I admit it, I’m a renter.
At least a few times a year, I get told by my parents that I should buy a house, or put some money down on a condo.
“When you rent, you throw away your money”, they told me many times. “You want to end up with something in the future, like a house”.
In spite of hearing this advice many times, I still rent, and intend on doing so for a long time. Here’s why:
My Philosophy on Debt
“The borrower is servant to the lender” — Proverbs, 22:7
The modern tool for enslavement is debt. In fact, there’s never been a better tool designed to restrict people’s freedom. The path has been clearly laid out when you were born. The way to happiness is to get a good job with a good pension plan, get married and raise a family, and borrow money to fund your American dream.
It starts with your first credit card. Then you borrow money for your first depreciating asset: your car. But your most important expense of all will be your house, which you’re told is an asset, instead of the obvious: the biggest debt you’ve incurred so far. When you owe money to a bank or another lending institution, you cannot be free.
Debt is like an invisible leash tying you to your current circumstances. When you have payments to make, you cannot decide to do something different. If every month you must make payments for your car, your credit card and your mortgage, then you must continue slaving away at that job to make those “ends meet”.
Want to take a trip around the world? You can’t do it.
Want to quit your job and live on your savings? Impossible. Those monthly payments have to be made.
The numbers show that the average person in the USA has $8,500 in consumer debt. Keep in mind that this doesn’t include mortgage debt. That’s for every man, woman and child! Obviously, some people have much higher levels of debt for this average to be so high.
Debt in My Life
My first important step towards total freedom is realizing that any amount of debt will restrict my freedom. Therefore, the ideal amount of debt to have and be free is ZERO, just like the ideal amount of cigarettes to smoke for good health is NONE.
I had no problem with consumer debt like credit cards. I always paid them in full at the end of the month and did not feel I had to cut them down or freeze them like some debt-reduction experts recommend. I like the convenience of credit cards and in fact I could not run my business without them.
I never borrowed to buy depreciating assets like a TV or a computer. I’ve only owned three cars in my life and paid in full for them. I always bought them a few years old, which is the smartest thing to do. But there was one type of debt I was conditioned since birth to view as “good”, and had a very hard time to view as just “debt”. And that’s of course the house mortgage.
I’ve always rented, but almost three years ago I decided to buy a property in Costa Rica, this was a big mistake. But at least it taught me the danger of debt.
A lot of people will tell you that getting a mortgage on a house is a “good” debt, because you’re buying an appreciating asset. Very few people realize that a house mortgage is just a big debt that’s only potentially going to appreciate in value. Like all debt, it will restrict your freedom. But since it’s going to be your largest debt, it will be a more important factor working against your freedom than any other type of debt.
Consider the following:
- A house is NOT an asset until you’ve paid in full for it. It’s only an asset for the bank who loaned you the money, because they can sell it in case you’re no longer able to pay your mortgage.
- Paying a mortgage is NOT comparable to a “forced saving plan”. Only a tiny amount of your monthly payment goes towards your equity. The rest goes towards paying the debt. On a typical mortgage at the average interest rate, you will pay for your house TWICE in the end, with half of the money going to the bank.
- A house only potentially appreciates in value. It’s only worth what you can sell it for, not what you think you COULD sell it for. As many people have found out in the last two years, the real estate market does go down from time to time.
- From 1978 until 2004, real estate appreciated about 8.6% per year on average. At the same time, the stock market appreciated 13.4%. So in the long run, there are much better ways to make a good return on your investment than buying a house.
- As the author of the book “Rich Dad Poor Dad” said, “an asset is something that puts money in your pockets”. So buying a house for yourself is not an asset.
- Renting is cheaper than buying, in most cases. The average homeowner will spend much more on “improvements” on a house than the average renter. If you value your time, you should also think about all the repairs that will go towards the house that the renter will not have to worry about.
- A house mortgage restricts your freedom. If you want to live somewhere else, or take a year to travel, you can’t do it on a whim. Those payments have to be made, or the house has to be sold.
- Buying a house only makes financial sense if you think you’re going to live at the same place and not sell it for at least a 5 to 10 years. At this point, I personally prefer not to be tied down somewhere for that long.
- Buying is easier than selling. You can go any day and buy a house. But selling it is another story. This lack of liquidity can severely restrict your freedom.
- Renters are not “throwing away their money”. They can be using it smarter. All the money you save renting (and not having to worry about repairs and house improvements) can be invested somewhere else, usually at a much better rate of return. It’s not just about the monthly payment.
Why I’m Renting and Not Buying
For me, renting is what makes the most sense, at this point in my life.
For one thing, I don’t want any debt for any reason. The only way I would buy a house is if I could pay for it 100% cash. But even then, I would think about it twice, and would make sure I could envision living there for a long period of time.
Of course, some people value other things above freedom. I’m not saying that getting a home mortgage is necessarily wrong for everybody. In your situation, it may be the right thing to do. But for someone who values freedom above everything else, a 100% debt-free life is the way to go.
Renting Increases Your Options
The other problem with the “buying is better” mentality is that it severely restricts your options. Most people think that they must own the place in which they live, and that the only way to drive a car is to buy it or lease it. But when you buy something, you’re stuck with it forever, until you sell it. Most of the time you’ll end up paying more than you can recoup later on.
Let’s say your dream is to own your own tropical island. Most beautiful tropical islands for sale cost at least one million dollars, and financing is generally not available. But did you know that you can rent an entire tropical island for as little as $2000 a month? I was shocked when I learned this! There are literally thousands of tropical islands you can rent in Thailand, Fiji, Panama, and the rest of the South Pacific.
Maybe if you rent a tropical island for a month, you might realize that it is not for you long-term. You spent $2000, got to live your dreams and learned something along the way. But if you spend years saving money to buy that island… you’re stuck with it for a long time! I imagine there might not be a huge market for tropical island buyers.
This is just an example to show you how the “buy-only” mentality can restrict your choices.
For example, let’s say your dream has always been to drive the latest BMW or Infiniti car model, but you felt like you couldn’t afford it, or it was too flashy. Why not rent that car for a weekend and try it out? Then you’ll know if it’s for you or not. At least you’ll get to live your fantasy. You don’t need a million dollars to live your dreams. There are beautiful million-dollars villas you can rent for a very reasonable price in many parts of the world. Why get stuck owning something when you can rent it, stress-free?
Practically anything you’ve always dreamed of doing but always felt you never could — can be done right now for much less than you imagine.