Rent vs. Own For Travelers
Posted by Phil Adams on Jul 11, 2011 in Articles, Blog, Minimize Costs, TravlMor | 11 comments
A popular debate in the U.S. right now is whether to rent or to own your home. There is much advice and speculation on the Internet as to what is the right thing to do. Every situation is different and what works for one person/family might not work for another. Here we will attempt to share our opinion on what works if you like to travel a lot.
In 2005, Sara and I sold our home to buy a new home which was under construction. During that period where we were living in an apartment, I became obsessed with the housing market and what I began to think might be a housing bubble. After extensive research, we decided to not go through with our new home purchase and just rent for a few years to see what would happen. Long story short, we guessed correctly and sat out of one of the worst housing value declines in U.S. history.
Since then, we have periodically looked at houses to purchase, but we have remained renters. To us, the pros of renting far outweigh the cons. We found that there was an internal tug when we owned our home to constantly upgrade things and make them nicer. New bathroom, counter tops (Granite for everyone!), flooring, etc. have a certain appeal. This conflicted dramatically with our frugal/minimalist nature. As a renter, we do not feel this tug. We still want to live in a nice place, but there is a limit to feeling like we need to "make it our own".
Ownership
It is nice to own something, so you get to call all the shots. You can paint the walls whatever color you like, you can buy just the right furniture for each room. You can get to know the neighborhood and all of the neighbors. As a renter, you, for the most part, take what you get. You are never viewed by the neighbors as "one of them", but as a transient who will come and go from their lives and probably not be remembered by many in a few years.
As a homeowner, what happens if your roof leaks? You call the repairman and pay, pay, pay. As a renter, you call your landlord and he takes care of it. Worst case, you move. In fact, any major disaster is met with the same mentality. The house burned down (a very real possibility in San Diego): Is the family safe? Yes, well, I guess that $20 per month I paid for renter's insurance is going to buy us some new stuff. Go find a new house to rent and don't worry about dealing with rebuilding.
Taxes
One of the biggest arguments to owning your own home is the incredible tax break that Uncle Sam gives you for owning: You get to deduct all of your interest from your income each year and pay taxes on the remainder. I have always found this amusing because it is one of those arguments that looks good on the surface, but when you start to evaluate it, it might not make as much sense.
Quickly, let's look at an example. Let's say you want to buy a $300,000 house. You will need to put down $60,000 as a down payment. Now that is money that is tied up and cannot be used for anything else. If your house goes down in value, that is the part that goes down first. You will still owe the bank $240,000. The normal interest rate these days is an amazing 4.5%, so your payment on a 30-year loan is $1216 per month. That is not the important part in this argument (you will need to look at comparable rent for this to be relevant). The important part is the interest. In year 1, you will pay $10,721 in interest. You can also deduct some taxes, but I do not want to get too confusing here and I am not an accountant. So, look at that, you get to knock $10,721 off of your income in year 1...awesome!! Except, as a renter last year, Sara and I took the Standard Deduction on our taxes. This is the deduction that Uncle Sam gives us non-homeowners who cannot come up with enough itemized deductions each year. What was our Standard Deduction last year? $11,400. Oops. And I didn't have to pay any property taxes, homeowner's fees, or fix anything that broke. Now, as I said each situation is different and the more expensive the house, the more you get to deduct, but as a sole argument, it doesn't quite wash. Also, keep in mind that at the end of year 1, you still owe over $236,000 on your $240,000 loan.
Freedom
I think the biggest advantage, though, is the fact that Sara and I both thrive on 'change'. We like things to be different from time to time. I have known Sara now for 11 years and in that time we have lived together in seven houses. We stayed for three years in one because Sara was pregnant and we just did not feel like moving with all of the baby gear. When you own your home, it is much more difficult to move. As a renter, when the lease is up, you are free. As an owner, the mortgage is always weighing on your mind. Yes, there is a mythical date 30 years in the future when you'll be free, too, but in the meantime, you'd better not move or refinance, because guess what? That 30-year clock resets to Day 1.
Some people like the security of owning their home. They feel safe knowing that they always have a place to come home to. I can understand that, but I find that I feel safer knowing that with fairly short notice, I am free to make a change to my lifestyle. If I need to relocate for a job, I have the whole world as a option. I am not tied to a house. If I need to put my child in a better school, I'll just find a house in that area and rent.
Travel
Please keep in mind that this whole argument is for those who like to travel and the best illustration that I can give is the fact that Sara and I have just packed up everything we own into a storage unit and are now in Asia traveling for two and a half months. We saved over $2500 per month by not having any significant housing expenses at home and can use that money for travel. If we owned, we could still rent out the house, but that is quite a hassle. When we return in August, we'll just rent a new place and be back to normal.
Conclusion
Renting is not for everyone, but neither is travel. I believe, however, that if you have the travel mindset, you probably will be happier renting your home at least with the knowledge that you can just pack up and go if the urge overwhelms you. As I have said before, my home is where the majority of my underwear is.
