When I make a wise decision about money, it’s usually inadvertent.
So when it turns out I’ve made a good move financially, it’s cause to rejoice.
Today, for example, I’m celebrating the news that I — a lifelong renter — am apparently a real-estate genius.
Here’s why: Rich Arzaga, a certified financial planner and chief executive officer of a company called Cornerstone Wealth Management, recently completed a study that shows that buying a house as an investment isn’t smart. Renting your home makes more financial sense than owning 100 percent of the time.
Now if I said something like that, my family and friends would simply roll their eyes. They know I’m as incapable of managing my financial affairs as my 5-year-old daughter is. They know that I’m a poet — not in the sense that I actually write much poetry anymore, but in the sense that I’m not well-suited for life among serious grown-ups.
But Arzaga is something else entirely. He’s an adjunct professor in personal finance at the University of California at Berkeley. He owns a home — he paid $1.8 million for it a few years ago. He is a grown-up.
But Arzaga, a guy who understands money, says that I, a guy who knows only how to lose it, made the right move in real estate.
According to an article by Thomson Reuters and published on CNBC, Arzaga looked at 250 properties and reviewed the records of his clients and found that buying a home never worked out. The article explains why:
The reason is simple. While a home is the main repository of wealth for many Americans, it comes with numerous hefty expenses. The carrying costs — what’s needed to hold and maintain the asset — range from property taxes and home insurance to emergency repairs and renovations. In a rental situation, the landlord covers those costs, leaving the occupant free to invest revenue in other areas.
The article goes on to say that many real-estate experts said there was some truth to Arzaga’s argument. But those folks then went on to talk about caveats and on-the-other hand scenarios regarding interest rates and market conditions and such. And I got bored, as is in my poetic nature, and stopped reading.
Because I already had the major takeaway from the article:
I was right.
Suddenly, in every tree,
I made choices. Perhaps not choices that would work for everyone, but choices I felt drawn toward. That meant I put my money into things that interested me. Owning a home never did. Mostly I spent money — on books and travel and such. Sometimes I would make an investment decision — like buying as much silver as I could afford — that looks prophetic in hindsight. Other decisions — like cashing out my first 401(k) so I could live in Europe in my early 30s — look pathetic.
But regardless of the wisdom, or lack thereof, in my own money decisions, I’m an example of the phenomenon Arzaga has documented: I’ve had the money and the mobility to do other things because I have not bought a home.
I entered college during the economic “malaise” of the Carter administration. I graduated and started my adult life amid the AIDS crisis. Those were the touchstones of my generation. To us, money seemed elusive and life seemed short. So I developed a low tolerance for investment risk and a distaste for the stability implied by home ownership.
As a result, I was poorly positioned when the economy and the culture turned around. I missed the soaring real-estate markets of recent decades. And my investments — which I raided to finance my European fling and untold numbers of book-buying binges — missed years of potential growth in the Bush and Clinton years.
But I got lucky too — I had already spent — and enjoyed — thousands of my own dollars by the time Wall Street got around to destroying the global economy and my 401(k) in 2008. And, more importantly, the real-estate crash didn’t hurt me at all.
Renting, just as Arzaga says, worked out fine for me.
an unseen nest
But does renting make as much sense for today’s young people — entering their adult lives in a new era of economic malaise — as it did for me?
I don’t know. So I asked Arzaga. He said making such a decision has less to do with your generation and the economy than it does with you as an individual.
The key, he said, is to calculate which path will get you — in your particular situation — to financial independence.
“I am not saying that people should not own their home,” he said. “I am saying that if someone does not have the resources to make financial independence work, then it is an excellent idea to do some scenario planning: financial independence as a renter or as a homeowner.”
where a mountain/ would be
I suppose that makes perfect sense. If you have marketable skills and work in a stable business in a stable industry in a town where you plan to spend your life, it might be wise to consider home ownership as part of the road to financial independence. But if you’re a poet, who plans to live in several cities in several countries before you hit 50, perhaps you should shun real estate.
All I know is that, for me, things worked out just fine. Things seem to have a way of working out just fine.
So, if it suits you, follow my lead. You may wind up with what I have — a beautiful rental apartment in a doorman building in Tribeca, with two bedrooms, spectacular views of New York, and bookshelves full of poetry.
(Note: the subheadlines in this column are taken from the closing lines of Tess Gallagher’s “Choices,” a beautiful wee poem about home, yard work, life, nature, values and the significance of a “nest.” You should read it.)
Find the best bank account for you now.
See how much you can save in just a few steps.