I've written about the advantages of renting vs. buying before. It looks like someone else has discovered this as well, using this insight to help become a millionaire:
In 1994, my husband and I built a fabulous home on a seven acre farm. We constructed a huge barn and filled it with critters and big boy toys.
Each weekend, we'd have a mile long to-do list: we'd plant more trees, paint fences, weed the garden, remodel. Our housekeeper spent half a day each week cleaning our home-- despite the fact that the two of us occupied only half of our total living space.
One financially reflective day, I calculated the total cost of living in our home. Due to our sweat equity, our mortgage balance was very low ($120k with monthly principle and interest payments of about $855), but once I added property taxes, insurance, maintenance and, especially, lost opportunity costs (home equity not available to earn money), it became very clear that our shelter "need" was costing us too much in life energy. I calculated the total cost for living in our home was an astounding $60,000 per year.
That day was a turning point in my financial life. We discussed our options, sold our home and became renters.
The day I officially became a millionaire, we were renting a small apartment.
By moving into a rented apartment, we had replaced our previous $60,000 annual shelter expense with one costing $9,000 per year. This huge reduction in spending quickly accelerated the growth of our net worth.
Read the whole thing.
See all of my posts on renting vs. buying here.
1 comment:
This is not really a fair comparison. Many of the same benefits could have been gained by simply moving into and buying a smaller home, rather than renting one. Also, the maintenance costs (including time) of a farm are bound to be higher than those of most homes.
I'm all for simplifying in life, and I do believe that in many cases investing in the equities markets is a better deal than buying real estate. However, I believe the real lesson of this person's story is downsizing, rather than renting.
Imagine, for instance, if this person had rented the exact same property; I don't think the benefit would have been nearly as great.
From a pure economics standpoint, renting always costs more than owning, for the owner necessarily gains a premium for absorbing the greater risk. The owner always passes all of the costs mentioned in this article to the renter, the property taxes, insurance, maintenance, etc...along with the premium commanded by absorbing the greater risk. This has to be true, or else owners who rent would never make any profit.
Also, while I am not one of them, there are people who geniunely enjoy the task of maintaining and fixing up a home. For these people, home ownership forms a connection to the simpler, more grounded life. I dare say that for some, owning and working on a farm would be the path to the simpler life, which is the opposite of this one person's story.
So it all comes down to the wonderful choices that life offers us, and the fact that there is no one right way for everyone when it comes to renting vs buying.
Post a Comment