Renting Vs Buying A Home (What They Don't Tell You)
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I answer whether it is cheaper to rent or buy a home. Renting vs buying a home can be controversial. Many people believe that renting a home is throwing away money, whilst others believe that the answer to the rent vs buy question is to rent and invest the money you save. People like Dave Ramey and Graham Stephan have covered this question, but I wanted to do an even more accurate and in-depth analysis on whether it is better to buy or rent a house. I talk about buying vs renting a house over a 13 year period. Renting vs owning a home requires a few assumptions, and I made sure to make them both realistic and accurate. If you've ever wondered Is it cheaper to rent or buy a house, should I rent or buy a house, should I rent or sell my home, should I rent or buy a home in 2023, then this is the video for you!
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DISCLAIMER: Everything in this video is of my own opinion and could be wrong. I am not a financial adviser. These videos are for educational purposes only. Investing of any kind involves risk. While it is possible to minimize risk, your investments are solely your responsibility. It is imperative that you conduct your own research. I am merely sharing my opinion with no guarantee of gains or losses on investments.
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The worst thing about renting is the uncertainty. The landlord can just raise your rent and you have no choice but to pay or leave
That uncertainty exists for home ownership in the form of repairs…. It’s worth it for me because I love being IN a house! But I have a ton in repair bills that I didn’t anticipate that I never would have had to deal with renting.
@@SushiLady speak for yourself I haven't had any crazy repair bills just a couple things here and their I just watch a video and fix things myself for cheap.
As a lifelong renter - CAN CONFIRM. Housing insecurity due to renting is unbelievably destabilizing and stressful
@Blake Belladonna great point
@Blake Belladonna when those thing happen in a rental the landlord raises the rent to recoup his money over time the only advantage to the renter is the landlord fronts the immediate cost but the renter still pays enough in the end to pay for those items and make some profit for the owner
My biggest hangup with renting is that even after renting for X number of years, you end up with nothing to show for it as the house still belongs to the landlord regardless of how much you paid, how much repairs were done, etc.
My biggest hangup with buying is that property taxes are to be paid on the home forever even when it is paid off and if taxes aren’t paid on it after the mortgage is paid you can have your home stolen from you for not paying property taxes. You never really own the home or property if someone can take it from you after you paid for it.
Property taxes are weird imo. We don’t have them in the UK for properties under £2,000,000 or if it’s the only property you own. For a second/investment property you do pay some tax but it’s only if your property is over 300k and it’s about £300 a month on average.
Property taxes can be itemized when filing for taxes; hence, you get a lot of that money back when in your tax returns.
Property taxes are rent you pay to the government. Hence why you never really own anything that is taxed or can be taken away from you. Frankly, if the government ever tries to take away someone's home for not paying property taxes, that is theft. You paid for that land. You own it. Not the state or city. If they try to take your home for not paying property taxes that you didn't voluntarily pay, that is extortion.
I mean...no, bc you're really paying taxes on the PROPERTY, not the HOUSE. Like, theoretically, you could totally move your house to another piece of property. And, property taxes are used to fund public services, so it's actually understandable that the city or county would seize the property and sell it to someone who WILL pay the taxes.
@@ZzzRoofus property taxes are NOT rent. Property taxes are how city and county governments pay for all of those services that you take for granted, like trash pickup, public safety (police and fire departments), public school...idk how any adults don't know this atp.
An important note about the tax savings is they only apply if you have other significant tax deductions to justify itemizing your taxes. In the last 7 years since I've owned my home it was better for me to take the standard deduction every year so I have had no tax deductions at all so far on this house. Also I would say you would need to save more than 200 a month for repairs on an older home. Since I've owned my home I've already incurred over 20,000$ worth of repairs due to air conditioning, pluming, and the water heater going out.
This is a great point. It's a big assumption to say you can deduct all interests and taxes.
So in the end… what do you think is better?
You need to calculate if you'd be able to itemize and how much more vs standard to determine if it makes sense to you. You need a TON of expenses in my view for that assumption to be true.
@@jenniferf3034 I feel I have been unlucky. I think I made the right decision, but it was much closer than I had assumed it would be. If the housing market wasn't so down in my area when I purchased my house I could have wound up on the other side.
I also think it's my fault for picking a bad home inspector. He went through the house with lots of notes then at the end explained he wouldn't do the crawlspace because it was bad on his knees. At that point I should have gotten a second inspector, and maybe tried to negotiate a lower fee for him as he didn't tell me he wouldn't be able to complete the inspection at the beginning. Unfortunately I didn't realize how important it was at the time and I'm very conflict avoidant.
Both have advantages and disadvantages but for me, the biggest advantage of owning is that eventually you will retire and you will no longer have an ongoing income. When that day comes I want to have a fully paid-off house that I can live in.
@@CompaGuitarra Yes but once you retire do you really want to be at the mercy of a landlord that can kick you out at a moment's notice?
@@CompaGuitarra one way or another you are going to be paying more, whether it's higher rental rates or higher property taxes.
my point is that when I retire I want the security of knowing I own the house and it can't just be taken away from me with a month's notice.
@@ryant2568 LOL There is no such thing AS OWNING property in the USA . The county owns it you occupy the house . Can't pay the tax do to inflation , tax increase ect the county takes it and auctions it off .
@@jeff4invest not entirely true.
The county owns the land the property is on but you won the actual property.
This is why you pay land taxes, for the leasing of that land.
@@ryant2568 leasing is not owning .
As you said, many factors.
In my area, I am renting right now a 2 storey house, newly constructed 2020, 2000 sq ft of living area, 3 bedrooms, 2 bathrooms, big yard and 2 parking spots for.. 1980$/month.
But the same house, same area and everything else, sells for about 600-700k right now. So for me, renting is a very clear winner here. A 300k house in my area right now is a shack on the verge of crumbling that people would only buy to destroy and build over.
