TWELVE PERCENT. THIS is a pivotal number in my financial life.
What does it refer to? Is it the average annual return on my investments? I wish. Is it the percentage of my pre-tax income that I dedicate to retirement savings? No. That number, including pension and 403(b) contributions, is closer to 25%.
Instead, that 12% is the slice of my pre-tax income reserved for housing. When picking a place to live, I’m a cheapskate.
In the early 1990s, during my first few years in the workforce, I paid about $300 a month for a room in a house that I shared with a band in West Philadelphia. Having grown up in a small house in Erie, Pennsylvania, and never having developed a taste for big homes, I saw lifestyle creep fly by me like locusts, leaving me unscathed.
There have been only two years when my housing expenditures have exceeded 20% of my gross income. Conversely, for a few years, this percentage actually stood in the single digits. I currently pay $860 a month for a one-bedroom apartment. I’ve never shelled out more than about $1,000 a month for a pad.
My greatest triumph as a housing cheapskate came during my years in Roswell, New Mexico. In 2017, when I received a job offer, I flew down to the city of aliens. After scouting out a small one-bedroom apartment, I asked the property manager the price.
Her response shocked even me: $450 a month. I actually said, “Come on. I’m tired. How much is it, really?” She responded that the price was accurate and asked where I was coming from. “Pittsburgh,” I said.
She replied that Roswell was a very cheap housing market. English professors in Roswell don’t make much. By the time I left the Land of Enchantment in 2020, I was clearing about $60,000 a year, and my rent had increased to a whopping $470 a month, so I was spending 9.4% of my income on housing.
Why my obsession with low rent and my refusal to buy, even though I could easily afford to do so? There are four reasons.
First, paying so little for housing allowed me to survive debt-free when money was tight and to put away a high percentage of my income after things got better. I currently salt away about 32% of my take-home pay. I’ve never adjusted my lifestyle upward by much when my income has increased.
Second, you never know where a better job will be. In the profession I chose, that next position could be half a continent away. Since 2010, I’ve lived in Minneapolis, Orlando, Pittsburgh, Roswell and suburban Kansas City. In addition, I don’t plan on staying in Kansas when I’m finished with full-time work. I want to be able to quickly leave the sunflowers behind without having to sell a house or apartment.
Third, I generally spend in line with my values. An apartment or house will, for me, always be just a place to sleep and shelter from the weather. I know so many people who take what I see as inordinate pride in overpriced housing that pushes them to the brink of financial insolvency. Thanks, but no thanks. I place little value on the status that homeownership conveys. I generate meaning from what I do, not what I buy.
Some people, who know my housing situation and my net worth, have tried to convince me to purchase a house. I’m not swayed.
In the personal finance-focused composition course that I teach, I do an exercise with students that opens their eyes to the realities of homeownership. I tell students that my parents bought my childhood house for about $22,000 in 1968. I sold the house for $140,000 in 2006. On the face of it, my parents saw a return of more than 600% over 38 years, or $118,000. But if you back out mortgage interest, property taxes, a new roof, new siding, a new furnace, a new kitchen, air conditioning, new carpet and plumbing work, they cleared about $30,000. Students, who have been propagandized by well-meaning parents into believing that a house is the “best investment you can make,” are stunned by these numbers.
If you rent cheaply and invest the difference, the profits can be—and have been for me—quite nice.
Fourth, while I don’t value housing, I do cherish my lattes. The truth is, it’s not the little purchases that sabotage finances. It’s the big ones. In addition, by keeping housing costs low, I can not only invest, but also spend on the things that bring me pleasure. For instance, I recently attended the Kansas City Symphony’s performance of Mozart’s Requiem in a near front-row seat. I bought good parking and had a glass of beer while I gazed at the city lights from Helzberg Hall during intermission. The cost? About $100. The value? Priceless. I also indulge myself by seeing multiple independent movies each month, and I visit two great bookstores in the area: Rainy Day and Prospero’s.
I’d rather invest in the financial markets and spend my money on concerts, books and films—experiences I’ll remember for the rest of my life—than on furnaces, carpets, appliances and dubious status.
When you spend 12% of your income on housing, you can buy the experiences that make life grand. As Aldous Huxley said in the 1946 foreword to Brave New World, “You pays your money, you takes your choice.”
Douglas W. Texter is an associate professor of English at Johnson County Community College in Overland Park, Kansas. Doug teaches a composition I course that focuses on personal finance. His essays and fiction have appeared in venues such as the Chronicle of Higher Education, Utopian Studies, New English Review and The Writers of the Future Anthology. Check out Doug’s previous articles.
