So many a spirited debate are found on the interwebs including in the FIRE realm regarding the rent vs own debate. At my current budget for my current taste, I am VERY undecided. So much so, that while I have an active profile on realtor.com, I also renewed my lease for 7 months.
As I may have mentioned, housing is my biggest monthly expense. However, when I went into the home buying process I had a budget in mind and an objective to save money. This was before a formalized FIRE plan. I thought owning a home would be an “investment”…not build equity. I thought there was money to be saved and profits to be made. What I learned was not the case. At my budget, it seemed I would be adding an hour to my commute and with any luck after 5 years, I’d come out even if you factor in things like increased utility expense, property tax, down payment, and transaction costs. I then realized home ownership was not the “investment” I thought it was going was be. But everyone was doing it! Everyone. I quickly learned to pivot my thought process from investment to building equity. That was not as sexy.
With no permanent ties to this community and no children for whom to build a home or leave a legacy for, building equity was not on my list of things to do and I put the house search on hold. However, because I am bombarded by messages of home ownership from all the new developments on my way to work and the workplace chatter and the stage of life of being a 30-something, I find myself mentally revisiting home ownership regularly.
Lately, I thought well, what if I upped my budget to something that would make home ownership more profitable. I am someone who does well with structure and examples so I turned to a personal known case study. During grad school, I rented a room from a medical resident for $525/mon (my ideal housing budget 👍). The house I later discovered was purchased at $207k (100k over my original budget) and sold three years later for $250k. When I did the math for the additional expenses of home ownership that I listed above, the homeowner did actually come out ahead vs renting.
There are beautiful townhomes going up in a nice area with an expected quick resale characteristic of this area in that price range ($100k above my budget) and above. When I ran the numbers for my situation, I would come out ahead vs renting vs investing that additional home ownership expense. It is a relatively safe bet because this area is pretty hot right now, and it only seems to be getting hotter and I have the personal flexibility to sell at anytime between now and my ambitious FIRE date in case something does shift the housing market.
If I categorize the extra $500/mon I’d be spending on housing as a savings line item, I could get away with it. But there is such a mental block that I can’t reconcile it. Maybe it’s because I’m so new to investing. Maybe it’s because I’m afraid. I don’t know. Maybe it’s because I’d already made up my mind to leave the housing market. Spending $1500/mon on housing when all along I’ve been trying to lower my current $1k/mon on housing seems counter-intuitive/counter-productive. I don’t know what the right word is and I don’t know just what to do. Having that much debt is also an issue; while it’s “only” $500 more a month than what I currently spend, the fact that it’s consumer debt makes me very nervous, even with a plan to sell in 7 years. At any one time, I’m only on the hook at my apt for 6 months or less and we have safety nets for that. But what’s the safety net for a 30-year mortgage even in a hot area? The question remains: Is it worth it to get a larger mortgage to increase your potential resale value?
I’d love some more insight because home ownership from the outside seems to faze no one I’ve met. Everyone is on that bandwagon while I stand on the sidelines, watch, and wave.