Buy or Rent a House?

Hello people! Such a fascinating topic- Whether you should buy a house or rent it? It becomes even more fascinating once we begin to make a steady income and consider settling. Using diagrams, the author demonstrated how his rich dad and poor dad held contrasting viewpoints. The diagrams might seem pretty overwhelming. So make sure, you read the first part first: The Only Rule to Become Rich. Here is the conclusion to Lesson Two: Why Teach Financial Literacy? and the answer to Whether you should buy a house or rent it?

One day, my dad was telling me why our home was his greatest investment. A not-too-pleasant argument took place when I told him why I thought a house was not a good investment; a bigger home meant bigger expenses, and the cash flow kept going out through the expense column.

Today, I am still challenged on the idea of a house not being an asset. I really do not expect most people to agree with it because a nice home is an emotional thing and I know from personal experience that money has a way of making every decision emotional. The result in deciding to own a house that is too expensive instead of starting an investment portfolio early on impacts an individual in at least the following three ways:

1. Loss of time, during which other assets could have grown in value.

2. Loss of additional capital, which could have been invested instead of paying for high-maintenance expenses related directly to the home.

I am not saying don't buy a house. I am saying, understand the difference between an asset and a liability. When I want a bigger house, I first buy assets that will generate the cash flow to pay for the house.

Following diagram illustrates how the rich gets richer and why the middle class struggle:

Buckminster Fuller said something about wealth:

Wealth is a person's ability to survive so many days forward… or if I stopped working today, how long could I survive?

Let's use an example. Let's say I have cash flow from my asset column of Rs. 10,000 a month. And I have monthly expenses of Rs. 20,000. What is my wealth? Let's assume a 30-day month. By the above definition, I have enough cash flow for half a month. When I have achieved Rs. 20,000 a month cash flow from my assets, then I will be wealthy. If I want to increase my expenses, I first must increase my cash flow from assets to maintain this level of wealth. Take notice that it is at this point that I no longer am dependent on my wages. I have focused on and been successful in building an asset column that has made me financially independent. If I quit my job today, I would be able to cover my monthly expenses with the cash flow from my assets. My next goal would be to have the excess cash flow from my assets reinvested into the asset column. The more money that goes into my asset column, the more my asset column grows. The more my assets grow, the more my cash flow grows.

As this reinvestment process continues, I am well on my way to being rich.

The actual definition of rich is in the eye of the beholder. You can never be too rich. Just remember this simple observation: The rich buy assets. The poor only have expenses. The middle class buys liabilities they think are assets.

In case, you wish to know the present aspect on buying vs renting a house, you can checkout the following YouTube videos created by some of my favourite finance YouTubers on this topic:

1. Ankur Warikoo - https://www.youtube.com/watch?v=cpw4Cg3Gpx8&t=80s

2. Pranjal Kamra - https://www.youtube.com/watch?v=2ZyKw9_nkGo&t=12s

3. CA Rachana Phadke Ranade - https://www.youtube.com/watch?v=hPTrtp098vg

4. bekifaayati​​ - https://www.youtube.com/watch?v=uvkEQPXnvr0

5. Akshat Shrivastava - https://www.youtube.com/watch?v=1r67W4-rk_k

6. Ali Abdal - https://www.youtube.com/watch?v=ngWZaSbw130

I hope reading this blog helped you learn something. If Yes, make sure to follow the blog, share it, and, if you haven't already, sign up for the email newsletter. Happy Reading!