Rent or Buy
Are you ready to drop anchor or is it time to set sail?
Deciding where to live is one of the biggest choices we face. But the question that quickly follows is just as monumental: should we rent or buy? This decision is more than a financial calculation, it is a deeply personal reflection of our hopes, dreams, and vision for the future. It feels massive because it is.
There is no universal right or wrong answer, yet many of us approach this crossroads without a clear framework. We get bogged down in interest rates and property values, forgetting to ask the most important questions first.
For many, owning a home is the primary way they invest in real estate. It can feel like forced savings, an investment you benefit from every day, and the anchor of your financial portfolio. But an anchor is no good when you want to set sail. At its core, homeownership is a life-stage decision first and an investment decision second. By separating these two ideas, we can approach the choice with greater clarity.
The Life-Stage Decision: Are You Dropping Anchor or Setting Sail?
Before you open a single mortgage calculator, you need to look inward. Your lifestyle, values, and future plans are the true north of this decision. Forget the numbers for a moment and ask yourself these questions:
Roots vs. Wings: Do you envision yourself putting down deep roots in a community, perhaps near family and lifelong friends? Or are you ready to follow the next big career opportunity or personal adventure wherever it takes you? Modern careers often involve changing jobs every few years. What is your realistic time horizon in this location?
Predictability vs. Flexibility: How much certainty do you need? Does the idea of a fixed mortgage payment and a place that is truly “yours” bring you profound peace of mind? Or do you think more like a “renter by choice”? For a growing number of people, the goal is a life optimized for freedom. For them, renting is not a temporary phase, but a long-term strategy to outsource maintenance, avoid liability, and stay financially nimble.
Family & Community: Are you planning for a family and want to secure a spot in a specific school district? How much of your decision is driven by permanent factors, like where you grew up, versus more temporary ones, like your current job?
Your Home, Your Way: How important is it for you to customize your living space? Do you have specific needs and wants for the place you call home, from the color of the walls to the layout of the garden, that only ownership can satisfy?
Answering these questions honestly will reveal whether the “anchor” of homeownership aligns with the life you want to live right now.
The Investment Decision: Doing the Math
Once you have clarity on your life stage, you can confidently approach the financial side. If you have determined that dropping anchor feels right, it is time to analyze the investment.
The True Cost of Ownership: This is the most misunderstood part of buying a home. Your rent is the maximum you will pay for housing each month; your mortgage is the absolute minimum. On top of your mortgage, you have property taxes, homeowners insurance, maintenance, unexpected repairs, and potential HOA fees.
The 5% Rule: Before diving into complex spreadsheets, you can use a simple guideline called the 5% Rule to estimate the unrecoverable costs of owning. Multiply a potential home’s value by 5% and then divide by 12. Is that monthly figure comparable to the rent for a similar property? This number, which represents a blend of property taxes, maintenance, and the opportunity cost of your capital, gives you a quick financial snapshot of what you are “spending” to own.
Forced Savings vs. Disciplined Investing: Homeownership is often praised as a “forced savings” vehicle. From a purely financial standpoint, however, the fair comparison is between a homeowner building equity and a renter who invests their down payment and monthly cost savings into a diversified portfolio. This requires discipline, but it’s a crucial part of ‘doing the math’ to see which path could yield a higher net worth over time.
The Risk of Being “House Poor”: A key reason to compare against disciplined investing is to avoid becoming “house poor.” A home is an illiquid asset. When the vast majority of your net worth is tied up in your house, you lose the ability to pursue other opportunities like investing, starting a business, or making a career change.
Potential Tax Benefits: In some countries, like the US, owning a home can come with tax advantages, such as deductions for mortgage interest and property taxes. These benefits can change, so it is important to understand the current rules and how they might apply to your specific situation.
There are many rational factors to consider when making this decision, and you should explore all of them, particularly if you are leaning towards buying. However, the most important step you can take is the first one. Look inside and reflect on whether this is the right path for you and why. The best financial decisions are the ones that support the life you truly want to live.
Let’s Talk Money!
When you think about the “anchor vs. sail” analogy, which one resonates more with your current stage of life and your goals for the next five years?
What is one non-financial reason that pulls you towards buying a home? What is one that pulls you towards renting?