Stay As A Renter?

Alan is a renter and wants to continue this residential lifestyle but keeps hearing he should buy a home. Is it okay for him to continue as a renter even though he has a lot of money saved?

QUESTION: Alan in Los Angeles has been a renter for a while, and his kids are grown and on their own. He wants to continue this residential lifestyle, but he keeps hearing he should buy a home. Is it okay for him to continue as a renter even though he has a lot of money saved? Dave advises him it depends on the income he’s making relative to the rent.

ANSWER: I think it would be about what the rent is as a ratio of your income and your wealth. What I mean is that if the rent isn’t much compared to your income or the size of your nest egg, then it’s not doing damage to you. You are investing somewhere else other than a personal residence. But if you’re not doing any investing because you’re not making enough money relative to your rent, then the renting starts to be a bad idea pretty quick.

It sounds like you’ve got a pretty good income and nest egg and this rental is a non-issue that gives you the lifestyle you want, so I’d be staying right there. Your rent is about 10% of your income, and it’s not killing you. The downside over the long term is that market rents will go up. And if they go up faster than your income, you’ve lost control of that part of your life, and you’ll be forced into buying something to control that part of your life.