Something that came to mind as my wife and I are planning a big overseas move is our housing situation. Renting makes moving so easy! A couple weeks ago we let our landlord know that we are moving. No problem, no costs. We called the utility companies and set a cancellation date. And we have been selling our belongings. We have no emotional attachment to our house because it isn't ours. It's just a comfortable roof over our heads that has served us well for the past two years.
Our stuff, after ten years of relatively minimalist accumulation, is being trimmed down to four suitcases and three boxes (two of them full of books). Aside from clothes, we are taking only those things which are most important to us. Some pictures of families and friends, some small keepsakes from experiences we've had together, a few books, our laptops, and some games. Our emotional attachments are in our photos and adventures, not 2x4 walls or the dining room wainscotting.
Some notable things. We could easily leave to go on our global adventure with little cost or hassle. There are virtually no costs to leave our house or move our financial assets to accounts that will work for us overseas.
Had we owned our house we would have been forced to sell or become absentee landlords. Selling would have costed approximately $20,000 after all fees, legal costs, and taxes are factored in. The $20,000 might be a small amount compared to our total net worth, but it would cover about one year of our expenses in Vietnam! Being landlords would have introduced management, tax, and other financial headaches.
As I've shared before, not owning a house has allowed us to maximize our net cash flow every month for the past three years. We've used that to save aggressively and invest! Our investment gains on these savings alone have been well into six figures.
But more importantly, home ownership can psychologically tie you down. The demand of large mortgage payments every two weeks, taxes every year, insurance every month, and promises of limitless equity can be financially restricting. Plus, the emotional ownership of the work put into your house, whether it is new floors or custom blinds, can give emotional attachment to your house. These things all work together to hold you back from a mindset of freedom and flexibility—the ability to take advantage of every good opportunity!
The Broader Mindset
I'm into thinking about finances, life, and risk in a different way from most. The truth is most of our peers would not be able to do what we are doing. This has little to do with incomes, and not much to do with our career choices. It has a lot to do with spending and priorities. The decisions we make every day.
Much of the poor decision making I see regularly in others can be blamed directly on housing and the immense pressure from your spouse, family, and friends to become a homeowner. Even if it is the riskiest and most restrictive decision you can make. Something to think about is if you owning a house is a good decision for you, or a preferable outcome for them.
In Canada we are in a housing obsessed culture. Last week I was seriously asked if I was buying a house in Vietnam. I laughed and replied, "No!", adding that we've been renting for the past three years in Edmonton. To their further shock of course. Really, you've got to be kidding me! What kind of warped mindset of home ownership is required to think that it would be normal or expected to buy a house, sight unseen, in a developing country with a shaky legal structure and questionable property rights? I'll continue to rent, thank you very much.
While most sane people simply view housing as a form of shelter that should be comfortable and affordable, here in Canada many believe housing is an investment, a never ending improvement project, an ever-expanding HELOC to tap into for consumer spending, and a crucial part of one's identity. This ideology is all backstopped by taxpayer-funded corporations and government policies intent on keeping the party going.
Fear of missing out has driven real estate prices to insane heights in many markets. Prices are not sustainable and have every marker of an inflated asset bubble—the days of the best gains are clearly behind us. A good time to buy was 1995 when a typical house costed three times your dad's salary.
Yet people are frantic, scraping together meager savings, borrowing from family, and binding themselves into monster mortgages just so they can boast of home ownership. This craziness when houses are priced at eight or ten times the average salary in our biggest cities. As students of markets we know insanity can continue for longer than we think, but how much higher can house prices possibly go in the long term relative to incomes?
Too many people are financially stretched thinner than a crêpe. I don't know how much weight I put into the frequent surveys that state more than half of Canadians are a couple hundred bucks away from bankruptcy, but certainly we live a tight, high stress, credit dependent culture. To me this sounds like a population that has about as much house as they can afford (or probably more for most).
Mortgage applications are thought of as a fudge-able subjective process rather than a firm legal contract that is signed and comes complete with a mile of small print. In these applications incomes are stretched, existing debt is hidden, and anticipated life events are not considered and certainly not disclosed. It doesn't matter if the missus is eight months pregnant and the family income will be cut by a third or more starting next month.
Savings and real investments are an afterthought, or nice-to-have, for most. A real investment should generate positive returns over time with some income. It should be liberating, not a source of financial and emotional bondage.
That doesn't mean we should think of investment gains as being a sure thing. They are not. Drops in our portfolios occur regularly and sometimes they are even painful. But nothing beats being able to access some cash for any reason at the click of a button. Nothing is better than the freedom of no emotional attachment to where your money is. The ability to move assets to the safest locations in the world is comforting, no matter where you physically live.
I firmly believe that renting a modest, but comfortable house is a key element of long term prosperity, especially given the prices we are seeing today. Even where house prices are more reasonable, think about the other restrictions you might experience by taking on home ownership. Choose to put freedom first in your decision making.
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