Buying a house is falling out of fashion in the Financial Independence and Early Retirement community. Not “Green Polyester Leisure Suit” out of fashion, more “Cherry Cabinets and Ornamental Backsplash” out of fashion.

The oft-cited, and extensively researched, post on the matter is the awesome and amazing JCollinsNH’s “Rent v. Owning Your Home, opportunity cost and running some numbers.” If you haven’t read it, you should. Go ahead, I’ll wait.

I weighed in with my own “Should I rent or buy a house” post the other day, cribbed from the research and soul searching Mrs. Frugalwoods and I did during our house hunt in 2012.

Now back to the issue at hand. If Mrs. FW and I are so darn frugal, why do we own one of these wealth destroying monsters?

Location, Location, Location!

Glorious Cambridge, MA.  Our fair city.  Home of Hard, MIT, and the Car Talk Guys.
Glorious Cambridge, MA. Our fair city. Home of Harvard, MIT, and the Car Talk guys.

Location Bonus #1: Our house is 0.5 miles from MIT and 1 mile from Harvard University. No matter what happens in education and the economy, I feel confident these two institutions will continue driving the local economy. In particular, the biotechnology sector is booming here and several thousand high-paying jobs are moving into the neighborhood over the next few years.

Location Bonus #2: We’re less than a mile from the subway (called the “T” ’round these parts). My office is just a few miles away so I’m able to bike to work. And it’s in a neighborhood we love.

Location Bonus #3: Our immediate neighborhood is experiencing a rapid turnover from working class to young professional renter class. When we bought in 2012, our house was on the edge of the “nice” area. Now the “nice” area has expanded to encompass us.

Location Bonus #4: We were able to buy a single family home. No condo, apartment, or co-op for us. This means no homeowners’ association (HOA) fees or shared walls! Most importantly, there are no restrictions on renting it out in the future–many HOAs prohibit or restrict owners from renting their units.

We bought our house with the intention of turning it into a rental in the future

This is key. From the moment we closed on our house, we could rent it out for more than PITI (Principal, Interest, Taxes and Insurance).

The substantial undergraduate and graduate student population in the area creates a robust rental market. Our house is ideally situated for renting and the four bedrooms allow for excellent rental income opportunities with our target market of students.

And while the fact that the house doesn’t have a yard is sometimes a bummer for us, it also means we won’t need to pay a landscaper to take care of it once we’ve rented it out.

We Got A Smokin’ Deal

Zillow is mostly full of crap but the house value trend lines are useful
Zillow is mostly full of crap but the house value trend lines are useful

It was early 2012. The housing market was starting to show signs of life but hadn’t roared back yet. If you had good credit (we did), mortgage rates were extremely cheap. We ended up with a 30-year fixed rate conventional mortgage at 3.8%. I fully expect to brag to my grandkids about how cheap that money was!

The house showed poorly and hadn’t been updated. It was painted odd interior colors, there were heavy dark drapes, and hideous floral rugs covered the wood floors. Tons of family photos crowded the walls making a small house seem even smaller. But decorating tastes aside, the previous owners lived in the house for over 20 years and took great care of the important stuff. The house has a solid foundation, new windows, new roof, and the mechanicals are in good condition.

We knew we could put sweat equity into cosmetic features and have a great looking house. Since we were familiar with the area and had lived nearby for several years, we knew the neighborhood was prime for rejuvenation. In the 2 years we’ve been here, there’s been incredible revitalization.

We ended up paying ~$460,000 for the house, which turned out to be the lowest price-per-square-foot of any habitable property sold in the area that entire year. We also lucked out in buying just before the market got insanely competitive. We didn’t have a bidding war, and we had standard contingencies on the sale.

Facts Not Feelings

There’s an entire industry dedicated to convincing us that buying a house is an emotional–possibly spiritual–decision that should be made with teary eyes and visions of unparalleled domestic bliss. If you’re going into a house hunt with this outlook, please cease and desist ASAP! TV shows that herald cloying realtors urging clients to “go with their heart” and “stretch their budget” to get their “dream home” are not helping matters. While, yeah, it’s good to like the house you’re buying, it’s more important to view it for it is: an investment. Buying a home because it “feels right” is not a useful metric.


We bought through the unemotional lens of looking for a future rental investment. After living in the house for two years, we feel confident the decision to buy was right for us. We love living in the house and working on projects, but we also love the idea of moving on in a few years and renting it out. The rental market has continued its upward trajectory since we purchased and the numbers are even more favorable now.

