The Unownership Society
Seven years ago, when people I knew were buying houses they couldn’t afford with the philosophy that real estate prices always go up, and the go up fast, I was sitting on the sidelines. I had no money, no desire to settle down, and no belief that real estate in the form of home ownership was such a sure thing. Years later, I had a chance to see the real numbers behind the true cost of owning a house for 30 years, and I was not impressed. For all that people say about real estate appreciation, there is a lot you don’t hear about often.
To truly determine how much you earn on a house from the moment of purchase to the moment of sale, you can’t ignore all the maintenance costs and other fees you are required to pay in order to live in that home. Buying a house for $500,000 and selling for $600,000 two years later is not a real 20% return when you consider you spent $30,000 in taxes, $15,000 for a new patio, $10,000 for a remodeled kitchen, your closing costs when you purchased the house, and the Realtor’s commission when you sell. The home you live in barely beats inflation over the long term when you factor in all costs, unlike long-term investing in a broad selection of stocks like an S&P 500 index fund.
MP Dunleavey mentioned that more people are beginning to think the same way I have been thinking, and taking this approach much farther than I have. These “transumers” eschew ownership wherever possible in favor of a more transient existence, supported when necessary by renting and leasing. “Rather than spending your money on individual things, which you then have to keep (suddenly an old-fashioned idea), you purchase access to an array of objects and experiences. It can save time as well as cash: The more you own, the more you have to worry about, maintain and upgrade.”
Renting is often cheaper than owning, even over the long term.
When you count gas, maintenance, insurance, repairs, loan payments and depreciation, the average cost of car ownership is $8,095 a year, according to AAA. Yet the majority of cars in North America are driven only 66 minutes a day, according to a 2008 study by Susan Shaheen of the University of California, Berkeley. That works out to about $20 an hour, two to three times the hourly cost of car sharing.
I don’t think a service like Zipcar would work for me because most of my driving is my daily commute, but the transient lifestyle lends itself to leasing a car. Leasing usually includes a contract that is not favorable to the consumer, and most related financial advice warns to avoid leasing a car. But in cases where leasing is more expensive in the long run than buying, or you have no asset at the end of the contract, you could consider the increased cost the price you pay for not needing to deal with the pains, headaches, and expenses of owning the car.
Every time you add to your possessions, you add to your responsibility and in many cases your expenses. Rather than being tied down to material objects, you can spend your money on experiences or save for the future.
Why Own When You Can Rent?, MP Dunleavey, MSN Money, May 6, 2009