‘What If I Never Own a Home?’

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I’m 37, and like most people I know, live in a rental apartment in New York City. I got a pandemic deal so my rent is decent right now ($3,500 for a well-sized one-bedroom with a balcony in the East Village), but I’m sure it’ll be raised in November. I should be okay (I make about $125K), but the fact that I’m completely at the mercy of my greedy corporate landlord has brought up a question: Should I be thinking more about buying a place?

I know that homeownership is a good way to build equity and wealth in the long term, etc. But it’s never really been something I dreamed of. If anything, it sounds like a huge headache. My parents own their home, and it’s so much work. Renting obviously has its downsides, too, and I know I’m technically throwing that money away every month. But the cost of buying a place in NYC is prohibitive, and I actually like the freedom of renting. 

Still, over the past few years, a lot of my friends have started talking about homeownership (usually outside of the city), and it’s starting to make me wonder if I’ll regret my stance on this. Should I be making it a higher priority? Is there something I’m missing? And if I’m not a homeowner, are there other ways I should be building equity instead? 

Let’s start by debunking the myth that renting is “throwing money away.” Both renting and owning are just different ways of paying for a roof over your head — a worthy expense — and there are pros and cons to each. Renting can be a great decision and a much more affordable one in both the short and long terms. While buying a home allows you to build equity, it’s not always a sure bet. A home is not a closed financial system; it’s a complicated, risky asset that can also be an expensive pain in the ass.

In fact, some of the most financially savvy people I know are renters by choice, meaning they could afford to buy but don’t want to. (For example, Ramit Sethi, the author of I Will Teach You to Be Rich, has some great insight on when it makes sense to buy a home and why he hasn’t.)

This is also where I should mention I’ve been a homeowner since 2018, and while I am immensely grateful for the confluence of events that made it possible for us to buy our apartment, the hours and money involved (which included replacing the entire HVAC system and most appliances during the first years we lived here) are too depressing to add up. I still get anxiety about leaks whenever it rains. I know these are lucky problems to have, but take it from me: Homeownership is not always a fun reel of picking out kitchen tiles and discovering beautiful floorboards under old carpeting. It’s also time consuming, costly, and stressful.

Back to your question. For the vast majority of people, there are three reasons to buy a home: (1) You can afford it, (2) you want to be a homeowner, and (3) you’re planning to live in said home for at least five years, ideally more (making money off real estate is usually a long game). Unless you can check off all three of those boxes — and it sounds as though you can’t — then you probably should keep renting.

That said, I know renting is complicated, too. It sucks to feel jerked around by a faceless landlord who will take any opportunity to squeeze more money out of you. “Both renting and buying are subject to rising costs, but with rent, those costs are easier to identify,” says Sarah Asebedo, a certified financial planner and professor of financial planning at Texas Tech University. The important thing to remember is that they’re not arbitrary. Your landlord can charge only as much as potential renters — i.e., you — are willing to pay. (In financial parlance, this is known as “how much the market will bear.”)

People often say that when you rent, you’re just paying your landlord’s mortgage instead of your own — i.e., they’re sitting pretty while you hustle to pay their bills. In actuality, plenty of landlords lose money on their properties all the time. While rents are truly obscene right now, recent reports show the monthly costs of owning a home are still higher even in pricey metropolitan areas.

(If you’re curious what exactly homeowners are paying so much for these days, here are some examples from my own experience: insurance, mortgage interest, property taxes, sidewalk repairs, the cost of someone delivering a new dishwasher after the old one mysteriously leaked all over the floor and into the downstairs neighbor’s apartment, etc. If you’re renting, this is what your rent checks are covering in addition to your landlord’s mortgage.)

You asked if you were “missing something” about the allure of buying a home, but I don’t think you are. Instead, a lot of people get swept up in the American Dream of owning property as a benchmark of financial security even though that’s no longer the case.

“For previous generations, owning a home was their best opportunity to build equity in something,” says Katie Gatti, a personal-finance consultant and the creator of Money With Katie. But a number of things have changed in the past 20 years. For one thing, the average home used to be more affordable, so the barrier to entry for potential home buyers was lower. “Conversely, the barrier to invest in other assets — like the stock market — is now practically zero. Anyone with an internet connection and a couple of dollars can start building equity in low-cost index funds that previous generations didn’t really have access to,” adds Gatti.

This brings us to the final part of your question: what you should be doing to build equity instead of buying a home. It sounds as though you’re already on the right track. “Make sure you maximize contributions to available employer retirement plans, like a 401(k), to get the employer match and/or profit-sharing contributions,” says Asebedo. “You also want to build a flexible cash fund for emergencies so that you don’t have to dip into your investments if something comes up.” You could beef up your long-term investments with a Roth IRA, which gives you more flexibility to access that money before retirement if you ever need to. The general rule of thumb is to keep your rent costs under 30 percent of your take-home pay so that you have enough money left over to save 20 percent of it.

The average annual returns on long-term residential real-estate investments are roughly the same as the average annual returns on the stock market (around 10 percent), and that doesn’t factor in all the additional costs of upkeep over the years. So if you just invest your money instead of using it to buy a house, the math is technically in your favor.

Picture this outcome: “You could continue to rent and invest for your entire life and retire with a healthy portfolio that can produce annual returns that are high enough to support living in an amazing rented space that requires no upkeep from you,” says Gatti. “The idea that everyone has to eventually buy is based on this flawed logic that every market supports homeownership as the most cost-effective path, which is not always the case.”

The Cut’s financial advice columnist Charlotte Cowles answers readers’ personal questions about personal finance. Email your money conundrums to [email protected].

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