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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