My spouse and I bucked the Millennial trend when it came to choosing our living arrangements: at the young age of 22 for me and 25 for him, we bought a house.
It’s not that we were ready to settle down, desperate to live in the ‘burbs, or ready to start filling up those 4 bedrooms with kids. The house we bought is far from our dream home, and it’s also far too big.
So why did we buy, when A. our house doesn’t seem to align with our goals or desires and B. most experts advise people like us to keep renting?
One reason and one reason only: we believed it was a good investment.
Our Home as an Investment
As I’ve discussed before in the personal finance blogosphere, our home was an investment for a few reasons. It’s in a sought-after suburb that originated as a planned community. It’s an affluent area with great school systems and lots of great amenities for families and kids.
The house itself is a two-story traditional style, complete with fenced in backyard. We bought it in fantastic condition and the only work we’ve done on it is cosmetic. It was built in the 90s and nothing was really updated, but it wasn’t falling down and hasn’t (yet) required a huge amount of cash to fix or replace anything.
And we got the timing right. We bought at the bottom of the market and the sellers were desperate to get out of the house as fast as possible. They came off the list price by $10,000, paid for a variety of repairs and maintenance tasks before we closed at our request, and paid the closing costs. Through our lender, we got a fixed-rate mortgage with an interest rate around 3.5%.
It was a hell of deal all the way around.
So, yes, for us, our home is an investment and we’ll likely enjoy a nice return at some point in the future. But because of all the reasons we’re looking at a great resale value (size and location being the primary two), the house is not a good fit for us long-term. It’s too big, it’s too far away from the places we want to be, and it has perks like good school systems that just aren’t applicable to our situation.
Recently, I started to question whether or not we did the right thing by buying. It’s hard not to second-guess yourself when all the media outlets are churning out stories on how Millennials aren’t buying homes and many of your friends claim purchasing a home was a mistake.
As with many other things in personal finance, it’s hard to feel like the oddball when you take different actions for the purpose of building wealth.
Our Rent vs Buy Argument — Did We Make a Good Decision?
Our 5-ish year plan is to move out of the house. Instead of selling, we plan to rent it out. But when I started feeling like we were wasting our money on a mortgage payment when we could be wild and free like our rent-paying friends, I started scheming.
Maybe we could move ourselves to an apartment in a place we wanted to live now and rent out our house today. Why not? Surely it wouldn’t be difficult to find a little place for less than our mortgage payment of $1000 per month.
(Are some of you snickering at that? I am too, now.)
Little did I know how much it cost to rent, even in a little downtown square in the suburbs — not even the city. We went to check out a new apartment building in our downtown area and looked at a two bedroom, two bath floorplan. It was 1100 square feet and really nice.. and over $1,400 per month to rent!
$400 more per month than a property I owned that was 2400 square feet and came with my own garage, driveway, and outdoor space? Hmm.
Maybe our living expenses really weren’t as bad as I had thought they were with that mortgage. Based on many articles I had read that argued against home ownership for young 20 somethings and those that firmly denounced the old rule that said buying was always better than renting, I had started to think that we should have kept renting, too.
But after seeing the price for a rental at that apartment complex — and checking out some other prices in areas we’d like to live in — I wasn’t so sure. I decided to run our numbers through this comprehensive rent vs buy calculator to figure out what situation was truly better.
And the Winner Is…
After plugging in all our information, the calculator told me that in order for renting to be a better deal I’d need to find a place to rent for $676 or less per month.
Buying a home worked out to be the better financial deal for us.
I mean, yes, we probably could find someplace, somewhere to rent for less than $700 per month. But that’s far from realistic. Heck, I think our parents would probably ask for a rent of about $500 if we wanted to move into one of their houses!
It was an interestingly little thought experiment to run. Of course, that calculator isn’t the end-all, be-all, but it does give some insight into whether renting or buying is best. It just underlines the fact that personal finance is personal.
Despite the fact that some people might think we’re wasting money or spending too much, despite that I come across little news articles every day saying that Gen Y should rent because buying a home doesn’t make sense anymore, in our case the math points to the argument for buying.
When it comes to the rent vs buy argument, I don’t think there’s a single right answer. There are too many factors in play, and too much depends on more intangible things like your values, goals, and what you want out of life.
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What’s the conclusion to this argument for your situation when you crunch your own numbers?