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”i don’t share my life, so i will never share my walls.”
or:
i’d own a single wide on a 100 acres before i’d ever rent again.”
It is interesting that you found cheaper than Pittsburgh. Do you mean the city or suburbs?
Our first apartment (2001) was technically in Shady side but a block from the train tracks and the rent was $680 or so which included water and heat.
We bought a house in Bloomfield for $43k (2002) and so the mortgage and taxes and PMI was $279, so it seemed like a no brainer to me. I think we moved in 2008? renting out original house for a few years, which just cleared a profit on its own by $10k or so, though the headaches of that are worth reconsidering…). And then sold for $90k in 2012. We did pay tax on that sale because we also sold our suburban house in the same year for a similar number, bought for $70k.
We moved back to the town where I grew up in NH and bought a house for $69k.
Mortgage was paid off in 2006 or so, though taxes are much higher here, though the rents are sky high (I think $1500 is the minimum for a single bedroom), and $2000 or $2500 for anything of any size. (We have a family of 10 so drastically different situation than you).
Being able to move easily is probably your best point and for those that want to move (we figure we are done moving, maybe one of the kids will take our huge house when we get older, maybe we move into the in-law apartment, who knows)
But, I 100% agree on people who spend hundreds of thousands of dollars on their house. We had friends who spent that kind of money in Pittsburgh at the same time. We never lived in a fixer upper – though I did consider the $20k houses in both Pittsburgh and NH that would have needed some work.
We have upgraded electrical and various projects in all of the houses we’ve lived in, though I also enjoy that work, so that isn’t entirely a downside.
People here like to think that renters don’t pay property taxes and don’t realize that the rents include those numbers.
And while our property taxes here ($6k) are high in my opinion (higher than my mortgage in Pittsburgh) I’ve heard of lots of worse off areas, though the $25k/student at the public school is hard to imagine that is being spent well ..
So, I left Orlando, Florida, in September of 2016 and moved to Pittsburgh.I had been teaching at a for-profit film school in Orlando, and I wanted a more normal academic job. I stayed four years in Orlando largely because I loved Cocoa Beach on the weekends.
I was in Pittsburgh from September of 2016 to July of 2017. I had hoped to find a full-time teaching job there. I did some part-time fundraising work and some ghostwriting for a publisher. I was a finalist for a job, but there was bait and switch. The full-time job that I was gunning for mysteriously became a part-time job, so I said, “No, thank you.” I had to go back out on the national market. While I was in Pittsburgh, I lived in a bad apartment in a nice area. I was on Stratford Avenue, near Friendship, on the very edge of Shady Side, which is a lovely area. When I moved to Pittsburgh, which I very much liked, the goal was to pay as little as possible while I looked for work. I think I paid around 690. I’m strongly considering Pittsburgh for retirement. I loved the Strip District. And I would walk to Polish Hill for mass in a beautiful 19c church. I had thought that my rent was really low in Pittsburgh, so I was stunned in Roswell to find something actually a little better and even cheaper.
Roswell is in New Mexico, but it’s not ABQ or Santa Fe. It’s 175 miles south of those places. It’s very isolated. When you leave the northern edge of Roswell, it’s 98 miles through the semi-desert to the next gas station, in Vaughn. The rents are very cheap.
Did you factor in the imputed rent, how much your parents would have spent to rent a similar home over those 38 years?
Very smart that you avoided lifestyle creep.
We did the same. Our rent was $700 a month and included heat. That was less than 56% of what most rents were in the area. We saved and invested the difference. I’ve purchased three homes in my lifetime. One was a condominium. Each of 44 buildings had two entrances and four condo units. More like a house than a condo. One thing I avoided was the notion that a home was an investment. I saw it as an expense and a lifestyle choice and avoided over-purchasing. To reduce the price I purchased fixer-uppers. For example, the condo had a horrible kitchen which I gutted using sweat equity. However, permits were pulled and plumbers used for such things as gas piping. “Sweat equity” is an almost lost term, relegated to bygone days. For a time we were full-time RVers and I ran my business via the internet after entering a “phased” retirement. That was 2015 and we sold that RV last year. Now we RV part time but have a permanent “home” and a lily pad.
It is good to hear about alternate lifestyle choices. Gives one more options to think about when considering their personal life choices. For me, I sold a long term rental (that paid my mortgage & taxes) for a 100% profit. So I am happy with my buying choice. That said, while my purchase was a thoughtful, calculated, buying decision, this was no genius move on my part. A return based largely on a decade of Fed interest rate manipulation. I had a previous home in the same market for 10 years and sold it for the same as the purchase price (where was the Fed to bail me out?)! We make the best decisions we can but lady luck has significant say in the outcome.
