Work-Free Wealth

Income Investing for Financial Independence and Early Retirement

To Own or Rent your house

Buying or Renting

As part of my transition to living without a “normal” job,  I have been paying close attention to my expenses and it seems the biggest money drain is my house..  Every single year for the last 5 years…

I look at my budget for the year every January and tend to allocate “only” about 2k for house repairs/improvements.  Maybe I am an optimist but I think that I have completed all renovations and upgrades that are typically needed in a house.  AC, Roof, Water Heater, new composite deck, etc…   I admit not everything was really needed.  So, you would think it ends?  Apparently not.  With the hail storms in Texas my 4 year old roof needs a full replacement again and my insurance company is giving me the run-around (maybe as separate post if you are interested).  So, as unhappy as I am about my annual 10 to 20 k just in house repair and upkeep, I do have a lingering fear of renting.   And then I keep falling into the trap of thinking “but this was the last needed improvement/repair for years to come”.    I still have the feeling of walking away from a winning lottery ticket and so I keep sinking more money into buying lottery tickets.

There seems to be an automatic assumption in our society that home ownership is the holy grail of having made it to the middle class.  If you rent, you are either barely out of college, live in some place like New York or you just can’t manage your money and choose to throw it away so that some landlord can get rich.  There are some calculators that tell you in which areas renting would be cheaper than buying.  Generally speaking, those calculators seem to be overly simplistic.

To get to a somewhat objective assessment of the rent/buy decision, I first created a list of my key pros and cons of homeownership and then I will work thru the financial analysis


  • Freedom:  I don’t have to deal with a landlord: no permission to keep my dog, I can fix what breaks (or pay for it) without waiting for the landlord, etc.
  • Inflation Protection:  Housing does not appreciate much but you don’t have to worry about rising rents (only rising property taxes)
  • Quality of Life aspects:  My house is in a quiet area and I like it quiet.  I can go out on the deck and see plenty of green


  • Cost:  It is expensive to own a house.  Especially one that is big and nice.
  • Risk:  There are always “unforeseen” expenses with a house
  • Return:  A house pretty much is a lousy investment.  On average, house prices have appreciated at about the rate of inflation

Figure 1: The Case Shiller home price index (red) versus the S&P 500 Index (blue) since 1987. Source: S&P Dow Jones Indices (source: CNBC)

So how would this apply to my particular situation?  Below is a Net Present Value analysis of selling vs keeping my house.

The assumptions going into my analysis are: Discount Rate: 4%,   House Value Appreciation 3%  and a current house price at 400k

NPV Estimate keep the house for the next 5 years and then sell (3% appreciation:

NPV= 313,919

NPV Estimate Sell House, Pay Rent $16,000, Receive Dividends $1400

NPV= 376,055

I have my answer:  Financially speaking, selling the house is a much better deal.   Time to fix the hail damage and then figure out a good time to sell.  Let’s hope I can keep my mixed emotions out of this.


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