I don’t know what to do.
That is something I don’t say often. It feels weird to even admit it.
I don’t know what to do.
Yet it’s true, and I’m working through the process.
If you are not new to FI, then you have most likely already read the 1.7 trillion articles on whether to buy or rent. I know I have.
But this is not one of them. There will be no math or final conclusion offered as to what the right answer is, because I don’t think there is one.
It’s been interesting to watch how hotly debated this topic is within the FI community. For a decision that is so unique to each individual, couple or family, the sides have never been more divided on pushing what their version of right is. I think it’s safe to assume that if you are reading this, you too have already decided where you stand. You are either pro buying or pro renting… there can be no middle ground.
Yet, even with all the scores and abundance of information out there, the answer is not as simple as some make it out to be. Because this goes beyond the math question. The question is emotional, personal and weighty… and I grapple with it daily.
Can the numbers tell the whole story?
If you live in a low cost of living area, this answer is simple. You want to shake me and scream, “Q-FI, follow the fucking money and move! Only savings and greener pastures are awaiting you on the other side!”
But I don’t live in a low cost of living area. According to Zillow, the median home value for Los Angeles County at the end of November 2019 was $626,200. That’s a $125,240 for a 20% down payment without even considering closing costs and transaction fees.
Not a pretty picture.
So here comes the next question, “Okay Q-FI, then why not move? Throw off the shackles of an expensive flashy City like Los Angeles and come join us in lower cost living nirvana elsewhere?”
Yet again, it’s not that easy. Because my identity has been molded in this geographic locale. There is the complexity of family relationships, the foundation of career development and a sober network of recovery that has made me who I am.
Sure, I can always move on. Relocate. I know I can adapt to life happily, regardless of the locale, if I really want to. But when people are out shoveling snow, I am out running races – I am climbing mountains in a t-shirt and shorts. And my happiness is only half of the equation. My wife has an equal say in what future we choose as well.
A home can be more than just a place to rent or a piece of land.
I wish I could be like so many people in the FI community and be happy as a renter. Life would be simpler, let the landlord handle all the expensive fixes. All I would have to do is rent another 5-7 years, hit FI and ride off into the sunset of the next season of life (of course I am metaphorically simplifying this).
When I look at the numbers, the decision should be clear. Buying a house in Southern California will be a setback financially and tack on more time to our FI journey. That huge down payment would better serve us placed in Mr. Market over the long term rather than sitting in an illiquid asset like real estate.
But what I think it comes down to, at the heart of it, is my wife and I aren’t renters, we’re builders. We want to build a life together in a home that has no restrictions and offers us the greatest freedom to design our lifestyle accordingly. My wife loves to creatively cook in a customized kitchen and design decorated rooms for hosting. I love to garden, grow succulents and tinker with outdoor living spaces.
If you took the money out of the equation, we would already be homeowners today. Because when renters see renting as more simplistic, we also see renting as restricting our freedom. It’s a double-edged sword that cuts both ways. Just as working for someone else, an employer, has rules, so does living in someone else’s residence, a landlord, have similar rules.
I think that’s why ideologically I’ve always been more inclined to owning than renting. Sure, you can argue it’s the American Dream that has been marketed to me my entire life. I’m not naïve to this bias of affiliating homeownership with wealth. But in FI, it also seems we all share a similar disinclination toward authority. We like to figure things out and do them on our own without anyone looking over our shoulders or breathing down our necks. Hence, why what I do with my own property without owner restrictions seems so appealing to me.
Yet unfortunately for my wife and I, because home prices are so high in our area, this decision will have an overweight impact on our lives.
The path to FI doesn’t have to be straight and narrow; it can be as wide and meandering as we choose.
I think it’s easy for people to forget that FI isn’t the real goal, it’s only a tool. If I’m emotionally happier with a house, then the happiness is the real factor. Sure a house, a material object can’t bring happiness on its own. But when you make that house, a home with someone else, a place of safety, security and memories. Then a home becomes alive, it becomes a part of you. It sprouts roots and leaves and grows with you as your life changes.
Of course, the tradeoffs are different for everyone and have to be acknowledged. If my wife and I do decide to buy, this will be one of the biggest financial decisions we will ever make and the sacrifice will be great (most likely adding years onto our FI date).
Yet isn’t that the point? To set grand goals and achieve them? Go after what you want and live how you’d like by your own rules regardless of what others think?
So with all this being said… what are we doing?
The plan is to sit and wait for right now (I know, not the cliffhanger zinger you were hoping for. But sometimes boring is the most pragmatic). We are in a great place financially and our rent remains dirt cheap for our area, so continuing to save and be ready for a market turn is by no means a bad place to be.
But the waiting in itself and not knowing can be hard. Each time I think I have made up my mind, I end up teetering back and forth. For my wife this can lead to disappointment and frustration. Will we own or will we rent? What does the immediate future look like? Put on top of it the pressure of adopting a child and our housing situation becomes even more important to figure out sooner rather than later.
However, we’re doing the best with what we have at the moment. And where the market will go from here remains anybody’s guess. Personally, I feel that we are at the top but there are still so many variables: does the economy hold through-out 2020, it’s an election year, the Fed is dropping rates, is this really the right time to buy?
No one knows and only time will tell. But regardless, we’ll be working toward being as ready as we can be…
-Q-FI
P.S. – I’d be curious to know if there are any other people out there struggling in high cost of living areas. What are you currently doing for housing and what are your plans for the future?
Great article. Like you, I also live in So. Cal. (but moving in Feb) and could never stand renting for the same reasons you express here. We just sold our place and netted a number, people outside of CA, would never, ever believe on the deal. However, I’m in a nice hood and have owned my place for nearly 20 years – so it’s a “time in the market” thing. I believe there will be a dip in the So Cal market and you’re poised to strike. I also believe that real estate here, over the long haul, will always increase in value.
I also follow the FIRE “should you rent or own” articles, but if you look historically at the worlds’s most wealthy folks, their wealth is, principally, from real estate, not financial markets.
Anywhoo, in the long-term, buying property in So. Cal. Will likely always generate a good return IMHO, so I think you’re strategy is a great one.
Ah, so I’m about to lose another So Cal pal… If you don’t mind me asking, where are you headed? And leaving for tax, cost of living or other reasons?
I agree with all of your points above. For long term buying in So Cal you’ll always be fine since the demand will never go away. I think my big struggle is will we stay in CA for the long haul. I think we’ll definitely be here awhile, but if we end up leaving at some point sooner than I thought then I’m getting jacked on the transaction costs since the property values are so high.
And I just can’t figure out this market. I’ve been saying for the past four years it has to go down and it just keeps on plowing away to new highs. I hate to buy at the top and feel a major pullback is coming sooner than later. But we’ll see… gotta be ready either way it goes.