Fatwallet discussion about : Renting Forever - Never Buying A House

http://www.fatwallet.com/forums/finance/952329/



This is something I have been thinking of for a while and wanted to solidify some thoughts to start a new discussion. The premise of the discussion is renting forever.

Home ownership is something that has been said to me my entire life as a great thing. I grew up when home prices were going up 5% per year and then 10 to 20% per year and then 50% per year during the bubble. People talked about how great investments their homes were, and tax writeoffs and such.

Now that I am an adult and considering the possibility of home ownership, it seems almost ridiculous that anyone would want to own a home. I say this even excluding fluctuations in financial value of the home. Considering financial implications of downside, it makes the thought of homeownership seem ridiculous.

Reasons why I dont want to own a home:

1) Reduce embedded-ness to local municipality. If a new mayor comes in and changes things in a way I dont like, I can just move if I rent. Its much more difficult if you own a home. Traffic light cameras enter the city? Vote with my dollars and LEAVE. Pay the 1 month penalty to break the least and move a few miles to the next city. Write a letter to city hall with copies of my lease-termination letter and explain why I moved and will refuse to use businesses in their "police-state." Raise property taxes to support ridiculous projects or increased salary to councilmen? GOODBYE! By myself I look like a crazy person who will be ignored but imagine if 10 people moved. Or 100? Or 1000? Most people are sheep but I feel renting gives me leverage over the local government.

2) Reduce embedded-ness from state. If a new governor comes in and changes things I can leave. Its harder to find a new job in another state than simply commute a little further from a nearby city, but it's easier to do than selling a house/buying a new house and moving.

3) I dont want to take care of things. Mowing grass, fixing washer/drier, maintaining roof. No thanks. From everything I read, most new homeowners severely underestimate the costs of maintaining a home when running renting versus owning calculators. I have heard maintenance can run about 3% per year of the value of the home. The time-cost of taking care of things is also high. I could be using that time to get a promotion at work or get a second or third girlfriend on the side.

4) Eminent Domain. The chance of it happening is rare, but you dont really "own" the home. The government lets you live there and can take it from you at any time. I am moderately mentally ill and if I owned a home I would likely build an underground nuclear shelter and hide things in the walls and such. That's a lot of trouble to go through for something you cant really guarantee you will get to keep forever.

5) Property Taxes mean you never own the home. If you stop paying the taxes, the city takes the house from you. So really when people say "The house is paid off, I can retire" they mean "I have to pay property taxes forever." Considering taxes are only going up, its not something I want to lock myself into. 10 years into retirement, I dont want to sell my house to get a smaller place with less taxes. I realize taxes are built into rent prices, but with rent, I know I am going to be paying rent forever. With a house, you are still going to be paying forever.

6) Lack of flexibility in new jobs. Get a job offer in another state? Sure no problem, give me 9 months to sell my house and another 6 months to find a new house in the new area! Screw that! Rent and be flexible and able to move to where the money is!

7) You can rent a house if you want to live in a house. You dont only have to rent apartments or condos. All the arguments about it sucks to live in an apartment are negated if you rent a house.

8) Non-leveraged approach to investing. With a house, you have to put 20% down and have 5x leverage. If the house goes down, you are screwed. With an apartment, you can take the money you would have put as a downpayment, and invest it into REITs, Stocks, Bonds, etc in whatever risk-adjusted assset allocation you desire, without having to use leverage. Leverage is a terrible idea to use in investments. If you dont consider the house an investment (which you should NOT) then consider the lost opportunity cost of not being able to invest the downpayment into legitimate investments.

9) No Itemizing. For a lot of people, itemizing doesnt make sense unless you own a house. Thus by owning a house you are forced to itemize and forgo the $5k standard deduction. So if you are writing-off $10k in mortgage interest, you really only saved $5k additional write-offs.

10) You dont get to be an American hero on CNN.

11) Reduced Liability. If the girlscouts come to your door to sell you cookies and fall on your steps then they sue you for medical damages. WTF? I didnt invite you into my house. If you dont clean the ice on the sidewalk in front of your house and someone slips they sue you. REALLY? How do people fall for this nonsense. This is one of my biggest ones. Sure you have homeowners insurance, but this means that you MUST have home owners insurance forever. One might believe that after the mortgage is paid off, you can stop paying insurance and take the risk yourself. The bigger risk is NOT in a fire, but its in the gardener cutting his finger off on his pruning shears and suing you. Not a big deal in a lot of states but in Florida (where I would like to live), homeowners insurance is around 2% to 3% of the value of the home annually.


Biggest problems with not owning a home:

1) Reduced Creditor protection. In Florida, Texas, and a few other states, your home is 100% protected from creditors. Its nice to have $100k in cash in the bank, but I would rather have $90k in equity of my house and $10k in cash to look like a worse target for lawsuit.

The way I plan on mitigating that threat is to save any additional taxable money in tax-deferred annuities after maxing out 401k/IRA. Annuities in Florida are also 100% protected from creditors, and I get the advantage of deferring the federal taxes on earnings. A few companies such as USAA offer very low expense options with little downside for long-term investing. When I am ready to retire, perhaps at age 40 or 50, I can annuitize it and use the payouts for my rent.

2) Not being able to build that underground nuclear shelter I always wanted. I can use the extra savings to buy some land out in the sticks to build a cabin in and store my canned beans and ammo.


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posted: Sep. 13, 2009 @ 3:02p [link to this post]

The premise of the discussion is renting forever.Kind of like the argument about why own a cow if you can get the milk for free?

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* blok
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posted: Sep. 13, 2009 @ 3:12p [link to this post]

There is nothing wrong with renting, I own multiple investment properties and rent my personal residents for many of the reasons above. I would agree for the most part that owning a home is a complete waste of money, but when I am older and ready to settle down I will be buying/building my own home, but for now I am very content with renting.

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* gotsmack
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posted: Sep. 13, 2009 @ 3:40p [link to this post]

TripleB, I agree with you, but there are some situations where it makes sense to buy though.

1. If you find the "Dream" place you deice to live for the rest of your life.
2. You're getting a crazy good deal in an area you're already loking to live.
3. You're just speculating that the prices in town are going to shoot up because something is happening in the area, such as building a new sports stadium or something.

Also I would never buy in an area that is not fairly developed, because why would someone buy from you later when they can just build a new house on a plot of land next door to you?

Here is a video of Peter Schiff discussing why owning during the bubble was a bad idea and noone listened to him.
http://www.youtube.com/watch?v=EgMclXX5msc
its a good video, but if you're short on time start watching from the 10:00 to 14:03

In a different video I can't find, he says that the only time he would buy is if you can use the $8k for new home buyers as a down payment and then walk away if the vlaue of the home falls.