I lived exactly this lifestyle for 15 years — for much of it I didn’t even have a bed, just a perfectly comfortable mattress on the floor — and then I’d had enough of it. Enough of putting money into a landlord’s pocket to live in a place I didn’t really like, that never felt like home.
And now, unlike many here, most of my nest egg come not from wise conservative investing and saving but from buying homes on the ocean, living in them enjoyably, and then selling them at the right time into wildly rising real estate markets.
Most of all, the house I own now is home. Our last, we believe. Nothing to do with the “status” derided by Douglas. It’s an internal feeling. We feel safe and comfortable, and we walk around the place and talk about how tremendously lucky we are to have found it. When the whole family is here and all the bedrooms are full and somebody is clattering in the kitchen 12 hours a day, it’s a warmth in the heart that we consider of immeasurable value. And it’s a feeling we could never have found in a house owned by somebody else.
There was a Forum post recently on renting vs buying, and I made the comment that there can be substantial downsides to long-term renting, too. I don’t disagree that financially for some people, depending on where they live, it can be a smarter move to rent. But in California, jacked-up rents, lousy landlords who do a poor job with maintenance and repairs, and an owner deciding to sell your rental home out from under you are all very real possibilities.
I can’t even get my mind around how people in LA are going to cope after last week’s fires left so many unhoused people. And to your point, if you’re renting an apartment in LA and your building burns down, you’re jockeying for position for remaining housing with everyone else who’s lost their homes, whether owners or renters. At least owners might have some insurance coverage to pay for temporary housing and for their next place.
Another issue is liability.
When there is a disaster that destroys the building, renters can move on.
To take this a step further, I learned about van life from one of my daughter’s friends who has been living on the road with her boyfriend for years since graduating college. They like extreme outdoor experiences so they can go places (mostly out west) easily with their gear and always be home. I think that after becoming traveling nurses, which pays well, they may rent for short stints, but it seems a lot of people are living this rental lifestyle.
As full-time travelers, we couldn’t agree more. I lost ownership of a house due to bad timing and geography (Florida, divorce appraisal in 2006, refinance to keep my kid in same schools, housing crash, short-sale in 2012) and see it as the gift that keeps on giving.
Our accommodations budget is $2,000 a month (34% of our Social Security income; 20% of our overall income, including investment draws) spent on a mixture of temporary rentals, hotels and 1/3 of cruise ship fares. Every time I get a wild-hair about buying (apartments in Lima are cheap!), I do the arithmetical and logistical and hassle math. It always comes up short.
It is so liberating to own no real estate. Where to age-in-place as I outlive my skeleton will be the challenge.
We have always owned houses and condos, and pretty large ones, but when my husband and I first met he thought buying several small apartments in different cities would be fun, and I suspect it would have been the better financial move. The houses have been not only a drain but a massive headache with the upkeep. We’ve also moved all around the country for work, but it took us 30 years to basically realize that your plan is a solid one.
I hear you, Doug! Though I’ve owned four homes (and plan to stay as long as I’m physically able in the current one), I’ve also rented six times over the years, with some good landlords and others, not so. I can’t brag about having lived as cheaply as you, but I can say that Onondaga County/Syracuse NY, where I lived for almost 20 years has among the cheapest housing markets plus a great outdoor lifestyle if you enjoy cold weather sports. And plenty of modestly priced culture, thanks to Syracuse University, LeMoyne College and Upstate Medical University. As you know, professors and medical professionals bring touring companies and great local cultural organizations as well.
Linda, I was born in Syracuse New York and lived there until I was 33. I’m also an alum of Syracuse University, class of ’76. I agree with you the Syracuse area has very affordable housing, however, if I remember correctly the property taxes were quite steep.
Douglas, great post!
While we have always been condo or house owners your perspective is 100% spot on.
We have never considered our shelter to be an investment. Way too many upkeep costs and so many other ownership expenses.
We own because we stay put.
Except for college, neither of us have never lived more than 50 miles from where we were born.
In this, and other aspects of life, I firmly believe that there is no right or wrong. There is only personal preference.
It’s all in your perspective. I moved to Raleigh, NC to go to school in 1971 and I’ve never left. I always found the job I needed that allowed me to stay. I’m in my third home since that time. I raised both my sons in the second home, and now my kids and step-kids all know they are welcome here in our third home. I don’t need a return on investment calculation for that kind of value. It was worth it.
