Living for Free

Did you know that Americans spend about one third of their income on their housing expenses? What if you didn't have to pay for your housing expenses? What if there was a way to actually get paid to live somewhere? This is possible.

...and no, I'm not talking about homesteading in Siberia or moving to some uninhabited Italian town as part of a government program where all the homes are in disrepair. I'm talking about right here in the good old US of A - somewhere you actually want to live.

I can't promise to literally wipe out your monthly bills, but what I am saying is that if you buy a home and live in it long enough, the net costs of owning a home roughly balance out to zero. Essentially, all of your costs get wiped out by the wealth growth, so if you were to sell the home or refinance it, you'd be able to recoup all of your housing costs over decades. That's insane!

When I was growing up, my parents taught me to budget 10% of my allowance for tithe, 10% for savings, and the rest went to spending (expenses & discretionary). If you follow a similar formula, the owning a home means you're able to save an additional ~30% of your income, quadrupling your savings rate. Think how much faster you'll be able to retire or become financially independent if you buy a home vs rent. It's no wonder homeowners are 40x wealthier than renters (https://www.marketplace.org/2024/11/27/wealth-gap-between-homeowners-and-renters-is-huge-a-new-report-says/)

Renting is like working a minimum wage job - for most people, it isn't the end goal. The goal is to start somewhere, grow skills, and move up to higher paying roles. Homeownership is the higher-paying role. The math doesn't lie.

Let's take a look at the math in depth...

Let's assume you buy the average home in my local market, Colorado Springs. Zillow says the price of that home would be $450,033 as of early March 2025 (https://www.zillow.com/home-values/4172/colorado-springs-co/). I found a home that fits the average home mold (3 bed / 2 bath / 2 car garage / 1778 sq ft / well maintained / decent area / listed at 440k): 1879 Chapel Hills Dr, Colorado Springs, CO 80920 (https://www.zillow.com/homedetails/1879-Chapel-Hills-Dr-Colorado-Springs-CO-80920/13567573_zpid/). We'll use this property as our test case for the "living for free" concept.

Here are the assumptions:

Purchase price & ARV: 440k

Purchase costs: 3%

Financing: 100% LTV / 6% rate / no PMI / no refinances

Appreciation: 4.5%

Inflation of expenses: 2.5%

Analysis:

Analyzing different hold periods, you'll find different results. Certainly, you won't have made up for the initial closing costs of the homeownership decision by the end of year 1, but after 2-3 years (see my blog post about the Break-Even hold period), you're starting to match what renting would look like - paying ~30% of your income for housing. The further you get from years 2-3, your average expenditures for housing start dropping, and you'll see that somewhere between year 20 and 30, you've hit the "living for free" point. After that, you're essentially getting paid to live in your home as your wealth grows faster than your expenses.

It's crazy to think about how a 440k home could be worth 1.6M, but that's how compound interest works. Look at your parents' or their parents' generation. It feels like they paid nickels for their homes compared to what they're worth now. And if their home is paid off, or close to it, they have options to access its value through a sale, cashout refi, HELOC, reverse mortgage, etc... They have options to reap the benefits of their decision to purchase. Not only did their fixed-rate mortgage stay static as their renting peers paid an ever-increasing amount for their housing, they're now sitting on an incredibly valuable asset.

In summary, if you want to "live for free," buy a home. Don't rent.