation or share buy backs would only be taxed upon sale.

      The Home Sale Exclusion is better if housing prices are rising rapidly and you move often. You can claim the Exclusion after 2 years of living in a home. If you live in the home for 30 years, it is less valuable. In that same 30 year time frame, we will pay $0 in tax on ~$3 million in dividend and long term capital gain income.

  66. Some Dude says:

    Renter writing here. I had an experience as an apartment owner in Denmark. Never again. I have been renting since 2006, have had no regret for having changed course, in spite of what all my relatives and friends told me (most of them highly indebted, bitching about stuff that only housing property owners have to deal with …).

  67. Jason says:

    Real estate has been good to me. It would be interesting to crunch the numbers on my situation. Investing in the market or investing in my homes but im too lazy to figure it. I just know Ive done well. My first place i bought in L.A was a condo. I put 25k down on a 134k condo in 2001. I sold it in 2004 for 405k. Thats the best investment of 25k i will ever make. I then moved to the San Jose area and rented till 2007 and purchased my current home for 750k. I put 180k down. Ive also sunk another 100k into this house and its now worth 1.2m. Probably a good time to sell this coming spring. Looking to move to the Reno area and rent something nice. Reading this article has inspired me to sell but i have no regrets of owning.

  68. mike says:

    hello, enjoy the article, was referred here by I have a bit of a dilemma, I did something kinda silly and bought a condo in SF 3 years ago and am now itching to be free. My choice is either rent it out (being a landlord in SF is tough business) for a very slightly positive cash flow but more to hope to gain additional appreciation; or just try to sell soon while the market is still hot. Any ideas?

    • Go Curry Cracker says:

      If having a condo isn’t part of your new life goals, then I would sell.
      If it is, then I would keep it.

  69. Pierre Medina says:

    This really depends on the market where you live and the current prices to rent, as well as the forecast for prices in a certain neighborhood. Not everyone who buys a home decides to take on a life sentence of a 30 year mortgage. Many people choose to live more within their means and save for a larger down payment and a 15 year mortgage.

    You are completely omitting the increasing use of revenue management systems for Property Managers from companies like LRO or YieldStar. These revenue management systems work with algorithms that include area prices for all other competitors and home prices in the area, so generally rates are extremely inflated from one year to another. Your graphs above do depict rent inflating, but I dont see that they are accurate as inflation prices from these revenue mgmt companies are unpredictable. In a certain apartment community, a single 1 bedroom apartment could go from $800 per month to $1700 per month depending on demand in the area if it is growing and demand increases, and there is no way to combat this once it comes time to renew your lease if you are hoping to stay in the same area.

  70. Patti says:

    I rent, I have owned and with a self employed spouse the stress to make those mortgage payments are ten fold over renting. Husband wants to buy and I keep putting him off and not just because I don’t want but because I really, really don’t want to. Weekends are ours to hang out and do nothing except watch the maintenance people shovel 16″ of snow and cut up fallen tree branches. Would I love a yard for the dogs? and a garage? of course, but I would also rather pay 1200/mo for an 1100SF apt, 10 min from work in Denver where housing is out of control. We have savings now, we have money for emergencies, we have no credit cards and 1 truck loan, we have money to do things without worrying about the furnace going out. Someday after we have an inheritance we can consider it but in the meantime I will keep saying no.

  71. Patrick says:

    Buy in a great neighborhood with great schools. Live there for 2-4 years until the rents are high enough to equal the PITI + maintenance + PM. Move to new location and let someone else pay off the mortgage. Rinse, repeat. Purchased my home brand new for $400K. Comps today (1.5years later) are around $470K. Talking to the property management companies around here we can already get enough to cover costs (PITI+maint+PM). Time for us to move and let someone else pay it off for us.
    Does this seem like a sensible strategy? I used a 0% down loan on this home (and yet, I should still be able to cover all costs with a renter). I’m also hoping to keep raising rents right around the rate of inflation while the mortgage portion stays the same.

    • Go Curry Cracker says:

      There are many different sensible investment strategies. One that relies on lots of leverage and housing prices that always go up might work out really well. But then again, Flint, Michigan once had great schools in great neighborhoods.

      • Patrick says:

        I am now considering moving to a new state (our jobs let us do that) so I ran numbers for the Phoenix area. Posted on mmm’s forum (under the forum name Slow2FIRE) if you are interested in my results -> plus if you can show me a mistake in the calcs that would be great. I relied upon Zillow for my rent and purchase price numbers (I was all set to tell my wife we were going to be renters when we move, until the calcs showed break even comes as soon as 4 years and you do better with buying after that).


        Thank you for responding!

        (BTW – our current house is near Boulder, CO so hopefully we don’t have a Flint, MI situation in that area)

        • Go Curry Cracker says:

          Hey Patrick

          I’m on vacation, so without digging into your numbers/assumptions… generally speaking, a price to rent ratio of 15:1 is where the rent vs buy math breaks even. I think your analysis has a price/rent of 13, so buying is “better.”

          But… in the same situation, without hesitation I would rent.

          Your moving to a new city / state. Do you like it there? What if your neighbor is a total a-hole? How do you know this neighborhood is where you want to live, without having experienced traffic, neighborhood vibe, etc…?

