Here are some notes I made whilst looking into the renting vs buying decision.

There are financial and non-financial aspects to consider when comparing renting and buying a place to live.

People don’t always know what will make them happy. Some people relate happiness to extrinsic achievements like purchasing a home, when intrinsic achievements like personal growth, intimacy, and community are more consistent with the satisfaction they provide.

Smaller, more frequent experiential purchases like dining with friends, taking a class in an area of interest, coffee, purchases for a hobby, buying things for others - the anti-theses to seldom, monolithic, materialistic purchases like buying a home, are said to bring more persistent happiness. We don’t hedonically adapt to the former, but we do adapt to the latter.

Financially speaking, “what we owe is a bigger predictor of our happiness than what we make.”

Rent Costs

• Rent
• Renter’s insurance
• Utilities

Home Costs

• Property taxes. A good value for this is 1%.
• Insurance
• Utilities
• Maintenance, consisting of physical depreciation, and obsolescence of designs, construction methods and materials, etc. A good value for this is 1%.
• Opportunity costs of the equity invested in the home. A low fee, 100% stock portfolio in RRSP and TFSA accounts only, should have an expected net return of 6.57% each year. Housing appreciation is more like 3% each year (https://wowa.ca/calculators/rent-vs-buy-calculator has a default value of 2%). This means there is a 3.57% opportunity cost. To be conservative, this is rounded down to 3%.

This forms a “User Cost” of 5%, or “The 5% Rule”. The break even point for monthly expenses is then

0.05 * (home cost) / 12

For a $500,000 home, this is $2,083/month, so renting is financially equivalent if you spend this or less on rent. The other direction of this calculation works too. The home price equivalent for a rental is

(monthly rent price) * 12 / 0.05

For example, a $3000 rental would result in the financial equivalent of a $720,000 home.

Other Considerations

• How will you spend your time in both situations?
• A mortgage imposes consistent saving on you
• Maintenance costs are likely more stable than rent prices
• Renters have more freedom of mobility in the case of unexpected events like needing to move due to health or safety concerns, or employment.
• In either situation, can you follow the learnings from the Blue Zone regions of the world where the centenarian (100+ yo) rates are the highest? I.e. get enough sleep, exercise, consume alcohol in moderation, practice fasting, consume a mostly plant based diet, and have healthy, stable relationships in your community?

An excerpt from If Money Doesn’t Make You Happy Then You Probably Aren’t Spending It Right,

The relationship between money and happiness is surprisingly weak, which may stem in part from the way people spend it. Drawing on empirical research, we propose eight principles designed to help consumers get more happiness for their money. Specifically, we suggest that consumers should,

1. buy more experiences and fewer material goods
2. use their money to benefit others rather than themselves
3. buy many small pleasures rather than fewer large ones
4. eschew extended warranties and other forms of overpriced insurance
5. delay consumption
6. consider how peripheral features of their purchases may affect their day-to-day lives
7. beware of comparison shopping
8. pay close attention to the happiness of others

Sources

• Renting vs Buying a Home: How to Decide
• Renting vs. Buying a Home: The 5% Rule
• Why People in “Blue Zones” Live Longer Than the Rest of the World