She didnt add HOA fees either or the A/C can go out and at this time its $6k plus to change it.
So while in this example, the out of pocket expense for the mortgage is lower, it requires someone to already have enough money for the down payment, closing costs etc. So I agree now that buying is better long-term, but since these expenses are not actually spread evenly across the duration of ownership then a lot of people like me are stuck renting when we'd rather own
You could apply for a first time home buyers loan that doesn't require a down payment. Some lenders don't even add mortgage insurance to it. And if you find a fixer upper and find some things wrong, you could negotiate that some money be taken off and put towards closing costs. I didn't go this route, but I was able to negotiate and my closing costs were basically covered by the seller. Only thing I had to pay was the down payment.
Nah, companies have started offering 0 down mortgages. Just look.
You can get an FHA loan with 3% down. Just use next years tax return.
Down payment assistance. Send me a message if you’re in California
@N. yup unless its a literal dump someone willing to pay cash will always get priority. edit: i tried in Kentucky, too many people are moving here from out of state with cash because property is so cheap here. as a native KYien there's no way i could compete with them.
*ONE MAJOR ERROR*
You can’t both take the money saved from the down payment in the renting example AND the money saved in the buying example to invest. In the renting example you truly CAN invest that lump sum of money (assuming you have it lying around which most renters don’t) but in the buying example the money you save monthly on average isn’t available initially to invest…it’s an amount you save ON AVERAGE per month over the entire course of the example here, most of which is not realized until the end of the timeline.
I thought the same thing BUT when I went back in when she shows her calculator at 9:01 she clearly entered the money saved monthly into the "monthly contribution" input of the equation. So unless the calculator she used gave her the wrong math, her example is in fact correct.
@@himynameisjwow but the point is it’s not saved monthly, she went back and counted what was saved at the very end of the “buy” example and acted as if it could be invested from the start, which is not the case.
@@davem1708 if you’re paying less every month when buying, what makes the difference unavailable? Cause she isn’t talking about investing the “saved” money In equity or anything.
The monthly repair budget is toooooo low….
@@matthewdaniels7691 I think the main issue is that the "monthly cost" is the same, but overall its not considering that you need to have around $40,000 liquid to even buy the house and have the same opportunity.
We bought a 40 year old home two years ago and since then we’ve had to replace the roof, replace the heating/air conditioning systems, replace the garage door, all it’s mechanicals including automatic door opening system, we’ve completely remodeled one of the bathrooms, added a vinyl 6 ft tall fence around our yard. Had to replace the refrigerator that came with the house and buy a washer and dryer. Now I’m depressed.😂
The good news is that you increased the value of your home. That's a gift that pays later in life. Just imagine if you were renting the house with all of those repairs, your rent will skyrocket to cover the cost over the years.
@@jordancraig6076 It needed to be done, I just wish we hadn’t been the ones stuck for paying for all of it. Deferred maintenance! And we had to pay $2,700 to remove a rotting tree that was like that and split when we bought the home. Half fell and we had to remove that and have the other half of the tree cut down and removed. I guess this was just bad luck, but sheesh!
@@jordancraig6076 not ture. an extension is what increases value of your home in the long run. consumable improvements like changing the boiler or putting in a new kitchen is only increasing your home value temporarily, unless you are planning to sell within 10 years, it's just money spent. also most landlords will factor in repairs and you are likely to be sharing thses costs with tenants before and after you, rather than shouldering it all by yourself like homeowners. many renters romanticise home ownership, it's a big fat lie
@@Sergio54321 Home Inspection?
@@micheleemcdaniel389 Normally we definitely would gave gotten a home inspection but with the pandemic, homes in our price range in our area were selling BEFORE they even hit the market. We bought our house from a relative and were lucky to get it for a decent price, at that time.
I understand you are comparing apples to apples, but when it comes to buying vs renting, most people do apples to oranges to save money for the short term. For example: a person who can afford a 300k home to buy, won’t really rent a 300k home. They would rent a $150k home or go for an apartment, so they can save money over the short term, or keep their monthly housing cost low.
Yes, and when you consider the savings from renting vs. owning in that scenario, you come out ahead by renting. If you save $400 a month on housing cost by renting, and save that at 8% interest for 30 years it equals over $543,000.
@@jasonjames4254 I do believe you have neglected to remember that owning a home actually builds equity. So in that sense, you're putting money in your bank.
@@Menelik.videos No, I didn't neglect that. I'm just stating that in some markets, renting can actually be cheaper than owning. After paying $1500 a month (principal of $250K + 3% interest + taxes + insurance + maintenance) on a house for 30 years you'll likely end up with a house worth an inflation adjusted $250K in current dollars. Now compare that to renting for $1100 a month, and saving the $400 difference at 8% above inflation for 30 years = $543,000 (even at only 5% it's still = $318,906). However, wage increases due to general inflation will definitely lessen the real cost of the principal and interest on your house payments (but not taxes, insurance, or maintenance) over the course of your 30 year mortgage. But one could argue that wage increases might also cause a renters savings rate to increase every year, amounting the same advantage the homeowner has.
The real advantages of home ownership are threefold. #1 The leverage of being able to control a large investment with little money down (although this advantage disappears over time as you pay the principal down). #2 Being able to come much closer to predicting housing costs in retirement by not have to worry about wild increases in rents (although a homeowner's taxes, insurance, and maintenance costs will still go up every year). #3 The security of knowing that you have a bought and paid for roof over your head. Stocks and bonds are not bricks and mortar. The value of a stock portfolio can surge or drop by 50% overnight. A person could theoretically get wiped out if all they have is paper investments. But as long as you can afford the taxes, insurance, and maintenance on a house, it will always be yours no matter what the economy does. This is the primary reason why I have opted to own my house free and clear.
@@jasonjames4254 oh okay awesome! Thanks for the detailed explanation.
