plus/minus epsilon

Financial Independence Psychology

13 Dec 2020

The conclusion of my previous post was that whether to rent or buy in my area likely comes down more to individual factors rather than financial ones. But what was interesting to me while doing that analysis, is that I realized I honestly had no interest in buying a condo that’s roughly equivalent to my current apartment.

While I happily currently live in a 1 bedroom apartment, any condos I’d genuinely be willing to buy would either be 2 bedroom, or the same size in a higher-demand area. That’s because my current apartment is over-fit to my job: it has an abnormally short commute to the office for how far away it is, and a dining area that works as a small home office. However if I was to buy a condo, I wouldn’t be able to over-fit it to my current work situation. I’d want to choose one which is reasonably close to a large number of job options, or has a real office in anticipation of working from home more often. Any condo would have to be better than any apartment, to make up for the loss of flexibility in where I live.

Also if I’m honest with myself and if it were possible, it would be severely tempting to buy with cash than with a mortgage. I think this is essentially because the monthly cash outflows are the smallest once the initial deal is done, and you have the deed to a property. It feels the most secure, and the most like being genuinely free. And in fact, I’ve met people that value this sense of freedom enough that they’ve bought houses that are much worse than what they could’ve afforded with a mortgage.

Looking purely at the psychological aspects, buying with a mortgage is really the least attractive option because it’s the most invasive, you’re functionally still renting, but you have the least flexibility. That explains why it’s priced the lowest when you compare objectively equivalent apartments/condos, but why renting or buying with cash is often still more attractive when you compare subjectively equivalent properties (ones you’d actually be willing to rent vs buy).