Why I don’t like renting
Personally, I think a paid-for principal residence is “the foundation of financial independence,” a line I use more than once in my own financial novel, Findependence Day. By that, I mean that to achieve Findependence, one needs to be free of all debts, including mortgage debt. Now it’s true that renters are not technically in debt but I view the continued need to pay rent in the future as a variation of debt. It’s an obligation that never goes away and one that will likely rise as landlords raise rents to keep up with inflation.
Since we all need a roof over our heads, I’d far rather have a paid-for home than pay rent. True, a home will still have carrying costs, not to mention property taxes that rise as the home’s value increases. But in most cases, property taxes and even maintenance fees if it’s a condo, will be lower than what you’d pay for rent.
What about investment real estate? Putting aside the principal residence for a moment, I think a 10% or 15% allocation to real estate is about right for the average investment portfolio: either bricks and mortar if you’re inclined that way and are happy to put up with the vagaries of being a landlord;
Live in a house you can afford
What of Chilton’s stance on real estate? In a Maclean’s interview two years ago, Chilton revealed he lives “in a 1,300 square foot house.” And that’s including the basement. This is consistent with what he writes in The Wealthy Barber Returns. In the chapter Under House Arrest, he says a crucial piece of advice to achieving one’s financial plans is to “live in a house you can truly afford.”
Huge homes don’t just mean higher mortgages, they also mean higher property taxes, higher utility bills and more maintenance costs. Spending begets more spending and having stretched for the biggest home possible, couples also tend to stretch themselves to buy more or better furniture, appliances and cars, Chilton writes. I couldn’t agree more.
He goes on to talk about “good debt” and its three attributes: it’s taken on to buy an appreciating asset, the servicing doesn’t squeeze out savings and the debt will be retired before you do. He closes the chapter with, “I love home ownership, but make sure it’s you that owns the home and not the other way around.”