Whenever we decide whether we’re going to rent or try to purchase a home, it is certainly a big decision for all of us, regardless of what stage we’re at in our lives. Well, most rental agreements are for a single year, so in the very least it has a direct impact on your life for a year. If you purchase a home it has a long-lasting effect. The pros and cons of that decision have been debated for decades, and it has been an ongoing conversation for many generations.
One of the most popular dreams a couple of generations ago, for instance, was to own a home. Nothing spectacular. Nothing too big. Just a piece of land and a home that could be completely paid off and owned free and clear of any mortgages by retirement age. If that could be accomplished, then those individuals felt like they had made something of their life. They worked hard for it and achieved it. They knew what they wanted and put in the hard work to get there.
Renting is Easier
Some people today may scoff at that dream and say that they deserve more. Others may dislike the venture and decide that it is so much easier to just rent a home. You don’t have to worry about mortgages or maintenance and upkeep. You don’t have to worry about certain types of insurance, and in some cases you don’t even have to worry about cutting the grass or clipping the hedges. It is the easy way to live. Pay a set amount and let someone else deal with all of the headaches. Let someone else put all the sweat equity into ownership. It makes life very simple. If the toilet breaks you call the landlord instead of trying to fix it yourself or fork out $100 for a plumber. If the neighborhood kid breaks a window with his baseball you call the landlord instead of replacing it yourself. It is as easy as ordering food instead of putting in the effort to make it (and we could debate the success of the restaurant industry compared to how many people make consistent meals at home).
Drawbacks to Renting
There are some drawbacks to renting a home though that a lot of people in that camp never talk about. The biggest one to me is that your hard earned dollars are going for nothing every single month. I know how it feels because I did it for years as I was unable to purchase a home for various circumstances (mainly due to my business ownerships which is a whole other story entirely). I felt the pain every single month of sending a check to a landlord without that money being applied to any ownership at all. It left a bad taste in my mouth. I understand that I was paying to be able to use the home, but the money was gone as soon as it was mailed, and it was gone forever.
Another drawback is that you must answer to someone else in order to change anything with your own home. You live there every day. You sleep there every night. You stare at the walls mindlessly at times, but you have to ask for approval of another party in order to paint the walls, or change pretty much anything outside of hanging a picture. This does not seem quite fair. You are paying a good chunk of your yearly income to being able to live in this place, after all. The problem is that when you rent you are only paying to live in the place. You are not paying for all of the extras that you get to decide when you actually purchase a home.
Now don’t be fooled. Purchasing a home is no cake walk. You’re responsible of the mortgage payments. You are responsible for taxes and all forms of insurance on the property. You have to fix all maintenance issues. You have to take precautions to protect the home from potential weather threats and harms. You have to put the time into making all home improvements. The benefit is that you get to decide what color the walls are. You get to decide if you have a deck or not. You get to decide how long you want the lawn cut. You get to decide what add-ons or changes are made to improve the home. It is yours and you are free to do what you want with it, for better or worse.
I know this is not a real estate blog. I understand that you didn’t come here to read about owning or renting a home. However, I thought it was important to point the differences out because it is the exact same way for entrepreneurs.
Renting vs Owning Your Life as an Entrepreneur
The difference between owning and renting a home is the same as the difference between running your own business or having a job.
Can you see the distinction now?
When you have a job you are being paid to show up and spend a certain amount of time at work doing things. If you are an accountant you are paid to work at least 40 hours per week making journal entries, paying bills, or making sure the P&L adds up correctly. If you are a painter you are paid an hourly wage to show up and paint walls or exterior surfaces. Even commissioned jobs are paid for their time. Sales professionals may receive more money when they sell something, but they are still paid to try to sell for a certain number of hours every week.
When you have a job you do not get any of the luxuries that owners get. You do not get to decide the color of the walls, so to speak. The owner of the business decides the strategic direction. The owner decides what the culture will be like. The owner decides what to sell, and how to go about marketing your product or service. The employee just gets to do. They get to accomplish tasks in exchange for pay. Some jobs may allow more input from employees, but at the end of the day the employee still has to ask if they can paint the kitchen blue.
Business owners get to make all the decisions, but they also have all the risk. They do not have anyone to defer to in making big decisions. Everything stops with them. Some individuals thrive in that type of environment, while others struggle. The freedom this allows you is unrivaled, however. A business owner works when they want, how they want, and gets to go about their work in the way that they want to. Live or die, succeed or fail, they get to decide all on their own—and when the business is successful they get to reap the benefits (by making way more than everyone else in the business).
