Best Time to Purchase Primary Residence - If Any?
Hi all,
I was recently listening to a snippet of an old Berkshire annual meeting (if you'd like to listen yourself, the video can be watched here:
) where someone had asked Warren and Charlie what is the best time to purchase a house as a primary residence... To sum, Warren says he purchased his home when the down payment was around 10% of his net worth, however Charlie takes a different approach, which is what intrigued me here. Munger states that if a man is not married and presumably starting a family, then there is no need to purchase a residence, and he should only consider renting.
I thought this would be an interesting topic of discussion because I hear so many people argue that buying a home is a path to financial freedom -- however we all know that this is not always the case (financial crisis, foreclosures, costly expenditures, etc.)
I would like to hear thoughts on if this sounds sharp-witted or if Munger is truly missing out on the benefits of real estate. I have heard several people say that renting is better than owning for countless reasons, yet there are of course many who argue owning is the way to go if you plan on staying somewhere over time. What are your thoughts on if one should purchase a primary residence, and if you believe they should, around what % of their net worth should the down payment be -- or do you think Munger has an argument in saying one should rent unless they have a wife/family to provide for?
You can run a lot of models on buy vs rent which I’m sure you’ve done. Here is what I’ll leave you with.
Single person who’s climbing in their career path, rent.
Married with kids, buy in a good school district.
A home builds equity yes, but there is more risk and more costs compared to renting.
Example, plumbing goes out in your apartment. Call the landlord. Plumbing goes out in your home. All you!
Straight. To the point. And all accurate.
Unless you find the perfect home. I would snap that up asap unless you self-build later in life.
So, practically. Don't have kids, don't get married, rent forever & be free once I'm guapped? Joking, but I'm the type that would definitely rather rent than having outstanding debt not earning. Thanks for your thoughts
People don’t realize the time and money that goes into to owning.
Home insurance is more than rental insurance.
You need time to care for the lawn and lawnmower/weed trimmer/yard tools have costs.
Property taxes.
No more schedule a interest deduction.
And so forth.
I believe buying is better than renting once you believe you will not move. It is costly and stressful to move.
When I was a single guy, I got by in a small place that was less than $550 a month for rent plus water/heat. I had an electric, cell phone, and internet bill. My first home as a single guy was $1200 a month when accounting for principal, interest, insurance and taxes. Had I kept renting cheap and invested the difference, I likely would have come out ahead even through I sold that first home for $90k more than I paid.
If you plan on being in the same place for a long time (and you can afford it), buy. If you reasonably suspect you'll be moving in five years, rent.
There is no right answer, except to say that purchasing a primary residence isn't an investment property and you shouldn't assume any appreciation in value. Understand that the closing costs are right out the door and if you think you'll be moving on before the savings from owning (which may not materialize) will outstrip the costs of buying, don't buy.
Also, spend the money on diligence. Renters never understand the amount of maintenance that goes into keeping a home up and running. The extra 500-1,000 you spend upfront might help you avoid tens of thousands in structural, mechanical, or envelope repairs. If it seems too good to be true, it is. Full stop
I too think "no right answer" when debating this because you obviously tell yourself when purchasing, "I'll purchase my home, it will go up in value with inflation, things always go up naturally over time..!" mentality, when this isn't actually reality
Commodi saepe ut nemo harum. Ea eius voluptas dicta quaerat ipsam.
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