Because I do not have a place of my own to live in, these two options have been given a lot of thought this past year.  I have read many “Rent vs. Own” articles and run some numbers, and have come to the conclusion that renting or owning your home is really a lifestyle choice.  It is NOT a financial investment. Why do I say that?  Because in the end, housing is an expense.  It is something you have to pay for.  Either way you go, it comes out approximately the same.

Let’s look at some real world numbers.  Now, as a single person and a minimalist, I do not need much space.  The smallest house available locally is a 2 bedroom, 1 bath bungalow.  There are some efficiency apartments here and there, but I’ll compare to the basic one-bedroom apartment.  For this example, let’s assume I’ll be staying in one area for five years.  Also assume I have 100K saved in the bank and will not be using a mortgage.

Renting a one bedroom apartment in my area costs about $650/month.  Add $150 for utilities, $200 for food, and $100 for internet/phone.  Round up to $1200/month or $14,400 per year.

There is a small house for sale today, close by in a good neighborhood, closer to work, for an asking price of about $90,000.  If I keep the 90K in the bank and earned an average of 1.5% interest over five years this would give me $7000.  Subtract this from apartment expenses (14400 x 5 – 7000) would be net total $65,000 spent over five years for the apartment option.

There are two big variables in the house option that I can’t predict.  One is the market value of the house.  Because housing prices have dropped over the last two years, and some experts are saying prices are not likely to rebound quickly, for our example I’ll assume that the house value stays at 90K.  This may be unlikely, but I have to pick a number so that’s what I’ll use for now.  The other variable is renovation cost.  What if the roof needs to be repaired?  The plumbing?  The driveway resurfaced?  Again, I have to choose a number so I’ll say 10K for repairs over 5 years.

So I buy the house for 90K cash.  Annual taxes are about 4K.  Monthly costs 250 utilities, 200 food, 100 internet/phone.  That’s 10600 per year for 5 years is 53K.  Add the renovation cost of 10K and we’re up to 63K.  I’d probably get insurance for a house, so that’s $3000 over 5 years.  When I sell at the end of 5 years there’s a real estate commission of 6%, or $5400.  So I pay 90K and get about 90K back, therefore value of the house comes out even.  But over the five years I paid a total of $71,400 to live there.

Granted this is a simplified/approximated example, but it shows that owning a house without a mortgage is not necessarily less expensive than renting.  In fact it could even cost more.

As a minimaist lifestyle choice, apartments are better because it’s much simpler.  No dealing with contractors or repairmen, insurance agents, real estate agents, tax collectors, etc.  You just pay your rent on time and the landlord does all that for you.  Plus you have the flexibility of moving when your annual lease is up if you want to.  Less money, more freedom.

Insurance

April 19, 2010

One thing I can do without is insurance.  The concept of insuring your possessions in flawed because it’s based on the idea that you should have lots of things that you think are valuable, and that your life would be devastated if they were lost.  The insurance is sold as a means to protect you from this devastation.  Also the idea that you do not have enough money to replace that which could be lost.

I prefer to save up money so that I can replace things if they are lost, a situation that very rarely happens anyway.  Keep fewer things around, so that replacing lost items is easier.  Keep only what you use, and what you love (which cannot be replaced at any price).

Insurance makes sense for health, and also for real estate.  But not for things like TV, car, and other consumer items that can be repurchased from savings if the need arises.

A comment on a retirement blog got me thinking.  It was about how a person may want to live a freer mobile lifestyle in an RV or a boat, but at the same time they just bought a nice sofa set for the living room.  They believe that moving is not an option because it would mean giving up the new furniture.  The blogger’s point was the sofa set was holding them back from following their dreams.  In other words they are “owned by their stuff”.

I don’t think “owned” is the right word for it.  That person has made a choice without realizing it.  The choice to have the decked-out living room instead of living on a boat.

When I was younger I thought that all choices were between something good and something bad.  Do I keep the perfect condition blue shirt or the old green shirt with a hole in it?  Of course you keep the blue shirt because the other one is ripped.  But what if they are both in good condition?  A packrat will want to keep both because they are perfectly good.  The packrat mind doesn’t realize that real choices can be made between two good options.

The homeowner who dreams of a mobile life sees value in the freedom of living aboard a boat, and also values having a comfortable house.  Both choices are good.  It’s not that their life is being controlled by the furniture, just that the decision to stay in the house has been made.

Next Door Potential

October 4, 2009

Last year a small house next to where I live went on the market.  It never sold, but did inspire me to spend lots of time researching real estate.  Owning property would complicate my life, and would also increase my freedom.  I’ve learned a lot about the buying process and have watched the local market for the past year.  Still I am living in a rented bedroom in someone else’s house.  I want to move (someday) but don’t have to.  For sure renting a room is less expensive than buying a house, even a tiny house.  Honestly at this point am kinda sick of all the research time and effort.  Decided that I am fine with shopping for a home next year, passing up on the “first time home buyer” tax credit for 2009.

Now I find out that the small house that got me interested in the subject is going back on the market!  The owner cleared the overgrown yard and brought in a crew to fix up the interior.  Even fixed up it’s not a great house.  Foundation needs work and the outside walls are sagging.  It still needs serious work or maybe even a rebuild from scratch.  The heart is tempted to bid on it just so I can be independent again – but the brain is pretty sure that would be a mistake.

There is a small house for sale near where I am (temporarily) living.  Small houses (less then 900 square feet) are interesting to a minimalist because they are easier to maintain, as well as less expensive to buy and provide utilities for.  Also having less storage space available is good because the owner may not be inclined to buy things to fill up the space.  They are appealing for many reasons.  You can find a few “tiny house society” groups and websites online if you’re interested.

Anyway, as appealing as that little bungalow is to me, I’m not sure that I want to own a house at all.  It seems that renting an apartment is more closely aligned with my minimalist philosophy.  If my goal is to own fewer things, then why would I buy a large thing like a house?  Plus I am debt free now, and that status would change with a mortgage.  Some say a home loan is “good debt”, whatever that is.

One scary thought I had last week was about an old ironing board in my storage unit.  I offered it to a charity because I am trying to clear everything out of storage.  The iron board is an old metal one that belonged to my grandmother, so it has some sentimental value to me (like everything does).  But I’d be happy to donate it to clear the space.  Once this idea of maybe buying a house entered my head, I thought – “of course I’ll keep the ironing board, for the house”! As if owning my living space instead of renting it means I’d naturally return to a packrat mode.  That is scary, like a part of my brain is working against me.