In addition, much like generations that have passed, there is a certain satisfaction in being an owner. A pride that cannot be matched elsewhere. It feels like you have done something with your life by accomplishing something great. You did not get through life just renting what someone else has owned and built for themselves — you did it. For true entrepreneurs, there is no amount of money that can replace the feeling of having built a successful business.
Stay Hungry, Stay Foolish
Many people say that entrepreneurs are a special breed, but I truly believe that it is inside all of us. Wanting to own a house, instead of rent, is inside everyone. That is something that is accepted by society. It’s the same thing with business. It is not natural to want to work for someone else just because it seems easier. We all have a sense of pride. We all have a drive that makes us want to be worth something more. We all have a drive that says if we own a home we have accomplished something. Don’t let anyone tell you that being an entrepreneur is any more risky than owning a home.
If you buy your home and have a mortgage, with a nice paying job, there is no guarantee that you will have that job forever. Let’s take my friend Dave as an example.
Dave went to a great school. He got a great job. He climbed the ranks within his company and made it to his goal of being a sales executive. In his best few years he was averaging more than $300,000 per year. Life was good. Sure it was a pain that he still had to call his boss if he wasn’t going to work for a few hours. And it was a bit frustrating that he had to sell his products the way the company made him instead of allowing him to implement his own techniques. He could overlook all of that though because of the money. He knew he was getting a paycheck and it allowed him to buy a nice house and provide for his family. That is a very noble thing, and he was proud of it.
There was only one problem with Dave’s setup. He was still renting his life. The landlord (his company) decided one day that they no longer needed Dave’s services. They thanked him for his 20 years of service and kicked him out the door with a month’s payment of his non-commissioned salary. Dave was devastated. He had no idea that he could be let go from his job even though he was doing really well. His sales team exceeded expectations every period for five years straight. He had brought the company millions of dollars in revenue. What Dave did not realize is that when you are a renter, your life can be disrupted and you can be kicked out very unexpectedly. You do not make the rules.
Dave withdrew from everyone. He did not go play golf with his buddies anymore. He did not spend much time with his children. He was scared and prideful. He worked hard at finding another job. He figured it would be easy enough due to his background. Unfortunately, businesses wanted younger sales executives who would not command the same salary as Dave. He could not control this because he was not in control.
Dave never told his friends about losing his job — he was embarrassed. Dave was depressed and did not know how to get out of the hole that he was creating by not being employed. Then something happened. He was presented with an opportunity to change directions in his life. He had the opportunity to own a small coffee shop not far from his house. The buddy that presented the opportunity assumed there was plenty of cash to buy the shop, as he did not know that Dave was out of work. He assumed that Dave might want to be a passive owner.
Normally this type of opportunity would only be attractive to Dave if he was going to put a small amount of money in with a bunch of other investors and he did not have to spend much time worrying about it at all. If it was successful then he made money, and if it wasn’t then nothing was hurt because he still had his job to fall back on.
Dave was starting to think about things differently, however. He was now staring down the barrel of an empty gun as it came to his professional opportunities. If he did not do something quick then he would may never recover from it. Dave was very interested in owning the coffee shop, but not with anyone else. He wanted to be the only owner. Dave now wanted freedom, and a guarantee that as long as he put in the effort then he would make the rules.
Looking at the numbers of the coffee shop Dave quickly realized that he would have to give up his sales executive job search if he did this, and he would only be able to potentially squeeze out a fourth of what he was making previously. In addition he would have to take on the risk of a loan to make it happen. Dave didn’t care. For the first time in his life he was seeing the entrepreneurial risk as being the only true stability within a career life. It was no longer about the money, but about the freedom.
To this day Dave still does not make as much money as he did in his previous career. He has to work twice as hard physically for less money, but he absolutely loves what he does. He still gets to interact with people constantly, like he did in his sales career, but his entrepreneur career has given him the stability and freedom to know what he is getting and to feel like he actually owns his career. You can always find him at his coffee shop smiling as he helps his customers. He figured out how to truly own his life because he no longer rents from anyone else.
Much like Dave, you must decide what is most important to you on your journey. Do you want to rent? Do you want to be someone that has no true say in decisions, and truly has no stability, or do you want to be someone who takes ownership and makes something out of their career? Building something for yourself is the only true way to own something, and maybe — just maybe — you might look back when your career is done and be proud of what you built, and in the life that you own.
Just like the late, great, over quoted Steve Jobs once said. Stay foolish, stay hungry. If you can do those things then you’re halfway to being an entrepreneur and truly owning the catalyst to a life full of success without regret.