(originally on Facebook, but also cross posting here, now that Facebook Notes is deprecated)
Until recently, Manasi and I never really thought of buying a house as something we particularly wanted to do — certainly not in the short term. Several of my friends recently bought houses, though, and these are people we know and trust to make wise decisions. So is there something we're missing? Much discussion, research, and deliberation ensued, and we decided to study the topic thoroughly, to make sure we're making the best informed choice and not just letting inertia do the decision-making for us.
As is typical, we started with obsessively reading up everything we could find on the topic on the internet; and there's oh-so-much material! From rent-vs-buy calculators where you put in numbers and tweak some knobs, to this very thorough article on the history and the politics of the Bay Area's housing crisis. We also put out a post on Facebook, asking friends to help us figure this out. This led to an outpouring of advice, comments, and conversations, all of which were super helpful in learning more.
Sharing back what we learned from the process. Some of this might seem like common sense, but it was useful to us, hence putting it on paper.
House-buying is a life goal
Get a college degree, find a good job, get married, have a kid, buy a house — these are life goals not in the sense that you're incomplete if you don't accomplish them, but that they are seen as the ‘default choice', and choosing not to do one of these is often something you need to justify to yourself. House-buying is an important one, and perhaps the first life goal that you achieve truly independently as an adult.
Recognizing this helped us understand why several folks interpreted our FB post soliciting information about house-buying as us thinking of buying a house now, and we received plenty of advice about how to maximize the approved loan amount, minimize interest rates, and recommendations for realtors. Further, several folks we talked to who aren't buying a house now or here, do see themselves buying a house eventually.
The intangibles outweigh the financials
Most people aren't buying a house because they want to invest in it, but because they want to live in it. The fact that it also appreciates is a bonus on top. In a sense, buying a primary place of residence is more comparable to buying a car than it is to buying stocks or ETFs — you might buy a Toyota sedan over a Chevy because it depreciates slower, but you won't buy a muscle car when you need a minivan, irrespective of the financial outcomes. And the intangibles are plenty:
- Having to move and upend your life every time your rent increases unreasonably is stressful
- Helps you “lock in” a good school district for when you have kids (or if you already have them)
- The feeling of having a place that you can truly call your own
- The feeling of being anchored in a place and a community
- The freedom to make major renovations
Financial outcomes may not be vastly different
After having played with half a dozen different rent vs buy calculators, our conclusion was that neither renting nor buying looks like a slam-dunk obvious winner. Tweaking the numbers a few percentage points here and there lead to renting and buying each sometimes coming out ahead, but given that the expected stock market returns, expected real estate appreciation, expected rent increase, etc are at-best educated guesses, the conclusion was that with the current rents and house prices, renting and buying are both likely to lead to somewhat similar financial outcomes in the next ~20 years. Real estate is neither the silver bullet, nor the rusty nail of investing. The following caveats apply:
- A more expensive house costs more than a less expensive one (duh!). Or, choosing between renting a one-bedroom apartment, or buying a 4-bedroom mansion, the latter is likely to cost more both in the long and short term, independent of the rent/buy decision.
- A corollary of the above is that if you see yourself needing a 4BR house three years later, but don't need it now, it is probably better to put-off buying one till then.
- A savings account is a terrible investment vehicle. Buying a house is almost certainly the better choice if you're not investing your money otherwise.
Manasi and I decided to not buy a house right now, for several reasons:
- Neither of us think of house buying as a life goal — Manasi because she spent most of her life living in government quarters, as her family moved from city to city; and me because I've never really felt a sense of attachment to any house I've lived in (instead feeling an attachment to the people I live with).
- We like our current semi-suburban lifestyle with downtown shops, bars, and restaurants within walking distance. We won't be able to afford buying a house here in the downtown area, and house-buying would likely mean moving somewhere more suburban and more car oriented.
- We occasionally idly daydream about moving out of the Bay Area. While we don't have concrete plans yet, buying a house here will make moving out that much harder. From an effort and cost point of view, our conversations suggested that one should not buy a house unless planning to live there for at least seven years.
- Being responsible for your own plumbing and gardening and maintenance seems a lot more intimidating than just giving the landlord a call when something breaks. In practice, this is unlikely to be a major time-sink, but the mental effort seems undesirable, nonetheless.
Did you also go through a similar thought process? In what ways were your conclusions similar, vs different from ours? Did we miss something crucial? Would love to hear your thoughts, and discuss this more.