Is Renting Throwing Your Money Away?

Ben Felix on what many people miss when comparing renting and owning a home.

Is rent throwing your money away?

it’s not, it’s, it’s exchanging your money for a place to live, which is very similar to what, right. Which is very similar to what someone who owns a home does. I, I think the big thing that gets missed here is that both renters and homeowners have unrecoverable costs. They have costs that they pay with no residual value.

So you, you pay rent, you get a place to live, you have nothing left over, and so people feel like that’s throwing money away. You buy a house, you pay property taxes, you pay maintenance costs, and you have to pay implicitly the cost of capital, the cost of having your money, your equity in a home rather than invested somewhere else, like in the, in the stock market.

Those are all unrecoverable costs. Those are costs you pay with no residual value. In the case of a home, you do have this big illiquid asset. And so people look at that and say, well, no, I have the house as an asset. Uh, which is true. But I think the, the big missing piece is that if you’re going to make a side by side comparison of the renter and an owner to say, well, no, look, the owner has a residual asset.

The renter’s typically going to have lower cash flow costs than an owner. All, all else equal. Uh, they w will not have had to make a big down payment, uh, to, to purchase the home. Or maybe they purchased the home in cash. But in either case, the renter has taken that money. We’re making an apples to apples comparison.

The renter has taken that money and invested it in something like the stock market. When you set up that comparison and it’s truly apples to apples, renters can build just as much wealth as homeowners. Now, I, I used to show that in models and I would just say, you know, based on these expected returns, I, I, I think that this makes sense.

What I did more recently is set it up with actual historical data and that that was really interesting, but I showed the same thing in Canada across 12 cities. My most recent data shows that on average renters would’ve come out a little bit ahead of owners starting in 2005, going right through the end of 2025.

I know, and I love that you do that. ’cause now I can send people to your stuff and they get mad at you. Instead of getting mad at me, because don’t you find that people get really annoyed when you make any kind of case that home ownership may not have been their best move? And by the way, I’m pro homeownership, like I own my own home.

My daughter does. My son will. I’m not against home ownership at all. I just find a lot of people have blinders on when it comes to doing the proper analysis. So I’m glad you’re taking the heat off me. Keep going.