2975: How To Decide Whether To Buy Or Rent A Home by Sam of Financial Samurai on Happiness and Values

[00:00:00] This is Optimal Finance Daily, How To Decide Whether To Buy Or Rent A Home by Sam of FinancialSamurai.com

[00:00:09] The decision to buy or rent a home is a big one, especially if you've never purchased real estate before.

[00:00:15] Here's my story about how I decided on buying a home versus renting.

[00:00:20] For me, the decision came up one rainy winter. Rain during the winter in San Francisco means lots and lots of snow in Lake Tahoe.

[00:00:28] My buddies and I decided to take a two and a half hour drive up to Sugar Bowl and hit the slopes that Saturday.

[00:00:34] A total of two feet of fluffy powder fell overnight and we were in snowboarding heaven.

[00:00:41] Fall in love with a gem location.

[00:00:44] When we returned that evening, our legs were sore, but our faces beamed with smiles as we reminisced our daring jumps off several of the steepest slopes.

[00:00:54] We had no fear because the landing zone was soft.

[00:00:57] The very next day in San Francisco, the sun was beaming down a warm 76 degrees and we decided to play some tennis at the local park.

[00:01:06] It was that exact moment when I knew that San Francisco was the place I wanted to live for as long as possible.

[00:01:14] Months later, I bought my first place.

[00:01:16] Buying a home is not about the money.

[00:01:20] Knowing when to buy a home is not so much about one's finances.

[00:01:24] Everybody knows that you should follow my 3033 home buying guideline.

[00:01:30] Helpful guideline on buying a home.

[00:01:34] This 3033 guideline is you have to have 30% of the value of the home saved up in cash.

[00:01:41] Spend no more than 30% of your monthly gross income on the mortgage and pay no more than three times your annual gross salary for a home.

[00:01:51] This should be obvious to those of you who know the basics of personal finance.

[00:01:56] If not, I encourage you to keep reading my articles regularly.

[00:01:59] The more knowledge you have on personal finance, the better your finances.

[00:02:03] The most important factor in deciding on buying a home is whether you love the environment you're in.

[00:02:11] You should be able to see yourself living there for years.

[00:02:14] In addition, you should have already found a career or entrepreneurial endeavor you enjoy.

[00:02:20] Ask yourself this main question.

[00:02:22] If you were forced to live in your current location for 10 years, would you be happy, okay, or frustrated?

[00:02:29] If the answer is happy, you have yourself a winner.

[00:02:33] Home buying is really that simple.

[00:02:36] The key to wealth is simply being in the game for a long enough period of time.

[00:02:40] Larry accumulated $5.7 million in his 401k because he invested for 35 consecutive years at his firm.

[00:02:49] It's the same thing with owning a home.

[00:02:51] Thanks to inflation and an ever-increasing population, if you buy a house and live there for 20 to 30 years,

[00:02:58] you are most certainly going to come out fine.

[00:03:00] And if nothing else, after 20 to 30 years, you'll have a nice little asset to call home where you can live rent-free.

[00:03:08] Sick of renting?

[00:03:09] Time to buy.

[00:03:11] After three years of saving and investing all my money after college, I was sick of renting.

[00:03:17] I didn't want to spend more than $2,000 a month on a nice one-bedroom.

[00:03:21] And the rental stock really is inferior to the ownership stock here in San Francisco.

[00:03:27] There's no point in making money if one doesn't spend it on things that improve the quality of your life.

[00:03:33] I knew very well after that glorious weekend that San Francisco was the place that I could see myself living for the rest of my life.

[00:03:41] Before that, I had already lived in five different countries, studied abroad and three others, and visited 23 more up until that point.

[00:03:50] I just knew I had found myself a winner.

[00:03:53] Nowhere else had the great combination of comfortable weather, plentiful six-figure job opportunities, culture, food, nightlife, and great outdoors like San Francisco.

[00:04:04] Life is how you live it.

[00:04:07] Deciding on buying a home is like deciding on a relationship or a marriage.

[00:04:11] You just know at that point in time she or he is the person you want to spend the rest of your life with.

[00:04:18] If you're unhappy or uncertain with your career, haven't explored enough places, and still don't know what you want to do in life,

[00:04:25] renting is an absolutely fantastic choice.

[00:04:29] Alternatively, if you do happen to know early on what you want to do for your career and where you want to live, then by all means, go for it.

[00:04:37] I strongly believe everyone should get neutral inflation by at least owning their primary residence.

[00:04:43] Real estate hedges against inflation and is a great forced savings account.

[00:04:49] You just listened to the post titled,

[00:04:54] How to Decide Whether to Buy or Rent a Home by Sam of FinancialSamurai.com.

[00:04:59] Ah, the never-ending debate of renting versus buying a home.

[00:05:05] As much as we all want a clear-cut answer on which is better,

[00:05:09] just like most things when it comes to personal finance,

[00:05:11] it all depends on a number of factors.

[00:05:14] I think the decision to buy a home is very personal,

[00:05:18] highly dependent on your circumstances,

[00:05:20] and might not make financial sense depending on what you buy.

[00:05:23] In my case, I bought my house as a lifestyle decision after I was debt-free and investing heavily in retirement vehicles.

[00:05:31] Like Sam, I was also sick of renting.

[00:05:35] When I was in New York City, it was typical for my rent to go up $100 every year.

[00:05:40] Pair that with changing roommate dynamics,

[00:05:42] and I found myself in the stressful situation of finding a new place to live every year or two.

[00:05:48] I also had a number of less-than-stellar landlords during my time renting

[00:05:52] who weren't the best at maintenance and repairs.

[00:05:56] Everyone talks about how they love renting because they aren't on the line for maintenance.

[00:06:00] But it's really no fun when your landlord disagrees with you on maintenance needs

[00:06:04] or is satisfied with a band-aid solution.

[00:06:08] Home ownership has high carrying costs,

[00:06:10] and if you need to access the money you have locked up in equity in your home,

[00:06:14] you either need to sell the house or take out a home equity loan, which creates more risk.

[00:06:19] I recognize the risks of home ownership

[00:06:22] and really only considered it after getting other financial goals out of the way,

[00:06:27] like getting out of consumer debt, fully funding retirement vehicles,

[00:06:31] and building up a solid emergency fund.

[00:06:34] That's a wrap for another Thursday show.

[00:06:37] Have a great rest of your day,

[00:06:38] and I'll be back tomorrow as usual, where your optimal life awaits.