Why renting isn’t wasting money

Is rent really throwing money away?

Kevin here.

Have you ever been asked… when are you buying a house?

It’s been 3 years since I graduated pharmacy school and started working. My parents say “it’s time to grow up“. I get it… but the truth is that I don’t want to buy a house.

Old Asian dad status
Asian dad status

Growing up I’ve always heard:

  • A house is the best investment you can buy
  • Renting = throwing your money away

But is this always true?

With a pharmacist paycheck, I can afford a home… but just because you can afford it doesn’t mean you should buy it.

viagra
THAT $50 per pill drug money

The truth is buying isn’t for everyone. Here are 3 reasons why I choose to rent over buying a home:

Rent is a service

We recently had a leak.
the-leak
After four visits from the plumber, a destroyed ceiling, and thousands of dollars paid by the landlord, the problem was fixed… with just one phone call to the landlord.
fucked-up-ceiling
Fucked up some commas
The mudda beauty is that rent is a service. It frees up time so I can focus more on making money or spending time with people I love.

 

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Houses will get old. Things will break. Spending extra time for home repairs isn’t worth it to me. In exchange for rent, which is a fixed cost, your landlord works for you.

 

You aren’t trapped.

When I graduated pharmacy school, I bought a one-way ticket to LA because I couldn’t find a job. I didn’t have a choice.
air-travel-ticket-to-la
…yes my middle name is Edward
One year later, Joe asked me to be his roommate. It was the opportunity of a lifetime. 
kbbq-roommates
MUDDA ROOMMATES!

People lose their jobs. Opportunities open up. Unexpected things happen. The real question is how quick can you adapt?

Houses are hard to cash out and take time to sell. Sell at the wrong time? You can take a hit financially.

pokemon-house

The biggest benefit of renting is flexibility. If I lose my job, I can downsize my apartment. If my dream job opens up, I can move across the country. If I’m sick of LA traffic, I can move.

Renting to tenants is not easy money

In college I wanted to buy a rental property, hire a property management team, and rent it out… Easy money right? Wrong. 

 

It wasn’t until I talked to my uncle and realized that positive cash flow depends on…
mudda-unco-graduation
Mudda unco at my graduation
  • You actually have tenants
    • Tenants don’t magically pop up. Sometimes you have slow months where your property sits empty.
  • Your tenants actually pay… and on time
    • Tenants won’t always pay. Evictions don’t happen overnight. In my uncle’ case his tenants didn’t pay for a whole YEAR.
  • Your tenants don’t tear up the place
    • My uncle’s tenants fucked up the place… costing more headache, time, and money for repairs.
fuck-your-couch
Dem feels when you have shitty tenants

Positive cash flow can happen, but it’s important to factor in the liabilities.

…so is buying a house is a bad idea?

Let’s recap.

  • Little diversification
    • You have a large amount of money sitting in one investment vehicle AKA your home
  • High leverage
    • Most people borrow lots of money when purchasing a house
  • Illiquid
    • It takes time to cash out or sell a home
Take things in steps and build a foundation first. Does it make sense to put all your money in one investment vehicle and risk losing it all? Hell no.
disaster-girl
My solution? Invest into index funds first. You don’t need to borrow money to get started. They’re diversified and you can cash out much easier than a home.
Vanguard returns
Screenshot of one of my accounts
Will I ever buy a house? Only when I have multiple revenue streams (businesses, stocks, etc…). That way my investment vehicles can cover the liabilities. As the Wu Tang Financial says…
Best financial advice ever
Best financial advice ever
What are your thoughts about renting vs. buying? Leave a comment below and let me know what you think.
Kevin

 

PS… You should definitely check out James Altucher’s article on his experience owning a home.
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3 thoughts on “Why renting isn’t wasting money

  • November 15, 2016 at 7:55 am
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    So essentially what I took from this is renting is better for younger people whilst, older people who want to settle down can buy a house in the mean time invest invest invest, wisely.

    Reply
  • November 17, 2016 at 12:35 pm
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    I hope my bad english is good enough to write ;). So hmm well for me i always dreamed about my own house becaue i living now with my parents and before with my siblings and we had alwys so many guest or we are a big family so many vistis. After a time i get tired and annoyed of that, i can´t even go quick in my underwear to the bathroom it could be my dad see me or when we have guest who stay over night i must share a room or go to my sisters place. Overall it sucks so i want a house for myself and i can rent a room then cause iam the Landlord then. Iam ready to take so much responsibility why not. I save up all this money for years because i wanna have a house and do more things. We as a Family lived 20 years in rent and for that much we could have our own but ok there are good sides of rent too. For me owning is better 😉 Thanks Kevin for sharing and joe too. I have this in my mind i wanna live my life my way and no matter who says what iam going the way i think is right 😉 Make Love not war 😉

    Reply
  • November 21, 2016 at 2:33 am
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    Good article with some solid points. Another great option is to purchase a property, ideally under market value, then rent out rooms to other people. So you have an asset being paid down by your renters, and you also gain some experience as a landlord.

    Reply

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