I'm not an economist, but I am also a quant trader. The world of investments and risk is part of my cognitive toolkit. Follow me on this: I'll keep it simple.
What does buying a house really mean?
It means allocating a large portion of your current cash and future earnings toward an asset that generates no income. Many respond that renting out a property you own brings in money. True. But before getting optimistic, you should open a spreadsheet and enter all the real costs.
All fixed and variable costs of the house. Time spent managing tenant relationships. Inevitable property wear. Cost of furniture, bathroom, kitchen. Periodic maintenance. Likely depreciation — nobody guarantees your lovely house will appreciate, that's pure hope based on past performance. Taxes. Insurance. And above all, the opportunity cost versus other investments.
The numbers don't lie
If the net return after all these costs exceeds the stock market's 8-10% average annual return over the last 200 years by a significant margin, then proceed. I'll spare you the calculations: it almost never actually pays off. There are too many unknown variables and too many high costs.
In particular, locking up a mountain of capital and remaining tied to a mortgage for many years creates a major problem in terms of returns and opportunity cost, because it corners your two most precious armies: capital and freedom.
The "throwing money away on rent" myth
Let's say someone has done all the math and still decided to buy for themselves rather than rent. Perhaps believing the popular myth that renting is throwing money away. Forgive me, but this is genuinely nonsensical for anyone who can crunch even basic numbers.
A home represents for many an emotional gratification answering a primal desire for security. But we live in the 21st century, not the 1300s: logic dictates going where the work is. If you buy outside major cities, the risk of needing to relocate for an opportunity is very high. Implicitly accepting fewer potential opportunities means a net loss.
The advantages of renting
No down payment required. No anxiety about losing your job and being unable to pay the mortgage. Find a better opportunity elsewhere? You move without a millstone around your neck. Apartment too small? Move to a bigger one. Hate your neighbors? Shopping mall being built next door? You move.
You can afford higher-quality housing than what you could buy. The money saved from the down payment can be deployed in any liquid investment. You can diversify: you're not forced to put 100% of your assets plus all future earnings into a single instrument.
When does buying make sense?
In 90% of cases, it doesn't make financial sense. The real estate myths we've been told since childhood say otherwise, but pure rationality doesn't yield. It makes sense when you're absolutely certain you'll never leave that location, and when you've consciously decided you're making an emotional investment, not a purely logical one. That's fine with you? Perfect.