Very similar story here. I’ve spent my whole career in the same area (two university positions), and we’ve lived in our college town since 1991. We’re also on our third purchased home. The first was the little starter that we moved to with our three-year-old. The second, where we moved once we’d added a second child, a second income, a dog, and a cat, was where we raised the kids and lived for over 21 years. The third, which we’re in now, is our empty-nester property (3 BR condo). The years between 1998-2019 (the years we lived in the second house) were good for our local housing market, and we benefited a great deal financially from owning that house.
If you expect to move often, clearly renting makes sense. If you don’t expect to move any time soon, having your own place means you don’t have to deal with landlords, fellow tenants and their dogs, rent increases and possible moves. I bought a house even though I was single, and appreciated the stability. I did buy less house than I could theoretically afford, and I did pay off the mortgage in twelve years. I have no idea how much profit, if any, I made, but it paid my entry fee for a retirement community when I got tired of the maintenance and started considering my needs for future support. I did not become emotionally attached to it, as some people seem to, but I appreciated it while I had it.
If you own and terrible neighbors move it, what do you do?
Five stars! I agree 100% that an apartment is just a place to sleep and shelter from the weather. I saved a lot of money while living for 12 years in a rent-controlled apartment in San Francisco while working at a high-paying IT job. Now I’m retired, living in the nicest apartment in a relatively LCOL city in the midwest, and have no plans to buy.
I like having the money to donate to good causes or to surprise a family member with a gift, but I rent so I can call maintenance when there’s a small problem instead of having to call around town trying to find a handyperson willing to fix whatever it is. (I am limited in what I can do myself.)
P.S. I’m a widow with no children. If my husband had not died young, we’d probably be living in a house in a remote area of Northern California.
My brother has been living in the same rent-controlled apartment in San Francisco since 1996! He pays $1400/month for a 2 BR place in a nice area (the Sunset). I would never encourage him to buy now. You can’t rent a 1 BR or even a studio in my college town for $1400, let alone in San Francisco.
Douglas, thanks for an interesting perspective. Home ownership promotes a unique combination of rational thinking and emotions. I’ve seen wildly different approaches at calculating the return on home ownership. Mike Piper posted an interesting approach, borrowing from Bill Bernstein. Most people I’ve discussed this with look at it as you described, without consideration of expenses, inflation, and imputed rent.
I spent a good part of my career weathering mergers and acquisitions. My job moved 70 miles, then 3000 miles, then 40 miles, and finally 300 miles. With a lot of work, travel, and flexibility I was able to keep the family in place while staying gainfully employed. I thought it was the right thing to do then, and still do. But I worked with many people who made multiple moves for their career, and I can’t say they were wrong. Geographic flexibility can be a boon to one’s career, especially in certain industries. It’s an area of our financial lives that is very individual.
I’m a bachelor also Doug and I agree with you wholeheartedly. I bought a house back in 1992. Kept it for 22 years. I made a nice profit, but when I subtracted the interest, upkeep and stress it wasn’t worth it. If I had it to do all over again I’d have rented.
i agree with Richard though. It’s easy to live this lifestyle as a bachelor. But being married and especially having kids it’s a different story. I’d make the sacrifice for my children.
Back in the mid eighties after my wife and I were married for a few years I told her I wanted to be in a house before we had our first child as I wanted my children to grow up in a home as I did.
I think you raise a good point, that sometimes in the name of status people reach too far and become house poor.
I’m an owner. It’s a luxury I enjoy and can afford. With the house paid for, our yearly expenditures are well below 12% and constantly increasing rent is not a concern. But I still agree with your analysis. You correctly consider all of the costs that need to be considered both before buying and when calculating net profit after selling. And in my opinion avoiding lifestyle creep is one very important key to stress free living. You are not wrong about the hassle of buying and selling either.
Still, here at home in my castle I can crank up my hi-fi as loud as I like….. Well….. At least when Chrissy ain’t home.
Very much enjoyed this different way of looking at the world. Can’t say I disagree with your conclusions, if you don’t plan on staying somewhere 20+ years, renting is often the best option.
So, can we assume you lead a bachelors life? If so, I suspect your views might be different with a spouse and family, the finances not withstanding.
One of my residences is a city apartment in a high-tech area with about half the apartments with children.
Hello. I am single, happily. I’m not exactly sure what “a bachelor’s life” is. I work, volunteer, go to church, just like everybody else. You raise an interesting point. Well, my parents rented for eleven years and almost didn’t buy. I’ve had a couple of experiences that convince me that I probably wouldn’t buy even if partnered. First, I went to college in Philadelphia. I met lots of people who grew up happily in apartments. Second, I did an exchange year in Edinburgh, Scotland. I dated somebody there. Her parents lived in Council Housing near the castle.That was a long term rental situation. I could see doing something like that. Thanks for your comment.
Interesting article here on what happened with Council Housing.