@@jasonjames4254 A mortgage typically ends after 25 years while renters pay for a lifetime. That lifetime rent is a huge cost
Biggest mistake people make is forgetting that "Rent" always increases while a Mortgage locks in a price. Nice job.
As interest rates rise so do mortgage payments, so they don’t stay stagnant. You can lock it in for 5 years but you don’t know where it will be after that period.
@@bridgeeeena5798 or you can just get a 30 year fixed 🤷
@@bridgeeeena5798 Fixed rate mortgages don't fluctuate with interest rates, at all.
Yeap, I bought my house 17 years ago, total monthly mortgage+tax+insurance is about 60% lower than similar houses are renting for in my neighborhood.
@@UncagedJDog89 yeah except you can't get those outside USA
I don't think most renters stay in the same place for the same length of time that homeowners do. A lot of rental properties have "new tenant" discounts for the first year, at least in my area they do. This typically leads to people moving around more frequently, chasing a better monthly payment. So adding expenses for moving every 1-3 years would be good.
I'm honestly not sure what the "new tenant" discount you're talking about is. There's a new tenant *up-charge* every time I've ever moved though. Not even the 2-3k in fees I have to front every time, but the rent is usually 100-300 more expensive than the place I left. (Usually because the previous landlord wanted to charge me 300-600 to renew at the place I was leaving.) Stay or go, when renting you pay 4-6k more every year than the year before.
@@SkySong6161 I haven't seen the new tenant discount either but I still find myself moving every 1-3 years because of increasing rent, crime rates, etc.
Two things:
First time homebuyer tax credit, depends of your location, vet status, it can goes up $3500-$7000 toward your down payment or mortgage rate deduction.
2. HOA fee, renter doesn’t have to worry about it, but this can range from $50/month for houses to $1000/month in apartments (I located in DMV area and it is pretty common to go above $1k/month)
But not all homes have an hoa.
@@aevan8tor true, only about 50% of the homes in the US
You pay that fee it’s part of your rent
I believe that if the land is not yours and the house is not paid in full, you do not own a home. My mom keeps trying to push me into buying a home but it just doesn't make sense for me financially. I don't want to be responsible for all of that 👀🙈! I might buy one in the future to rent it out but that's in about 7 years or more. I would rather have that money in the bank and in other investments.
Smart
Same. My mother is pushing me to buy and I know for a young adult beginning at life like me, that doesn't make sense. If I buy a house, it will be in some shabby location that's with no security and network beneficial to me. But if I rent, I get to live in places I like, that look great, secure plus exposure to a class of people viable for network building necessary for my career and goals. I don't get the hype about ownership. She's so convinced it's equity and I'm not seeing it. I see no point living in a place that would bring me nothing but be a mere place to sleep 🤦🏾♀️
@@ginsu_pd THIS PERFECTLY EXPLAINS IT. The opportunity cost of living in a quiet town during your 20s and early 30s in hopes of equity outweigh the benefits you would have if you chose to rent near a city. I agree to retiring while owning a home but early life especially with how interest rates are increasing it just doesn't make sense especially if you're single
Literally why I’m watching this video because my parents keep pushing to buy but I don’t even want to stay where I’m at so why would I buy a house I’m not even done with college and won’t be for years again why would I buy
I agree with you, people always push buying a home but on a 30 year loan the house is not even yours🤦🏽♀️🤦🏽♀️
1. No one will rent similar home. They will rent an apartment at a much lower monthly cost and save more money to invest. 2. Maintenance cost will be definitely much more than that. Also the time and energy that you have to invest. 3. Renting has no liability and you will be open to explore better career opportunity.
Rents are outrageous. 1 bedroom 2100.00
@@MaurElle11 Sure. I live in bay area and 2BH can cost you minimum around 800K to 1M in Fremont. That's the lower limit i am talking.
@@BiswaRSingh
Wow
This is the best rent/buy analysis I've seen on here. LOVE IT!
Thank you for taking the the time and putting this great presentation together. I too have watched a number of videos regarding buying vs renting a home. I found conflicting answers. Yes you are 100% correct....one must take into account a number of variables. When it comes to purchasing a home vs renting one. As a home owner which also own my rentals, you hit the proverbial nail on the head. With all the useful information presented.
Buying always wins in a hypothetical scenario because you assume the buyer is a robot. However, in real life you have lifestyle creep. Instead of getting the most bang for your buck buyers upgrade unnecessary things, spend money on luxuries instead of saving 1% a year of the purchase price for future repairs, buy a bigger/more expensive home because its an "investment", and finally if you add in the transactions costs of 3 homes (most people buy 3 in their life time, "starter home", "transition home", and "forever home") you find out renting is cheaper. If you are an employee or have fixed income i would suggest buying but if you are a business owner/investor i would suggest renting because the flexibility and cost of owning a home will drastically hold you back.
FYI, maintenance costs are built into the rent. You just don't see it. Most Landlords earn at least a net rental return of 5%. You have to be a fool to think the Landlord is losing money or breaking even.
Lool this is the worst financial advice.
And, homebuyers get sick, have life situations that force them to move, get laid off, etc., essentially forfeiting most of the gains of homeownership because they can't make mortgage payments. Now, with interest rates at 7% and people worried about their jobs and seeing prices drop in some areas, those homeowners will end up losing a lot of the their "investment" if they can't pay the mortgage. If you can't pay the rent, you just move to somewhere cheaper after giving notice. The analysis works only in certain economic climates where you assume home prices only rise and interest rates are low.
Let me tell you how this works. I am 76 I have own many homes in my lifetime, I made money on every home I owned when I sold it. It was like living rent free and getting paid to live there. I never lost money on any home. The best investment is a home,
Ben, I just had to comment. Like yourself (but in my 60's) I have owned a few homes and give the same message to many people over the years. After each sale I calculated total cost of buying/owning/selling property and lost investment opportunity (deposit when buying) and compared this to renting similar. When adding the increased property value into the equation........ buying was absolutely the reason I am very comfortable today.