But if you’re not looking for a future rental investment and you just need somewhere to live? Buying might not be a good idea for you.

What do you think? Do you own or rent? Are you happy with your decision?

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  1. Frugalwoods – It sounds like you did very well! You bought a the right time, at a great price, a low interest rate, and a great location. You should have no problem turning it into a rental down the road given the proximity to MIT and public transportation. You did everything right, including buying it through an unemotional lens. Way to go! Wish you nothing but continued success.

    1. Thanks for the kind words!

      I think we did a lot of things right, but we also got lucky. We really got in under the wire before the market heated back up. I’m not sure I’d buy in my neighborhood at the current prices (and bidding wars!).

  2. That’s some great planning you did there with buying a home that has future rental capability. Unfortunately, a lot of homebuyers don’t bother running cash flow analysis on their personal homes, and later run into trouble when they try and convert it into a rental. Most homes in desirable locations make for bad rentals (cash flow negative).

    You’ll be thankful in the future for the due diligence you performed on this one 🙂

    1. Our realtor made it clear that our list of search criteria was unusual. 🙂 Though to his credit, he quickly pivoted to treating us like investors instead of home buyers.

  3. Happened across your site after seeing your post on loving living in Cambridge. We didn’t start our path to early retirement until earlier this year and had purchased our home last June. We didn’t put 20% down, but we did get a conventional loan on a 3.75% interest rate and should have that pesky PMI paid off by next January. Plus, since I work for the bank that gave us our mortgage, no origination fee. So that was nice.

    We love where we live, and though it’s not an investment, we still love having our own home. It’s a money sucker for sure, but also an expansion of our freedom knowing we can bust down a wall if we want and not ask for permission to paint a wall 😉

    Where will you go once you’re ready to move on from this home?

    1. Good question! We’re planning on setting up a rural homestead—likely in Southern Vermont, which is close enough to enable us to manage our Cambridge property ourselves. Nothing is set in stone yet, but, we like New England and Vermont would facilitate the rural life we hope for. We’ll keep you posted!

  4. I think jcolins and his ilk of home buying haters all had bad home buying and selling experiences. But that’s not a problem with owning a home, it’s a problem with people who don’t know how to buy a home. A home is an investment whether you think so or not. And chances are, if you don’t think so, you are likely to lose money on it more than if you thought it out ad an investment.

    I don’t think there are too many people who say, “I’ve made a ton of money on real estate but I’m a renter.” Renting makes sense in certain strategic life situations like short term stays (5 years or less), uncertain job or education plans, new to an area, or if you want to be mobile and flexible. Otherwise, real estate is a good part of an investment portfolio. Don’t knock on real estate just because you personally suck at investing in it.

  5. Technically speaking, owning a home isn’t an investment. Owning homes to rent or to flip is. That’s the argument for renting vs. buying.

  6. That is a silly definition of “investing.” Just because you are living in it does not make it a non investment. As the biggest purchase that the average person will make, it should be looked at as an investment that it is. If I buy art pieces that I enjoy hanging and viewing, it is still an investment of my money. Paying too much for it is a bad idea no matter who lives in it.

    1. In a way, living in it just makes it a tax-efficient investment.

      I believe that more people should think of housing from a numbers perspective. If the numbers make sense, buy. If they don’t, rent.

      But outside of the hottest coastal markets, and with most people who are geographically settled, buying will often make the most sense.

  7. I am not the type to leave comments but there is a great reason to buy and not rent that I don’t see being made. If you buy, you can eventually drop you housing expense dramatically by paying off your mortgage. Around here, rent is about $1200 a month, we got a 15 year loan for the same price and after 15 years (we are actually going to get paid off in about 7) our housing costs will drop to about $350/mo (insurance and taxes, grrr). I realize there are “opportunity costs” of putting money into a house rather than the stock market but those returns aren’t guaranteed and stocks can be as illiquid as a house(like, if you wanted to withdraw money in 2009). Every extra penny on principle is a 3% return, always, in any market. If inflation takes off, I can make no extra payments and pay it off with devalued dollars.

    1. Definitely true. If you plan on staying in a house for a very long time horizon, say 20+ years, I don’t think there’s any way the math could work out favorable to rent.

      Nice job on the quick payoff! Besides the obvious awesome cash flow, there must be some serious peace of mind to having that all finished!

      1. Exactly, the number one reason to pay it off is the peace of mind knowing that without a house payment we could both lose our jobs and still support ourselves through what would basically be part time side jobs (mowing lawns etc). The huge increase in cash flow after it’s paid off is the number 2 reason.

