I've been renting. I can buy the house I rent and the house next to it, really.
Yes, I could have increased my wealth even more by borrowing, leveraging off my existing assets and taking on much bigger risks. Thanks but no thanks. I'd like to sleep at night knowing that even if my investments lose 80% or more of their value, we can still live comfortably and provide our children food, clothing and shelter. I have experienced severe downturns in my investments too, but have never lost sleep. I have no debt.
Will you be able to cope in the event of a severe downturn in housing/economy?
I find this whole topic very interesting and agree that the switched on people will be investing, but would guess that the majority of renters are not investing, at least the younger ones who are renting because they cannot afford to buy.
I take on board the comments about a downturn, but I look to a house purchased about 10 years ago as an example. We paid $170K for an IP. It was rented at $190 per week from memory. So we really have not had to prop it up too much (and I am hopeless a maths, but you get the idea).
It is probably worth mid $600K now (and we will pay capital gains tax on it, but let's assume it was our PPOR). There is no way that we would have made anything like the profit this will bring if we had to pay rent and invest the rest. When we bought it the rent we were getting was about the same as the repayments, possibly a little more, but nothing like the difference if we bought the same house now.
Buying for us is forced saving, not because we are spenders. Far from it. But during the time we have had this house our children have gone from 11, 8 and 4 years old to 21, 18 and 14 and those are expensive years (and we do not indulge them).
For us, with this being an IP, it has actually put money in our pockets each week that we would not have had.
Had the market dropped 80% straight after, we would certainly have been in trouble, but I have always slept well at night. I like to fly by the seat of my pants
. Having supportive parents in the background helped a lot, and without that knowledge that help was there if we tanked, we would probably have been less gung-ho. Banks always lent us the money though, so it is not like we were being reckless.
I know this is simplistic, and only the way I view things, but it is said many times that people "live up to their salary" and I believe for the majority of people, that is probably true.
I believe the people here on SS are not like the majority of people, and that is why many are investing outside and doing very well. This is just my opinion and I know there are differing opinions.
For our family, we would not have been able to make the gains that time has given us with this one example by saving/investing AFTER paying rent.