LOL homes purchased for 80k perhaps 35 years ago.
I bet if you included property insurance, maintenance, property taxes, etc., then no you didn’t make as much. And you also got your capital gain eaten by inflation and increased in cost of living.
All you did was make the bank a lot of money with their interest on your loans.
Thanks for the comment. I’m 27 saving up to buy a house one day. I’m married and have kids so I want something stable but I was getting dissuaded.
Pretty good analysis. The only issue I have with the home purchase analysis is that for most taxpayers, there won't be any tax savings. This is because the mortgage interest deduction is now an itemized deduction and most people will not itemize since itemized deductions need to be greater than the standard deduction to actually use them.
This is definitely a big flaw in her calculations! I was very surprised when my tax advantage was basically zero after buying my home.
Thank you trump😡
This is actually a great deal for the vast majority of tax payers. The standard deduction each taxpayer now receives was raised significantly, giving a tax advantage to both homeowners and renters. A sweet deal for all.
Thank a republican
Something to consider- in 2017 the “standard deduction” for income taxes increased to $12,000. A prospective buyer would need a much more expensive house than the one in your example (closer to the $520K-$530K range) in order to accrue enough mortgage interest to justify itemizing rather than simply claiming the standard deduction.
The only reason I'm considering buying in 2022 is because people are asking way more for to rent than a mortgage would be. Especially in San Diego.
Yes, One thing people don't realise when talking baout home value maybe crashing(because interest rates went up) is that the rent costs will reflect the monthly cost of buying with the new rates so the landlords will still charge the same or more with that change. In the short term it looks risky but renting will still cost more a month
I think for the Cost of buying, you have to add the oppertunity cost of the return of the downpayment to make it fair.
I appreciate the attention you put into stating assumptions and making an apples-to-apples comparison. Very well done.
Clear, concise and well-reasoned. A must watch before a big decision! 🏘🏠🏡
Hello, i am a landlord and a homeowner. I must say with over 10 years experience owning the home, if u own u better know how to fix stuff around the house yourself or owning becomes a money pit. Loved your video, very well thought through. People that rent TYPICALLY dont have free money to invest laying around
Yeah, being an HVAC technician, with previous professional experience in most types of home repairs, has saved me GOBS of cash maintaining my own home.
Exactly.
In these comparison they ALWAYS underestimate the cost of repairs/maintenance (including outdoor problems like gutters, landscaping, etc.). This one variable alone makes home ownership a liability and money pit for the vast majority.
@@GengoSenmon Depends on how long you are planning to stay in the home, among other factors.
If you stay in the same home long term, buying works out very well.
Currently my total mortgage+tax+insurance costs me $1,200 to $1,500 less per month than similar houses are renting for in my neighborhood.
Even if I was not capable of performing professional quality repairs myself, I'd be way ahead of renting.
Boom! I'm a landlord too and let me tell you, I spend way more than that $200/month on repairs and maintenance!
Having owned 10 houses in my lifetime, I found if you are not a DIY kind of guy, don't bother. I currently rent anticipating a huge crash sometime this year and definitely 2023. Then I will be the one hunting for a good deal, unlike back in 2008 when all my tenants left me. Prospective home buyers remember these 2 words - maintenance deferred, because you will witness it.
Exactly! I'm just about to sell my house then will rent until the economic crash (I'm assuming it will crash), then buy a couple of properties.
What is maintenance deferred?
please tell us what maintenance deffered is.
@@Menelik.videos Doyou think the global economic will crash by 2030?
Most financial experts are predicting a 5-10% fall for home prices in the next 2 years.
If you’re waiting for a 2008-like crash you might wanna think again
Thank You for taking the time to break down both of these scenarios, truly helpful information.
Very good analysis. A few comments from someone who rented Apts for 40+ years with no regrets before buying my first house ever as a senior adult. For most of my career, I expected to be moving to another city, and in some places I lived, selling a house would have been difficult or impossible. I do love my house, and I bought it at the perfect time for me. I view my home as an investment and a better choice than my other investments, which are not doing very well. But some downsides: time, time, time to be at home for repair people, $$$ for repair people, and oh--the lawn and landscaping (which I never considered). Property taxes are going up, up, up. Income tax deductions are no longer in favor of owning, since the US standard deductions were doubled. Also, the taxes itemized deduction is capped at $10,000. So, as you pointed out, there is more to this decision than just $$$ considerations. Thank you.
I'm hesitant to buy because you don't know if your neighborhood will go downhill, what will be built in the area and who your neighbors will be. My last rental was next door to someone who put up offensive signage over their whole property. I moved as soon as I could but I feel sorry for the people who own the properties on either side of that guy.
That too is one of my big fear. Shitty neighbours ...
Extremely detailed!!! We did the math on our home we got for 170k 8 years ago now worth 270k. If we just talk ONLY about the mortgage being around $1k a month for 8 years. If we sold, for 270k today, after fees to agents, it would be like we almost lived in the house for free.
Having said that, renting, like she said, makes more sense if you're only staying a few years.
$1000 for 8 years is only 96k so it seems that you also had a huge deposit as those 96k must also include the bank interest. Do you factor in all the charges, taxes, and repairs you paid during those 8 years...