    1. Yeah, I think it’s not for everyone. I like tinkering and fixing stuff, and our life was ready to be in one place for a while. But my friends that move every couple of years and call the landlord to change a lightbulb… they should stay happily renters. 🙂

      It’s also a major gamble. I think careful planning can make it less of a gamble, but there’s always unquantifiable risk.

      I don’t fault anyone for choosing to rent.

  8. My wife and I own two homes, but neither of which is paid off. We rent my old home once I moved in with my wife after marriage and now let our renters pay our mortgage for us in my old home. Homes (and real estate in general) is definitely an investment, but it can take a long, long time before that investment is truly realized. For us, we’d have another 20 or so years before our rental property begins netting true profit because of the mortgage.

    There is a lot of debate between rental income and additional stock ownership. Some swear by the market, others swear by real estate. The benefit to renting your home is even if the stock market sinks, your rental income stays the same until the lease is up.

    The lease on our rental is up in 1.5 years, and we plan to re-evaluate then whether or not it is worth keeping the house or selling it and investment the proceeds. It’s a tough call sometimes.

    1. Yeah, rentals can be hit or miss. I’m sorta thinking the boat sailed in a lot of the popular urban markets a couple of years ago. There just aren’t as many deals these days.

      Our current house/future rental will likely rent for 1.7x PITI. Maintenance will take another chunk out of that, but we should still come out significantly ahead each month.

      The real question will be whether we’ll get the best value from the house from selling it and investing the (tax free) capital gains, or by renting it. Right now the numbers point to renting… but this could change if prices continue to rise faster than rents.

  9. I realize I’m late on the game here but I wanted to say mega-congratulations on such a great housing find! A single family home in Cambridge for less than 500K? What a steal! Super jealous, especially as costs in the area have, as you said, skyrocketed since 2012. We’re looking in similar-ish areas (near Inman, Cambridgeport, Davis) and the prices are just ridiculous.

    1. Thank you so much! We’re pretty pleased with the deal we got. It’s a hot market for sure, but, hopefully there are still deals to be had. East Cambridge seems to be a bit less expensive and the area is really reviving beautifully. Best of luck with your search!

  10. I would like to add a good source of motgage. I bought my house in late 2012. I found my mortgage company through zillow marketplace. I got a loan for 3.25 interest rate[30 yr fixed] , No lender fee, did not buy or pay for points. Local banks were offering 4% interest +heavy lending fees.
    I told my friend about this and he also got the same rate…Zillow mortgage link can be found on the top of their web page…It is like a bidding place for bank for your loan.

    1. Thanks for the advice! It does seem the internet is making comparison shopping of financial instruments easier and easier!

  11. Just came across your mention on, congrats on that btw! Curious to know (and apologies if I missed it in a previous post), any tips on how you saved up on a down payment? Student loans are making it quite hard for to save.

    1. Thanks CR! It wasn’t anything unusual, just steady saving and living in a series of crappy apartments to help that savings rate. Have you looked into consolidating the loans? I know several of my friends refi’d into better rates and in the process freed up some cashflow.

      But a lot of folks will try to pay off their loans before buying a house. Depends on your strategy and income.

  12. Since you have 4 bedrooms and only need 2, have you ever thought about renting out a room for extra income?

    1. Yeah, we’ve considered it. It falls into the “just not worth it for us” category. I know people that do that, and it totally works for them, but both Mrs. FW and I are kinda introverts in person… and we like our quiet private space. It’s a luxury, for sure.

  13. I’m so glad to have stumbled upon your website 🙂 You live right in my neighborhood/ I live in yours! Unfortunately, I’ve still got lots of student loans to pay off and the housing prices around our parts are off the charts outrageous these days. I’m excited to explore/ learn more from the FWs. I learn alot from the comments as well. At this point, I’m going to focus on paying down my debt. But after being in Cambridge/Boston for so long, I’ve realized I can save a lot more money by moving almost anywhere else! I guess I’ve got to do more digging on this site to see how you make it work around here.

  14. We live in a small University town where real estate is booming. We love it here and don’t plan to move. Currently we are pretty happy with our house. We live right below the mountain–wife walks to work. We bike to downtown for drinks and even I’m only a 20 min bike ride from my work.

    I have researched and researched this and I have started to see the math in the J Collins approach to seeing buying a house as a terrible investment. I guess i just can’t get over the feeling that it would be so simple and easy to stabilize your living expenses by paying off a mortgage.