A popular debate in the U.S. right now is whether to rent or to own your home. There is much advice and speculation on the Internet as to what is the right thing to do. Every situation is different and what works for one person/family might not work for another. Here we will attempt to share our opinion on what works if you like to travel a lot.
In 2005, Sara and I sold our home to buy a new home which was under construction. During that period where we were living in an apartment, I became obsessed with the housing market and what I began to think might be a housing bubble. After extensive research, we decided to not go through with our new home purchase and just rent for a few years to see what would happen. Long story short, we guessed correctly and sat out of one of the worst housing value declines in U.S. history.
Since then, we have periodically looked at houses to purchase, but we have remained renters. To us, the pros of renting far outweigh the cons. We found that there was an internal tug when we owned our home to constantly upgrade things and make them nicer. New bathroom, counter tops (Granite for everyone!), flooring, etc. have a certain appeal. This conflicted dramatically with our frugal/minimalist nature. As a renter, we do not feel this tug. We still want to live in a nice place, but there is a limit to feeling like we need to "make it our own".
Ownership
It is nice to own something, so you get to call all the shots. You can paint the walls whatever color you like, you can buy just the right furniture for each room. You can get to know the neighborhood and all of the neighbors. As a renter, you, for the most part, take what you get. You are never viewed by the neighbors as "one of them", but as a transient who will come and go from their lives and probably not be remembered by many in a few years.
As a homeowner, what happens if your roof leaks? You call the repairman and pay, pay, pay. As a renter, you call your landlord and he takes care of it. Worst case, you move. In fact, any major disaster is met with the same mentality. The house burned down (a very real possibility in San Diego): Is the family safe? Yes, well, I guess that $20 per month I paid for renter's insurance is going to buy us some new stuff. Go find a new house to rent and don't worry about dealing with rebuilding.
Taxes
One of the biggest arguments to owning your own home is the incredible tax break that Uncle Sam gives you for owning: You get to deduct all of your interest from your income each year and pay taxes on the remainder. I have always found this amusing because it is one of those arguments that looks good on the surface, but when you start to evaluate it, it might not make as much sense.
Quickly, let's look at an example. Let's say you want to buy a $300,000 house. You will need to put down $60,000 as a down payment. Now that is money that is tied up and cannot be used for anything else. If your house goes down in value, that is the part that goes down first. You will still owe the bank $240,000. The normal interest rate these days is an amazing 4.5%, so your payment on a 30-year loan is $1216 per month. That is not the important part in this argument (you will need to look at comparable rent for this to be relevant). The important part is the interest. In year 1, you will pay $10,721 in interest. You can also deduct some taxes, but I do not want to get too confusing here and I am not an accountant. So, look at that, you get to knock $10,721 off of your income in year 1...awesome!! Except, as a renter last year, Sara and I took the Standard Deduction on our taxes. This is the deduction that Uncle Sam gives us non-homeowners who cannot come up with enough itemized deductions each year. What was our Standard Deduction last year? $11,400. Oops. And I didn't have to pay any property taxes, homeowner's fees, or fix anything that broke. Now, as I said each situation is different and the more expensive the house, the more you get to deduct, but as a sole argument, it doesn't quite wash. Also, keep in mind that at the end of year 1, you still owe over $236,000 on your $240,000 loan.
Freedom
I think the biggest advantage, though, is the fact that Sara and I both thrive on 'change'. We like things to be different from time to time. I have known Sara now for 11 years and in that time we have lived together in seven houses. We stayed for three years in one because Sara was pregnant and we just did not feel like moving with all of the baby gear. When you own your home, it is much more difficult to move. As a renter, when the lease is up, you are free. As an owner, the mortgage is always weighing on your mind. Yes, there is a mythical date 30 years in the future when you'll be free, too, but in the meantime, you'd better not move or refinance, because guess what? That 30-year clock resets to Day 1.
Some people like the security of owning their home. They feel safe knowing that they always have a place to come home to. I can understand that, but I find that I feel safer knowing that with fairly short notice, I am free to make a change to my lifestyle. If I need to relocate for a job, I have the whole world as a option. I am not tied to a house. If I need to put my child in a better school, I'll just find a house in that area and rent.
Travel
Please keep in mind that this whole argument is for those who like to travel and the best illustration that I can give is the fact that Sara and I have just packed up everything we own into a storage unit and are now in Asia traveling for two and a half months. We saved over $2500 per month by not having any significant housing expenses at home and can use that money for travel. If we owned, we could still rent out the house, but that is quite a hassle. When we return in August, we'll just rent a new place and be back to normal.
Conclusion
Renting is not for everyone, but neither is travel. I believe, however, that if you have the travel mindset, you probably will be happier renting your home at least with the knowledge that you can just pack up and go if the urge overwhelms you. As I have said before, my home is where the majority of my underwear is.