@@HereDiianas I was only referring to the mortgage which includes taxes and insurance. I believe we put 7k down. After looking again, our mortgage was $1,050 for years, but early in 2020, we refinanced and the mortgage is now $769. For easy math, I just used $1000 per month. So here are more accurate figures:
75,600 = 1st 6 yrs (1050×12×6yrs)
+18,456 = last 2 yrs (769×12×2yrs)
94,056 = subtotal
+ 7,000 down payment = $101,056
114k left on loan so if I sold today:
56k paid off
+100k equity
= 156k
- 10k worth of repairs over 8 years
= 146k
You can do the rest of the math for Realtor fees, etc. However, it looks like, in my case, I would definitely make money if I sell. However, after the refinance, only having to pay 769 monthly is a huge benefit going forward, so I'd much rather stay. :)
Renting still doesn’t make sense. Buying still makes more sense because you can rent the house out to other people after you leave. The only time renting makes sense is if you have a very high income and don’t want to screw around with rentals, and you also move very frequently. But if you’re middle class and move frequently, it’s good to keep it as a rental
I think i might hold onto mine as i am semi-retired now and can stay here till i die lol, and i can hold out on the rates when they will drop again to refi it and get cash back from it again. Thas the advantage over renting , you don’t have any control over those thing’s but the trade off is you guy’s get a more less stress of worry responsibility.
@@Jaytasmic Not when rents jumped 30-50% like they did in a lot of places. We locked in at a 2.75% mortgage rate. We've got a $735 mortgage for a 1600sqft 3bed 2full bath + bonus room in a nice area close to good schools and parks.
Meanwhile, my brother is paying for a 800sqft 2bed 2bath apartment for $1300.
I think the mortgage has an advantage over rent in that you have options.
1) You can refinance when rates are low like we did to keep the monthly payments low (went from $1,100 down to $735). The company we went through only costs $200 for fees to refinance.
2) You can recast your loan to keep the lower mortgage rate, same ending date but you put extra to the principal and lower the actual mortgage payment.
3) You can get a Home Equity line of credit (HELOC) off the equity in the home. We used this several times, once to consolidate her credit cards from 17 and 21% rates down to 5% a long time ago. She paid them off in half the time she originally estimated due to this method.
We also used it to buy another house to pay for the down payment. It's simple interest, so as you pay it down, your monthly payment goes down. Currently $0 owed on it.
On top of that, it's "generational wealth" because you can pass the house to your heirs. So, it literally acts as an Inheritance as well.
Unsure if you covered this but when you own a house (or build one) you can customize your house way more than renting. This upside likely means more to some people than others but figured I'd mention it.
Thank you! Just from a purely investment based analysis, this is pretty thorough. But when you consider that you need a home regardless if youre renting or buying, having a home and having equity is everything. No one can sell the place out from under you. And if you want to stay in the home for 30 years, you have a home with significantly less expenses and at retirement age, that is everything. My parents never bought and theyre in their 80s and facing some very real hardships with a landlord ready to sell the place and him never doing the repairs needed for the place the 18+ years they've lived there. Now I'm working on a multi-generational home plan for all of us because we live in a very expensive housing market and senior housing is incredibly hard to get into for them.
From a purely financial perspective, the example you provide makes sense. We forget, however, about the lifestyle opportunity cost of having to stay in the same place for long periods with forced payments.
It's a case by case thing but I want the freedom to move and enjoy what the entire world has to offer and not one location.
I think that muddies the waters for a video such as this; we as individuals can easily fill in the lifestyle stuff as we know what lifestyle we like to live. A financial video should be purely such, and lifestyle really shouldn't come in unless it's a severe opportunity cost (ie. Comparing living downtown vs in the middle of nowhere)
Great analysis. Another factor to consider is the cost of moving. A rental home is likely to be at most a 36-month agreement. There are clauses to break the lease as well. The owner may want or need to sell. Consider that a renter may have to move on average, every three years. Over 13 years that's at least three additional moves at a cost of $4,000 per move (conservative) for a house that size.
4k per move? I don't think you know what conservative means lol
I would like a comparison between buying a house, and renting an apartment, condo, or townhouse. Full amenities considered. Time spent maintaining a house if you are a DIYer eg. Renting an apartment gives you a lot of freedom.
Even better… buy a condo!
Totally! It's only worth buying when it's a great deal, especially during a recession. Otherwise, renting gives freedom to move for higher paying work and enjoy the free time without any maintenance tasks.
This is what I was looking for. Thank you
Thank you for including the forced savings (principle) into the equation!! So many people don't!!
Really good analysis. For me the whole argument just boils down to the big question of how on earth do people expect to be financially comfortable in retirement when they're still paying full market rent for their home that they don't own? You need to be rent and mortgage free when you retire, in my opinion! Own a home you'll be happy to retire in asap, anything else regarding investing can be done after you've achieved that milestone.
Mostly agree, but a good mortgage can be a wonderful thing in retirement if you have the income stream to easily service it. Mine is 1.75% G.I. 30 year fixed rate. Lock in a great loan when rates are low. Tying up all your money paying off a house limits your options.
It's the other way around.
Once you are mortgage-free and have rent income, THEN you can retire.
@@elmohead You don't have to be mortgage free and with RENT income. You simply need to have KNOWN and generally pretty close to FIXED costs with steady passive income. Being debt free when money is cheap (sub 3% mortgages) isn't financially savvy. Cash flow is ultimately what determines if you can retire.
or what happens when your LL decides it is time to sell and sells it out from under you. I own two properties. One outright and one I owe $186k on. It is comforting to know that I *could* sell my extra property at any time but I intend to keep it as homes will not be decreasing in value over time.
Love the way you put everything together.
Absolutely brilliant. Great content I was working out the same sort of problems as I’ll be moving soon and you really helped me confidence in my decision.
What a lot of these comparisons tend to do is understate the amount of maintenance on residential homes. This video used a $10-$15k roof job and averaged that over 13 years. That roof is just one of many things that will go wrong with residential units. I've done real estate property management for numerous homes in Southern California and have seen repair bills over 3 years exceed $10K alone, without new roofing. Plumbers and electricians in Orange County charge an hourly average of $250/hour. Repairs add up extremely quick and deduct a huge chunk of financial advantages over renting. (Of course, this is all relative to location/local market, etc). Still, however, this is definitely the most descriptive and accurate video I have seen compared to the other videos on this subject. Thank you!
