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I never had much interest in the great rent versus own debate. Both sides make excellent points. I came down on the own side of the debate for non-financial reasons. I love tinkering and home-improvement projects and homeownership gave me more opportunities to pursue those interests.
The main reason I have no interest in the great rent versus own debate is because it ignores a third option that is far more beneficial to the FIRE enthusiast. And that third option is outright homeownership.
To show why outright homeownership should be the primary objective of every FIRE enthusiast, let’s look at the costs of renting and mortgaging in my state of North Carolina.
| To Rent | To Mortgage | |
|---|---|---|
| Average Monthly Cost for North Carolina in 2018 | $1,300 | $1,264 |
Now let’s look at the Groovy Ranch expenses that—like rent for the renter and mortgage payments for the mortgagee—I am contractually obligated to pay.
| Monthly Cost | |
|---|---|
| Property Taxes | $166.67 |
| Total | $166.67 |
Because I own Groovy Ranch outright, it doesn’t take much to meet the contractual obligations of Groovy Ranch and keep a roof over my head. Property taxes come to $166.67 a month—I think. The county is still taxing Groovy Ranch as unimproved land, a whopping sum of $17.84 per month. Next year’s property tax will reflect the addition of Groovy Ranch, and I’m assuming it will be around $2,000 annually. My builder thinks it will be around $1,400 annually. For our purposes here, though, I’m erring on the side of caution and going with the higher estimate.
Renting Vs. Mortgaging Vs. Outright Owning
At least as far as contractual obligations go, outright owning is roughly 13 percent the cost of either renting or mortgaging. Over the course of a year, that adds up to a staggering amount of savings. And over the course of 10 to 20 years, those savings are even more staggering.
| Annual Contractually Obligated Cost | Annual Contractually Obligated Cost for Groovy Ranch | Annual Difference | Annual Difference Invested for 10 Years at 7 Percent | Annual Difference Invested for 20 Years at 7 Percent | |
|---|---|---|---|---|---|
| Renting | $15,600 | $2,000 | $13,600 | $201,056 | $596,564 |
| Mortgaging | $15,168 | $2,000 | $13,168 | $194,669 | $577,614 |
Outright Owning and Financial Independence
In 2006, once we relocated to North Carolina from Long Island and achieved outright homeownership, our net worth was approximately 7.5 times our annual living expenses. In 2016, a mere ten years later, our net worth was approximately 30 times our annual living expenses.
Our rapid drive to financial independence was only possible because of a high savings rate (roughly 60 percent of our gross household income). Our high savings rate, in turn, was only possible because of outright homeownership. It’s easy to save a boatload of money when your household income is over $100K and your contractually obligated housing costs are $300 a month.
Now a couple of questions. How do we make outright homeownership more of a thing? And how do we make it more feasible for young people? Here’s a novel suggestion.
Opportunity Parks
Picture, if you will, a trailer park. But not an ordinary trailer park. Picture a trailer park for people without trailers. This park, which I have dubbed an opportunity park, will be geared towards people who want to live temporarily in either a tent, a car, or a van.
Now, to make sure my opportunity park doesn’t devolve into a glorified skid row, we’ll need some rules. Here they are.
- Lot fees will cover the cost of communal toilets and showers. Residents will get key fobs to make sure only residents have access to the toilets and showers.
- Lot fees will also cover the cost of the following amenities: wi-fi internet access, 30-amp electrical hook-up, a small storage shed or locker, and a picnic table.
- Lots can be used for tents, cars, or vans.
- Residents must be under 25 in order to join the opportunity park.
- Residents must have full-time jobs.
- Residents must put at least 20 percent of their take-home pay into some type of saving vehicle (i.e., savings account, money market fund, CDs, mutual funds, etc.). Each resident’s saving vehicle will be in his or her name, and he or she may only access the money built up in his or her saving vehicle once he or she has left the opportunity park.
- Residents may not stay longer than five years in the opportunity park.
By American standards, opportunity parks are incredibly spartan. But by world standards, opportunity parks ain’t that bad. I don’t know the exact number, but I bet more than two billion of our fellow earthlings right now don’t have access to toilets, showers, electricity, and the internet.
And don’t forget what the objective is here. On the one hand, the objective is very cheap housing that gives young people with ambition and modest incomes a great way to save a ton of money. More importantly, though, the objective is to challenge the status quo. Renting or mortgaging makes the path to financial independence harder and locks you into being a wage slave. Outright homeownership makes the path to financial independence easier and gives you the power in any employment situation (i.e., you won’t have to suffer the slings and arrows of a crappy boss because you’re not saddled with a rent or mortgage payment every month).
My opportunity park represents a wonderful opportunity for a lifetime of outright homeownership. Rather than going to college, moving back home after college, renting an apartment, and then mortgaging a house, a young person could outright own a tent, then a van, then a tiny home or trailer, and then a home. Not very glamorous. But a doable progression and a great way to build wealth and achieve financial independence.
Final Thoughts
Okay, groovy freedomist, that’s all I got. Mrs. G thinks I’m on to something by adding outright homeownership into the rent vs. mortgage housing debate. She thinks I’m totally bonkers, however, when it comes to my idea of an “opportunity park.” What say you? Is outright homeownership something the FIRE community should do a better job of promoting? Is my idea of an “opportunity park” a nice way of nudging young people toward outright homeownership? Or has this blog finally jumped the shark with this warped post? Let me know what you think when you get a chance. Cheers.
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