I get this question a lot.
Should I purchase a home with a mortgage, or should I rent?
If I buy a place, I’ll need shitloads of money and a down payment and all that stuff. What if I want to move later and can’t sell?
But if I rent, then aren’t I wasting bazillions of dollars on rent when I could be building equity in a house?
What do I do???
Many people have lots of different opinions on this, and I don’t think there is a definitive answer. Rather, owning vs. renting is purely subjective based on these factors:
- Your age
- Your lifestyle
- Your family situation (single, married, with kids, without kids, taking care of an elderly parent, etc.)
- Your preferences
- Your mid-term and long-term future plans
Those are the factors that need to be weighed. I can’t tell you whether or not you should own or rent, and neither can anyone else, because we don’t know those five factors.
That being said, here are some general guidelines based on those factors:
If your current real estate market is really hot, and has been really hot for many years, RENT. If the market has been hot for many years, you’re probably at the peak of the market, which means it’s a terrible time to buy right now. You’d be buying high right before the downturn. Not smart.
If you’re older, settled, and live in a city you’re quite sure you’ll stay in for 10+ years, BUY. There’s absolutely no reason to rent if that’s the case. Go ahead and buy and enjoy your home.
If you’re planning on moving within the next 24 months, or the odds of you moving in the next 24 months are high, RENT. People who own their own homes sacrifice mobility. If you want to move soon, or even if you want the option of moving soon, do not buy. Rent.
If you’re planning on moving soon but the real estate market is getting hotter after a bad downturn, BUY. This means you can probably sell or rent out the home at a profit. I made a lot of money in the 90s by buying homes in a newly hot market, living in them for a while, then moving out and either selling them or renting them. This is a little risky though, so be aware of that!
If you’re doing five flags, RENT. Under five flags, you are not allowed to own any assets in the country in which you live (or spend the most time). This means you must rent even if you don’t want to. The best way to handle this financially is to get some rental properties in a booming country, pay them off, then use that rental income to pay your rent in your home country. It’s pretty much the same as having a paid-off house.
If you are super picky about every little detail of how your home is laid out, BUY. The advantage of buying is that you can do whatever you want with the house no matter how crazy. Renters can’t really do this (though there are exceptions).
If your priority is getting the most house for your money, RENT. In most real estate markets, you will get much more for your money by renting than buy buying. Let the owner of the house take the risk and the loss while you live in a nice big house for a large discount.
If you’re reasonably young and don’t really have a plan for what you’re doing with your life yet, RENT. Again, renters are more mobile. If you have no idea what you’re doing, renting is a much safer bet for you. I’ve seen young people buy houses only to lose their asses a year or two later because they needed to move and didn’t plan things well.
What I’ve Done
If you want a real-life example of the above principles, here’s what I did.
When I was 18, I rented an apartment, because that was all I could afford. (And I could barely afford that!)
When I was 19, I purchased a condo. I knew I’d keep it for the long-term, and rent it out if necessary. I lived in it for about two years, rented it for about three years, and sold it at a huge profit.
After that, I bought a small house. I did this because I knew I was getting married and having kids soon (because I was stupid; I was way too young for that), so I figured I was not moving anytime soon.
Over the next ten years, when I was a family man, I moved and sold my house whenever the home values shot upwards and stayed put whenever they were stagnant. I did very well with this.
When I was in my early 30s, I was stupid again and purchased a house that was much more than I could afford. It stressed me out constantly. I gave it to the ex-wife during the divorce, who foreclosed on it.
After the divorce, I rented for a few years because I didn’t want any assets like that during the divorce (it could have been taken away from me or reflected badly upon me during the legal proceedings).
After the legal divorce was over, I saw that the real estate market was pretty stagnant and I wanted mobility, so I chose to rent for about five or six years.
After that, when I saw the market get hotter, I purchased a house. I lived there for just over two years and sold it last year at a nice profit and paid zero taxes on the gains (because I lived in the house for more than two years).
Just two months ago, I put a two-year lease on a rented house (that I talked about here) for me and Pink Firefly to live in before we make our final exit from the USA in January of 2021, where I will rent our next house under my five flags plan.
The key point here is that every time I made the decision to rent or buy, it was because of a thoughtful, well-analyzed plan. I never rented or bought based on a whim (besides that one time in my early 30s), nor what people told me to do.
That’s how you need to play this.
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