Hourly average of US$250 per hour! Is that real estate rates? So people are giving you invoices for up to $300 per hour for electrical work?
@@JC-ek3tn that's correct. I replaced two GFCI outlets in a kitchen and a garage at a condominium unit in Tustin, CA. Total bill was close to $300. The guy was there for a tad over an hour. He's not the most expensive electrician I've used, either.
I moved out of oc in 2016 to vegas. Our residential plumbing rate is over 160. Our commercial is between 120-140 per hr. I guess that's about right for ca when you figure higher cost of living and state tax. Add in the fact that no one wants to work in the trades these days and finding skilled ppl that do good work is hard to find. Ps dont miss the traffic on the 5/55/405 lol
A home can quickly become a dump, when people simply can’t afford to do repairs. That’s when people are able to buy homes cheap, repair and flip.
They usually target new home owners or renters to make a quick buck.
So many spend a lot of money fixing things that were hidden or repaired on the cheap.
Great video. My house costs a lot more in maintenance but hey well done. I've rented while living in my house so the benefits get crazy! I spent $7k for my house, made $24k+ in rent over two years and have $40k in equity! No taxes when I sell and I didn't use a realtor when I bought!
Thank you God!
There's a lot of information I wasn't aware of about buying a house. Thanks!
I love your videos you are very knowledgeable and you brake everything down to make it so easy to understand , i can not imagine the resurches you go throught to get this information , Thank you! Thank you!
2% inflation every year in rent?? I wish try 15-30% my one bedroom apartment was $700 now 3 years later it's $1300 .
Many cities have regulations around rent increases to avoid what you’re going through - sounds rough though!
No they do not that is false information most cities do not have rent control
@@roslynrice4148 "Most" cities not having rent control still leaves room for "many" cities to have it...
Keep up the good work. Never Stop teaching us the facts.
Thank you! I won’t!
thank you very much - it was a really good and informative video.
I can appreciate the breakdown of this cost analysis. But the problem I have with the rent vs buy comparison is that it is always based on financial investment and not the human benefit. Renting adds another layer of external control of your life - not financial as buying a house also adds that layer - but social, mental and other human factors. Living in both throughout my life, I found living in a house was more liberating despite the maintenance cost and other owning related issues.
You can rent houses or apartments which makes your response here somewhat confusing.
@@imnitguy It's not a question of 'house' vs 'apartment' but is rather the quality of life with external control over our lives being in the hands of an individual landlord which can go from 'wonderful' to 'awful' in the blink of an eye, vs being with the banks and the government. Whether you're renting a house or an apartment, you're always feeling like you have to 'watch your step' in the place where you live and whether or not an action will result in breaking some rule that you agreed to in the lease, and that can feel a bit oppressive. Owning your own home (be it a house or a condo), despite the costs, feels liberating. Yes, you are still under the control to some degree of the banks (mortgage) and government (property tax) but those entities are large and impersonal. The bank is never going to call and say, "We're raising your rent this year by $300, if you don't want it I've got a waiting list of possible tenants to take your place" or "You re-painted a room in an unapproved color, so we're keeping your deposit." Pay the banks and the government their due and they're happy. Having lived in both worlds as well, I agree 100% with the original poster. Rentals are great for the short term, but when it comes time to settle, I'd rather live in a shack I own than rent a snazzy apartment from someone else.
@@kentwood9821 No thanks. I I don't want big government in this space. Every time the government gets involved it always turns to complete shit. It sounds like you just need to buy your own house!
100% agreed. When it is your own, you don't care if your child damages a wall or something
First up, props for making an effort into showing comparable homes. Very good video!
1. Rent tends to increase at a rate greater than inflation in almost all urban/suburban areas. IDK the rate for that town in TX, but in Oregon, rent increases at a rate of 7% (state mandated) plus the rate of inflation (which in 2022 is 8-10%). Previous to statewide rent control in Oregon, Portland rents were increasing on average, year over year, >20% annually. What the data bears out for where these homes are might be good to incorporate - or identify a 'break even' rate, where under a certain rate, renting is better; over a certain inflation rate, renting is better.
2. The average downpayment is 12% because some gov't programs allow for 0% downpayment, or 5% downpayment vs 20% down. PMI sometimes applies to down payments of
For 3, you "sublet" by adding roommates to your lease 🤷♀️
All very solid figures. But renting can have some common perks like heat included, trash removal, appliance repair, landscaping and plowing, water included, etc. ALL of those costs are on you if you own the home. So in reality your cost of living will almost always be more expensive to own. The one huge factor is eventually your cost goes down dramatically once you own your home. If you rent you will perpetually owe rent.
With renting you have to pay the power and water. Renting for 20 years and I have never had power and water included into the rent. I have rented in 7 states.
@@josefj1776 many rentals include water and/or utilities. Depends on the rental amd situation.
@@burningempire666 of the 20 years I have rented I have never seen a rental included water and/or power. Even when we rented our house when we were stationed away from it we rented for $1400 and that did not include anything.
@@josefj1776 and in 20 years of talking to people about their rents I have encountered many rentals that include water/trash and sometimes utilities. You information is anecdotal.
Every apartment I’ve ever rented you had to pay water, sewer, utilities, trash
Very good work ! Thanks !
Well done, great job!
Great video. Id like to see these numbers for a condo vs apartment
Good video but the repair cost needs to be higher. Roof,furnace,water heater,lawn care,snow removal,appliances, and then add a refresh after 15 years to floors, kitchen, bathrooms and some paint.
Yes, this vid is highly erroneous.
So you expect a landlord to take care of the lawn for a renter lol?
This is really helpful!
So good to make an even comparison!
Don't forget what market you buy in factors in . Texas prices vs. Bay Area CA prices are way different.
Most people's biggest issue with buying is the down payment and closing cost.