    That being said, we rent way below market. Our landlord doesn’t believe in raising rent. The neighborhood we live in, for this square footage, a houses can sell for $260k while we pay 825 a month.

    And yet we are looking to move into a “better” house. Ours is old and clunky in some ways–just not efficient in design. The wife is on board to just rent a nicer place…I am just stuck on the decision of whether to rent or buy. Does anyone have thoughts on our situation?

    I posted before and one of the comments was to run the numbers. I have had a hard time doing this with ours. I think we have always come out in the middle. Like I said we rent for 825 a month. The particular neighborhood we live in …the smallest house in the hood(965 sq feet) is listed at 260k. That’s about the cost of our current rent. Frankly we would like something a touch bigger, perhaps 3 bed, 2 bath. I would guess this would be in 275k range here but we could find something in the 250k range in a different neighborhood, maybe as low as 235k.

    I have $65,000 saved up in a liquid savings account. I have another $65 in our retirement accounts, mostly traditional funds. Planning to do the Roth conversion ladder whenever we hit FI.

    Part of my struggle now is just not knowing what to do with the money. Frankly it’s eating me up watching it earn 1% interest. I would love to max out the retirement accounts, and invest the rest, maybe take a fun trip. But we plan to do a 15 year mortgage and we really need every penny of that if we do buy a house to make the payment affordable.

    This would be our first home so I think we are both just struggling to see if we would like the lifestyle of owning or not. We definitely think wisftully about it but I also realize it could be a lot of headaches. Especially in this area…the houses people end up buying need a lot of work typically(or you really pay a premium).

    Any math help really appreciated…any wisdom appreciated!

  15. Do you guys have a list of criteria you went with in your search? We live in Belfast, Northern Ireland which is of course VERY different in terms of a market but would be interested in factors you considered important. I’d like to get somewhere but wish to be future looking in terms of potentially renting it in future or just selling it when the time comes (we have access to land outside the city. Saving this for when FI or close.) Most recently we’ve been looking a bit further outside the city in terms of getting some space, some green and better quality of life at the expense of a 40minute bike commute each way for me.

  16. I’ve taken the deep dive into the FI blogosphere and have been overjoyed to find someone who’s achieved FI (while writing compellingly about it) in my own neighborhood! My partner and I live in Somerville with our two-year old daughter. So far we have the frugal life dialed, and have made great strides recently in understanding investments and various retirement savings options. I feel like the puzzle is coming together, but the housing question still looms.
    I go back and forth on whether purchasing a house (which would eventually become a rental property) is worth it in this overheated market. For the most part I enjoy the fixed cost aspect of renting. It’s nice to know that we will not spend any money on repairs or maintenance in the next five years as we approach FI. Of course, our landlord could choose to raise the rent or sell the house, but so far he’s been very kind in barely raising rent the last few years. He enjoys us as tenants.
    Recently, though, I’ve seen the appeal of buying a home that we can live in for the next five years, then rent out once we achieve FI and undergo some geographic arbitrage. But the prices here are just so intimidating – you’d be hard pressed to find any two-bedroom apartment under 600k. That’s a lot of capital to tie up. I guess we need to math this shit up, to borrow a phrase from Millennial Revolution.
    I’d be curious to hear from other FI strivers in HCOL areas. Is it worth it to take on a mortgage in anticipation of future rental income (hence diversifying), even in expensive housing areas? Or is it more efficient to plow maximum savings into retirement accounts and achieve FI sooner? Another complicating factor is we’d like to come back to this area eventually, at which point we’ll be at the mercy of what I can only imagine will still be a crazy rental market. Thanks any FI-ers for your thoughts, and thanks Frugalwoods for this great blog!

  17. Thanks for expressing your ideas on this blog. As well, a misconception regarding the banking institutions intentions whenever talking about property foreclosures is that the standard bank will not take my repayments. There is a certain quantity of time which the bank requires payments every now and then. If you are also deep within the hole, they should commonly call that you pay the actual payment 100 . However, i am not saying that they will not take any sort of payments at all. In case you and the financial institution can find a way to work one thing out, the actual foreclosure method may stop. However, if you continue to miss out on payments under the new program, the property foreclosure process can just pick up from where it was left off.

  18. As always, buy the worst house in the up and coming neighborhood that’s been neglected but not wrecked. If you can find waterfront, buy it, no matter how bad it looks, as long as it isn’t below the waterline!

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