With $400,000 Saved Do I Rent or Buy, It’s Paralyzing

If you’re a young renter with a good amount of savings who’s constantly being nudged by your parents to “buy a home already,” you’re probably feeling the pressure to make the plunge into homeownership, even though you’re perfectly fine with renting. Of course, buying versus renting a home is probably one of the most common financial dilemmas faced by those in the Millennial or Gen Z cohort these days. And while it’s easy to give into the pressure from the parents and just put down a big chunk (or all) of one’s nest egg on a mortgage, I do think that one must take the time and effort to make the move that makes the most financial sense, regardless of what anyone else says.

At the end of the day, it sounds much better on paper to be a homeowner. That said, if it means being house-poor (the home is eating up most of your income or savings) or you’re living in a market where renting is, in fact, “cheaper” than owning, one should feel absolutely zero shame in staying a renter while investing the extra income.

Though I’m inclined to skew towards renting for those who are experiencing a bit of analysis paralysis, as this Reddit user who’s worried homeownership would derail their early retirement (FIRE) plans, I think a financial advisor will have the right answers for one’s individual situation and unique slate of desires.

First, it makes sense to set one’s priorities

For some folks, like our Reddit user, achieving FIRE (short for Financial Independence, Retire Early) may take precedence over owning a home. While being a lifelong renter doesn’t sound good to the parents, I do think that those who rent and invest in the S&P 500 will not only have greater liquidity, but perhaps more net worth once all is said and done. Of course, a financial planning pro well-versed in a specific real estate market would be able to run a scenario analysis after having the opportunity to actually crunch the numbers.

In any case, even if owning a home isn’t the smart financial decision, it gives a lot of people peace of mind. After all, you can’t get rent gouged when you own the home. For many, though, such emotions and feelings should come second to what makes the most financial sense. At the end of the day, going into debt to fund the purchase of a single asset sounds like a terrible idea.

However, that’s exactly what many homeowners stand to do if they’re over-extending themselves with a mortgage on a home that they can barely afford. Though owning a modest-sized home can be a good way to diversify one’s overall assets, I still think that one who’s all-in on property with zero stocks or emergency fund stands to risk a great deal, especially if the income stops flowing in.

In any case, our Reddit user thinks it’d be “nice” to own a home, but is still set on retiring early. In such a case, I’d have to side with the top commenter, who suggested waiting and saving for a larger down payment as well as lower interest rates before making a move. Perhaps the extra time to really sit down and think about things is the best move.

Is it cheaper in the long run to own or rent?

Next, it makes sense to bring on that advisor aboard so that one can figure out if it’s actually cheaper to home versus rent. It’s not just the mortgage that one will need to account for, but other costs that go into maintaining a home (maintenance), in addition to property taxes, insurance, and the list seems to go on. In my opinion, it’s tough for real estate to beat a portfolio of stocks, even in a good market, after all expenses are factored in. 

For someone set on early retirement, I believe that owning a home only makes sense if it’s not a significant drain on the budget, and the costs of owning will actually save one over renting (plus investing) over an extended period of time. There’s no clear-cut answer, but for someone who’s on the fence, it doesn’t hurt to wait things out, especially as one’s savings rises while interest rates (hopefully) look to go down.