And IF you lose your job or can't pay your taxes or mortgage you can lose your home.
And the upkeep is real. Depending on the age of the home, the size of the lot, etc...
When my spouse suddenly passed away the maintenance of our home was a full-time job that I was having a hard time keeping up with. And it took me a while to sell it too.
So I had to stay.
Luckily I work from home and like where I lived, but if a job or another event forces you to move, you might have to sell at a loss.
Not saying you shouldn't buy. But there are pros and cons to both.
Very true
Great analysis!
I have read so much about this topic and watched so many videos like this, and I can say only one thing. It's anything but clear whether one should buy or rent. There are so many factors at play and even slight variation in one them can tip the equation in one way or another. And on top of all, there are also aspects that are significant but very hard to evaluate with actual money (such as location and micro location of the property, sometimes there simply are not rental homes available in certain locations; being able to renovate an apartment to match your taste when owning etc etc).
It has more to do with your lifestyle and profession. If you're a stock trader and you can pick "winner stocks"? Rent. If you're a business owner and want to put every penny into your business? Rent. If you move around a lot because you are a travelling nurse? Rent. The only way buying makes sense is if you're going to stay put for 10+ years.
P&I is generally fixed, taxes and insurance are not. R&M cost can be generally avoided with a good home warranty. With rates at 6% now, these numbers are way off. Always fun to watch these. I'm a lifetime renter. This allows me to live wherever I want, when I want without the hassle of disposing of the asset or renting it out.
The area you choose to live needs to be considered. We live in a high cost of living area where homes have doubled over the past 6 years due to tech workers who currently are increasingly in demand. Now the median sales price of a single family home as of December 2021 is $1.6M where we live.
Thank you so much for this no nonsense guide with easy break down for the people in the back
yeah, looking clear eyed at the whole picture - the only way to fly - great analysis, thanks so much
Getting a house means you are ready to work on a house and learn how to take care of many of the things yourself. The monthly cost of mortgage and fees is lower then renting an apartment in many parts of the country. Miami you can have a home and pay overall 3k a month for a 4/3 and be free to do anything you want or pay 3k for a 1/1 apartment and be restricted.
Worth noting, there is a rent to price ratio that varies by area and changes over time. So it would be better to determine at what point it makes more sense to rent vs own. Also, worth noting that rates heavily impact this decision.
Definitely,!
Good job with the breakdown 👏
great video. thanks!
Really a very good presentation. Let me add, if you take the long view (we've been in our house for 36 years) we haven't had any mortgage payment for the last 9 years. Needless to say we're old farts, but even if we hire services to handle the yard, shovel the snow and do all the repairs - there is still no place we could live for less on our SSI.
There are so many variables to take into account. I am very handy and do all of my own repairs and improvements. Also, I rent out 3 bedrooms and have collected around 230K in rent over 10 years pretty much tax free as you can deduct so much when renting out.
Well done. I enjoyed this video and appreciate the information!
Excellent breakdown! Thanks for sharing
Good analysis. Sure, there are a lot of differing factors depending on what, when, and where you buy/rent, but anyone could plug their numbers into this same framework and assess fairly accurately for themselves.
Tax savings will be 0 if you take standard deduction, which is likely for this price range
I feel like I need to watch this a couple times but it was really good
Killer analysis. Wow. Thanks.
You under-quoted house maintenance costs. Plumbing, electricity, miscellaneous repairs and upgrades are easily $15,000 a year. You also forgot to account for housing market bubble. Everyone thinks the housing market can only keep going up, but folks who were foreclosed in the 2010-2011 crisis would beg to differ.
The home maintenance costs are about 2-3% of home value. With buying a home you don’t have to do a down payment even so you have no need to do the upgrades. The big point is you can do it if you want to.
Electricity you have to pay if you are renting or buying so that isn’t much of a factor.
Most minor repairs you can do for yourself at a very low cost.
Now it is easy to stop a foreclosure and that is to pay more mortgage. Same with rent. And your cost of living is far more fixed with a mortgage as you can see with the 30% increase people are seeing with rent. My mortgage is the same not so with renters.
@@josefj1776 You totally overlooked "major repairs", which are not optional. My friend had some plumbing issue. The fix was $5000.
You also totally avoided property taxes. Good try.
@@sl523 taxes are very much different by location for my it is $1700 a year so my mortgage is $958 with taxes and insurance and I did a 0% down. My house rents between $1700-$2000 today but 3 years ago we rented it for $1400 a month. For the last 7 years we have had no repair costs. Are we are banking up that $200 a month for that bigger repair.
@@josefj1776 Good if property taxes are low for you. Property taxes in my location is high. I invest my rent savings in REIT. :)
I thought that home insurance would cover some MTC though??
I know a lot of people are complaining about “incorrect” assumptions and variability in the comments but for a controlled scenario comparison I found this video super helpful and way better than the others out there. Thanks for the great work and visuals!
Appreciate it Daniel!
Most informative video I've seen so far, thank you!
Loved this analysis, felt in the case were I move a lot often!
you deserve way more recognition. You're videos are so helpful and I've learned so much from you! Thank you!!!
Thanks for such a nice comment!
I need a poo mami
Hi. Very good analysis and liked the way you made equal comparison for renting and buying. One thing I would have added when buying a home is that once you have built equity you can get a HELOC to fix expensive home repairs which typically these HELOC rates are low.
This is the best, short and practical explanation I ever seen! Thanks!
Great video, nice opportunity cost calculations there
The thing is that you can rent a small apartment but if you buy a home you want to buy your all-life 3-bed house, because selling and buying another home is stressful in comparison to changing the rented apartment.
I recently found out that our grandparents and parents would have something called a starter home and then the plan was to sell it off with a increase in price for profit. I asked a few older folks at work and they all told me they had or knew someone with a starter homes. Definitely something the current young folks of the world could never do.
