The American Dream has been synonymous with home ownership for as long as most of us can remember. After three decades as a licensed real estate agent and investor, I have bought into that dream and sold that dream to others more times than I can recall. Spending money on rent has been a taboo subject in my real estate world. However, in the last year, I have learned that wasting money on rent is one of the best things you could ever do.
First of all, the real estate market has changed tremendously over the years and is no longer the solid, stable investment and status symbol that our parents and grandparents once epitomized. This is not to say that real estate is not a worthy investment. Actually, it is probably still the best investment out there when everything is taken into consideration.
The world has become a more accessible place and most of us want to see more of it. The commitments associated with home ownership – financial, physical, and even emotional are hindrances to those of us that want to spend more time exploring the planet and meeting the people. As our vision widens, we no longer have to limit ourselves to the housing our budget traditionally confines us to along with the realization that, as Americans, we still have more than most of the people on the planet whether we own real estate or not.
There is also the enlightenment of knowing the lifestyle of where you want to live may not be the same place as where you can afford to buy. My life now includes living in a building with a gym, a swimming pool, covered parking, security and a rooftop deck where I take in the most stunning California sunsets most days with friends that share the same appreciation. This type of housing in Los Angeles county would not be something I could afford to buy into but I have figured out a way to afford my dream lifestyle.
Let me give you an example. Let’s say you have a million dollars in the bank and you know where you want to live and you have enough money to live there or at least think you do. The place you desire to live sits within an urban metropolis with a high walkability score in the climate friendly Los Angeles. The two bedroom, 3 bath condo that you desire has a price tag of $950K and it is not brand new so you would want to spend money on some updates and bring your total to $1M. Besides draining your bank account, you will also be responsible for association/maintenance fees ($500-1K per month), property taxes (appx $1K per month), insurance (hundreds of dollars per month) and repairs and maintenance costs (hundreds or even thousands per month). In summary, you have spent all of your $1M savings and your housing expenses are thousands per month.
Now, let me share some outside-the-box thinking with the same scenario above that most real estate agents won’t share with you because maybe they don’t know of it or choose not to share it because it may not translate into dollars for them. I don’t know. However, the unit next door to the $950K condo is available for rent for $4500.00 per month. This beautiful condo complex with a picturesque view of the mountains and you can literally walk to hundreds of restaurants, shops, entertainment venues, parks etc. You can literally live your desired lifestyle for the same or less money on a monthly basis but your $1M stays in your bank account. Yes, you would be wasting money on rent but you are living where you want now.
What could be better for your mental and physical health than living your desired lifestyle in your desired location walking to all of your desired locations? Well, what if you could do it and it didn’t cost you anything or even close to the $4500 per month? There may be a way to have your premium lifestyle at a minimum cost while maximizing your finances.
Just like your desire to see more of the world, you look at real estate globally and you no longer have to own the property where you live or live in the same city as the real estate you own. What if you bought 4-5 homes in Florida for a total of $1M (or some other state where the property values that make better financial sense than maybe your desired locale)? What if you rented them for a gross rent totaling $9-10k per month? The rental homes would have expenses and fees associated with each property but for the purpose of this example we are just dealing with gross numbers. Now, your $1M is bringing in $10K per month and your living your dream lifestyle for $4500 per month.
The real estate market and rental market can give us actual figures to calculate benefits and liabilities to assess an investment but what value do you put on living the lifestyle you want from where you want? I’m sure there are people more qualified than I that can weigh in on the physical and mental health benefits to living one’s dream.
There is also a freedom with leasing that homeownership does not grant us. If something isn’t working, tenants call the landlord. In most situations, landlords are good people that want to maintain their properties. When something needs repair, they will have to worry which vendor they will hire and how they will pay for it. Another freedom that renting affords us if we work from home and we also love to travel, we can live and work from anywhere. If you telecommute everyday and have a budget of so many thousands per month for your living expenses, why stay in one place. Why not move monthly or quarterly to places you have always wanted to live while you are still working and earning an income? You will learn places that you may want to live or not want to live when you one day retire.
So, now you have the financial justification for living in your dream location, are you still not convinced? When I made the move from suburbia to urban, I reduced the square foot of my residence by 75%. This factor along with drastically minimizing my possessions brought other benefits that I had not calculated. With my new apartment living, I totally eliminated any outdoor maintenance that would take 10-20 hours of my time monthly. I also reduced my house cleaning time by 80% not to mention actual maintaining or improving my home. All of this time saved on the mundane and/or detested chores, was now allocated to things I enjoyed more like hiking or walking to the library or writing. What value do you put on more time for fun in your life?
Are you still skeptical and need more evidence? According to a recent finding, the average life span has decreased to 78.7 years and the cited reason: despair. We spend approximately 1/3 of our life in bed or sleeping. Let’s assume for most of us that is in our home. At a minimum, most of us are spending 40% of our life in our home. If you are like me and work at home, the decision to live in a place you love is even more critical due to the additional time you spend in your home. Don’t we owe it to ourselves to figure out a traditional way or creative way to live in a place that makes us happy?
In the end, have I made a good case for throwing money away on rent or am I justifying a decision that I think I’ve made prudently? All I know is that I wake up happy every day and hope you do too.