In a recent Podcast, Gary Vaynerchuck, known for his influential role in the media and advertising space as a leading entrepreneur, made strong remarks regarding homeownership that we would urge many to think carefully about. While there are certainly use cases that make sense for favoring renting a home, most individuals benefit greatly from homeownership.
What were his remarks, and why should you reconsider? Vaynerchuck stated that he feels buying a home is not an effective use of capital. He went so far as to state that he would rent for the rest of his life and never buy a home again.
What You Should Consider
This is obviously a very strong statement made by Vaynerchuck as many view homeownership as part of the American Dream. When thinking about both his position and homeownership here is what you should consider:
Vaynerchuck’s Industry: Gary Vaynerchuck garnered most of his success as a tech entrepreneur. Starting companies, being an investor, etc. requires upfront capital needs that someone outside of this type of profession would not need. Thus, tying up a large portion of cash in the form of a down payment may not make sense for an investor that needs to remain more liquid. Additionally, one would reasonably expect that a tech entrepreneur would require one to be quite mobile in terms of traveling, so they would be less inclined to want to be tied down than the average person.
Equity: When you purchase a home, you are building equity in the home. Your monthly mortgage payments are going towards ownership, an asset that will be yours. When you rent, you pay your monthly rent which goes in your Landlord’s pocket – you are not working towards owning anything. Over the long term, homeownership has been the most influential vehicle for driving wealth accumulation. We have seen that, over a long time horizon, home values tend to increase, thus increasing the owner’s wealth.
Homeownership Is Not Dead: Most Americans still want to buy a home, and homeownership does make sense for a lot of people. However, the Millennial generation is struggling with homeownership because this generation is burdened with exorbitantly high student debt, coupled with high rents and costs of living in most job-hub city which makes saving for a down payment challenging for this group. As a result, Millennials are buying homes at a slower rate which leads some to believe that homeownership is dead.
That is not to say that some of Gary V’s points are not valid when put into perspective. When thinking about liquidity, we would not recommend someone purchase a home that they cannot afford. If the down payment of a home will put you in a bad financial situation, you should likely reassess your budget to ensure you are buying a property that makes sense for you financially.
Additionally, there are use cases for renting homes that also make sense for a lot of individuals. We can conduct rent vs. buy analysis that can help clients decide what makes the most sense for them. One of the biggest things to consider when thinking about renting vs. buying is time – are you planning to only be in this location for, say, 5 years? If so, taking on a 30-year mortgage to buy a home, etc. may not make sense and renting would be more suitable if you know you are going to be changing locations relatively soon.