@@baronvonjo1929 we buy our first home at 30 - about the same time we are ready to start a family. Buying a start home for less than 5 years does not make any sense.
BTW, this is in your culture your older people could afford homes, in USSR people lived in one small apartment with their kids and parents and my generation is the first generation who can afford to buy their own home
@@baronvonjo1929 man people are still doing this. I AM doing this. I’m 21. Your not able to do it because you tell yourself you can’t. There are so many good opportunities in 2022 for young people. Employers are starting and paying people more than ever and you have access to all the information in the world you possibly could need. Fact of the matter is gen Z spends more on consumer products than any generation because we think it’s NORMAL. Wake up call. If you do not budget your monthly and weekly spending so you can maximize your saving, earn as much money as you can, work 40 a week then the system isn’t the problem YOU ARE. I come from BROKE parents and I’ve watched them make excuses my whole life. I’m better off at 21 than they are at 48. Please please take a look in the mirror and ask yourself what the real problem is. DONT GO INTO DEBT - BUILD YOUR CREDIT SCORE - WORK HARD - SAVE AS MUCH MINEY AS YOU CAN, and I PROMISE you will see success
I'm all for renting because of the flexibility to move anywhere. But I can tell influencers who tell you to rent have got a bunch of properties for rent.
It's great if you're single.
The the best buying vs renting video out
Great video!
I pay $1800.00 a month in rent in NC - a 3000Sqft home. That same house if you bought it in NJ (where im leaving) - your paying MORE than $1800 a month in property tax. So yea you do get tax savings, but your bleeding 1800.00. every month. Plus property tax usually never goes down. If the housing market tanks, you're REALLY screwed. Lets also not forget as a renter you pay nothing for upkeep on the house. Roof caves in? Not my problem.
Karson, that was a great video - and I don't think I heard you say Um even once - Thanks for your time!
Appreciate your content, its refreshing
Very solid information. I just did a video on this a couple of days ago. There are a lot of things to take into account but I have always thought buying is better than renting and I always use the quote, "You are always paying a mortgage, either yours or your landlords"
Good analysis! I did opt for the renting option though for a few reasons 1) live in a rent controlled building where the annual increase has been 1.25% which did change this year to 2.5% but I think that's a one time deal. 2) live in a studio which is all the living space I need and it keeps the rent very low 3) live in Canada where social security should cover my rent once I retire 4) as a single person owning a house is too much to do with upkeep etc as growing old so would likely look at a condo apartment or condo townhouse both of which have unpredictable monthly condo fees that could be as much as the cost of a mortgage, plus the added monthly expenses for hydro, gas, water, water heater rental, plus property taxes that never end and can also be unpredictable. 5) also purposely rented on a newly developed citywide transit route in the heart of the city so I technically do not need to own a car as everything I need is within walking distance or accessible by transit. 6) have a higher than average paying job and purposely live inexpensively so that at least half my income goes to savings/investment in a field where I could continue to work after retirement age by taking on clients. 7) have the freedom to take on side hustles as my time is not spent on upkeep of a house.
I have always viewed home ownership as the banks selling you a massive liability that you spend your life time paying off and maintaining and must sell and find a new place to live at higher rates once you can no longer maintain it.
I own, but plan to do the same. Since I know that is my future, I don’t buy stuff I don’t need. I keep thinking studio, and letting things go.
I also don’t sink money into my home. I do major repairs, but I have no interest in renovating. Keep it simple is my motto.
Oh what a video you did a lot of hard work
Thanks for sharing this, very informative 👏🏽
Maintenance costs should be quite a bit higher. The HVAC, water heater, roof, potential plumbing issues and structural items over a 15 year period (especially if it was not a new build) would exceed a $200 a month average. Never mind the cost of renovating or upgrading certain items which may be necessary in the selling process. That said, if you are planning to stay put, buying a house still wins by a long-shot. It is the very definition of having your cake and eating too because it is an investment that you can live in until you are ready to realize the earnings/move.
And if you are able to do those repairs yourself to a high standard, even better!
❤
Well said!
@@markbeiser that being said, why not invest that "savings" over renting and buy some of your life back! :) I fix everything at my house but hope not to in my next move :)
@@gabrielclymer5340 I'm to much of an anal retentive OCD autistic fuck to turn over most repair tasks on my home!🤣
great breakdown! another pro for buying a house is once it appreciates, you can take out a home equity line of credit, and then use that money to invest.
Wow that was really good. Kudos
Great video, thank you very much! I live in Canada where the house prices are quite high. The banks have raised the interest rates to slow the markets and it has.....except the prices didn't come down much.
It is incredibly difficult to find a rental here, an older 3 bedroom small house is going for $3,000 a month plus you pay all utilities. I totally understand the Van movement with people opting out of renting or buying!
Did you add in upgrades, pools, yard work and things breaking all the time in 13 years? Those numbers are in perfect Scenario situation and 99% of the time it’s never a perfect scenario
Sounds like a magical plan, but it never seems to work like that for me. Here is the list of repairs I have done in 10 yeats of homeownership....AC repairs, new paint, broken seals in windows, flooring, water leaks, hot water heaters, concrete cracks, termites, roof, insulation, refrigerator, stove, lawn maintenance, privacy fence, exterior doors, leaking faucets, toilet repairs, shower cracks and leaks, chimney flue flashing, door bell replacement, garage door fix, multiple electrical problems. With all that being said, I was able to make about 70k on my home after paying the realator. So in reality I was very close to breaking even.
@@dlaurence2007 well damn… 😳
@@dlaurence2007 everyone is different in the last 8 years our repairs have been nothing. We will be painting the house soon and replace the carpet we don’t have to but we are thinking of that fake wood floor.
@@josefj1776 Not buying what you said about repairs being nothing, doesn't work like that.
@@justinedse3314 LOL sounds like you have never owned a home.