          Last time I went to Phoenix, the plane landed at 11:30 pm and it was 102 degrees F. Compared to Boulder, that feels like being in the middle of the Sahara. Maybe you’ll love that. Maybe you won’t.

          True story… a new neighbor bought into the neighborhood of a friend’s sister. His first week, this guy shot her dog in her backyard because it was barking. The vibe of said neighborhood just dropped to zero.

          If you rent for 6 months to a year first, worst case the house increases in price 2%… Best case, you save yourself a ton of $ and are happier for it.



          • Patrick says:

            Thanks Jeremy,

            Yes we plan to get into a 1yr lease close to my wife’s sister’s house and her brother’s house initially. I personally am not a fan of blistering heat, but we want to be closer to family (my family is in Japan – a bit more difficult to move close to them). I’m actually thinking that we may rent for up to 2 years on the off chance that the Boulder market collapses and we have to move back into our house due to no tenants.


  72. Stoldney says:

    I recently stumbled upon this article here:

    I was wondering what your thoughts on the idea of imputed rent are? Its interesting, but I still think renting might win out in the longer term.

    • Go Curry Cracker says:

      Nobody in the US will vote for tax on imputed rent. But imputed rent tax would make the case for renting even stronger.

  73. LUCAS says:

    Man we have really been struggling with this decision lately. We live in a small University town where real estate is booming. We love it here and don’t plan to move. Currently we are pretty happy with our house. We live right below the mountain–wife walks to work. We bike to downtown for drinks and even I’m only a 20 min bike ride from my work.

    After getting married I admit there is a pressure to buy. I have researched and researched this and I see your math. I guess i just can’t get over the feeling that it would be so simple and easy to stabilize your living expenses by paying off a mortgage.

    That being said, we rent way below market. Our landlord doesn’t believe in raising rent. The neighborhood we live in, for this square footage, a houses can sell for $260k while we pay 825 a month.

    And yet we are looking to move into a “better” house. Ours is old and clunky in some ways–just not efficient in design. The wife is on board to just rent a nicer place…I am just stuck on the decision of whether to rent or buy. Does anyone have thoughts on our situation?

    • Go Curry Cracker says:

      This probably isn’t a math question.

      If you want to buy for personal reasons or perceived quality of life, then buy. Maybe it comes out ahead financially, maybe it doesn’t.

  74. Jason says:

    Renting. The flexibility is great and I love change. That is easy too when renting.

  75. lena says:

    Such an interesting article! Very well argued and understandable. Living in Seattle right now, I’ve seen housing prices skyrocket and rents do the same. We chose to buy for the simple reason of control. Since we own the home we bought in 2008 we have not had to worry about the huge rent increases that I’m seeing all over the city. Many of my friends have been forced to leave the city because their rent went up by $500 a month or more.

    I have no doubt that even taking this into consideration, renting is a better choice, however, that peace of mind – knowing that my living expenses won’t jump due to the whims of a landlord – is priceless.

    I have similar thinking when it comes to paying off our mortgage. Being debt free and completely in control of our living situation simplifies our life and that has a value to me.

    I really love this article, though. A very interesting perspective.

  76. Russell says:

    Past performance in markets, and housing is not indicative of future results. An investor starting in either markets, or buying a house right now is very unlikely just looking at probability, valuations, and econ cycle that recent high returns will continue. Renting makes more sense because rents will come down, saving the renter money over time, where owners are going to lose their down payments, or more.

  77. Scott says:

    I’m in the buy camp for the most part. I don’t get where people come up with rent figures that are cheaper than mortgage figures for a similar house? I personally know several landlords, and they charge enough to cover their mortgage (or however much it used to be before payoff), plus enough to cover taxes and insurance, plus a little extra. I was renting a crappy little apartment for more than my townhouse’s mortgage was. If you are transient, I would def say to rent though.

  78. Christopher B says:

    I went with buying.
    All the things bad about buying you listed are true, even more so about the people who live near you, the nice area, it all can change.

    But my escape is, i’ll sell it for a profit (was a fairly certain thing when buying; and now 100% will be for profit) or rent it for some small passive income.

  79. snowcanyon says:

    Late to the party, and for the record I am a renter who owns an investment property, but there are a couple of issues that make buying tempting, if more from a legal perspective than a financial one.

    Several states (Florida) have a FANTASTIC homestead exemption should one file for bankruptcy, making this an attractive investment should one be in a high risk field. Additionally, the primary residence rarely counts against ACA subsidies, Medicaid, or SNAP, which are a part of some people’s ER plan. It’s magically excluded, as though we all need a million dollar bankruptcy-protected mansion in which to park our benefit-receiving selves.

    Obviously these do not apply to your situation overseas, and for most they are probably irrelevant, but in certain situations they are certainly worth considering.

  80. suzq400 says:

    Good post, helps people to see things from a different angle. However for my husband and I retired at 27 and 32, because we invested in real estate. We worked part time. Bought a house in need of repair, rented out part of it to cover mortgage, lived for free. Currently after ten years of financial independence we have travelled the world but always love coming home to our dream home. We own 3 rental properties no mortgages. Real estate can be an excellent way to financial freedom, but you have to do the math and be willing to make short term sacrifices for long term gain. Enjoy your blog very much.

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