Is Renting Always A Waste Of Money?

Is renting really a waste of money? Dan reveals what he thinks about renting versus buying a home. He provides the principles that will equip you to decide which one is for you – from the location of the property and the mortgage to where you are at in life. Learn to make your decisions wisely while taking into consideration your current state. Read on to discover if renting is really a waste of money.

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Is Renting Always A Waste Of Money?

To buy or not to buy. “If you rent, you’re making somebody else’s rich. You’re paying someone else’s mortgage.” You have heard that growing up. Coming from an Asian background, we always were taught at a young age, “You want to own your home. You want to have a roof over your head no matter what.” I was born in Hong Kong. In Hong Kong, a lot of people’s dreams in life is to own a home. Should you buy or should you rent? It’s a stupid debate. Here’s why. It depends on where you are at in life. It depends on your income and also your goal. It’s like asking, “Should I buy a condo or should I buy a house?” It depends. Do you like a garden? Do you want to have a facility? Do you want to have a gym? Do you want to work out in the morning? Do you want a condo lifestyle so it’s less maintenance? Do you want to have a place, a garden or do you want your kids running in the backyard? What is it that you want? It’s a stupid argument. I understand that buying a home is such a major decision. It’s probably the most important investment that you’ll ever make in your life. What I want to do is I’m going to give you some principles that will help you make these decisions wisely and to think about this intelligently. I’m going to share some insights with you that you won’t get anywhere else.

Question number one, can you afford it? If you look at the cost of rent versus the cost of housing, if you live in any major cities, the prices of houses are so expensive. Real estate is expensive. With your current income, you may not be able to buy at all and that’s okay. It might take you years and decades to save up enough money just for the down payment. Even then, it’s always a stretch to make that monthly mortgage payment. Then don’t buy, rent. Question number two, is it cheaper to rent than to buy? Take Vancouver for example. The prices of housing are so expensive. It costs a lot of money to buy a home. The mortgage payment is so high. If that’s the case, maybe it’s better to rent and then buy later. In real estate investing, let’s say a landlord has a piece of property and I’m renting it out. If the rent that’s coming in is not even enough to cover my mortgage payment, that’s called a negative cashflow in real estate investing. If you look at Vancouver, a lot of houses are negative cashflow. If that’s the case, you calculate. If I take a mortgage, let’s say my monthly payment would be $3,500, but if I rent the same place, it may be only $2,800 or even $3,000. The landlord is losing money every month for you to live there, but the landlord is counting on the depreciation. You, as a tenant, that’s okay. You save a few dollars to maybe use towards something else. Maybe starting your business or developing a side hustle.

Renting: Somehow as an entrepreneur, you can be creative enough to find the money.

Number three, rent if you are still earning and learning. What do I mean by that? Maybe you just graduated or maybe just starting your business. You’re trying to figure things out. You’re trying to figure what is your career, what is your strength, what is the ideal location for you to prosper. You never know because there may be an opportunity in some other cities that you may have to move. You may have to travel. For that, I recommend you to rent. You want to be mobile, you want to be flexible, especially if you’re a millennial. Save that money. Instead of using it towards a down payment, use that money to invest in yourself. If you’re an entrepreneur and you’re starting a business, invest in your business so you can grow that business. As that business makes you more money, as you make more money, then you can look into buying. For now, rent if you’re still earning and you’re still learning. Number four, buy if you are stable and established. Let’s say you’re close to 30 years old or over 30 years old. You have a good career and you have a good income coming in. You could afford to buy a home in a good location or in a good neighborhood and still have money left over, then you buy. As a couple that is working together, maybe you and your husband or wife both have jobs or you are working in a business together, then you buy. You buy because you are starting a family and you want to have a place where you can see your kids grow up.

Number five, buy if you are an entrepreneur and not yet an investor. I know you as an entrepreneur. As an entrepreneur, we like to take risks. Sometimes the opportunity is right. What happens is a home is not an investment, it is a saving plan for you. Think of your primary residence as your savings account. If you look at it that way, it is a forced saving plan for you. In case your business goes through ups and downs, you’re putting money aside. You’re not betting everything you have in your business. You notice if you stop paying your mortgage you’d be out on the street very quickly. Somehow as an entrepreneur, you’ll be creative enough that you will find the money. Every month that you’re putting money on your mortgage, that’s your savings account. In case something happens to your business. In case you experience the ups and downs, at least you put a little bit of money aside. You built up a little bit of equity in your business. That’s a little bit of buffer. Believe me, I learned this the hard way. As entrepreneurs, we’re sometimes overly optimistic where everything’s going to be good, everything’s going so well but sometimes you never know. If you are an entrepreneur, then buy.

Number six, buy if you’re financially successful. If you are stable and you’re financially successful, yes, buy. I believe from my own experience when you have your own home, there is a psychological benefit to that knowing that you’ve got a place and you can design the home exactly the way you want, like the way I designed my home exactly the way I want to maximize my productivity. At the same time, it is my sanctuary. Knowing that it is not an investment, I know that it’s not an investment. I don’t look at it as an investment. It is simply my home. It’s my primary residence. It depends on where you’re at. If you’re financially successful, I would recommend you spend no more than 20% of your net worth on your primary residence. Some people may say 30%, but I say 20%. Ideally, less than that. Let’s say your net worth is $2 million. You wouldn’t spend more than $400,000 on your primary residence because your home is not an investment. Use your extra money to buy more investments. Maybe invest in more properties, more real estate investments, but your primary residence is not an investment, so no more than 20%. If you do that, like me, I spent a very tiny percentage of my overall net worth for my primary residence, but that’s my home. I have my sauna, my massage chair, my home theater, my library, my man cave, and my gym. I have everything in one place and I designed the ideal home for me. That’s where I feel relaxed. That’s where I recharge my battery, so I could be more and do more. That’s what I do.