Renting versus Buying a home | Housing | Finance & Capital Markets | Khan Academy
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- เผยแพร่เมื่อ 30 ธ.ค. 2013
- Created by Sal Khan.
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Finance and capital markets on Khan Academy: Is it always better to buy than rent? What if home prices go up dramatically and rents don't? How can we compare home prices to rents to figure out what to do. This older tutorial (low-res, bad handwriting) walks us through this. It is about housing but similar thinking can be applied to any rent-vs-buy decision (spoiler alert, Sal did eventually buy a home).
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It's sad that I have to learn this on Khan Academy instead of when I attended high school
Wesley Abbey I agree entirely. I'm currently a junior in high school and I can tell you, this NEEDS to be a MANDATORY class. We have something called Surviving on Your Own, but that really only teaches you how to write and pay checks.
Yes indeed. The system is moronic.
because khan is a genius. jut that other videos he would not be the one speaking. he is good at explaining
...There is a Disturbing TH-cam, Video on Ball Players that go Broke! O_O
1) The tax assessor's estimate of the land value is $75,000, and the building value estimate is $125,000. Your depreciation expense that you take each year against rental income would be $125,000 divided by the IRS allowed 27.5 years of useful life (residential real estate) for a depreciation expense each year of $4532.99
2) The rule of thumb long used by real estate agents and homebuyers is that you can afford a house if its price is equivalent to roughly 2.6 years of your household income. That ratio is based on historical nationwide averages under Healthy Economic Conditions.
Dude, my school makes economics a mandatory class. They include it as social studies. Idk if any other public school in America does the same now but if not, THEY SHOULD!!
His exact same lecture in 2008 was much more pro-rent. It just goes to show how when factors change -- both economic (compare 2008 to 2013 housing markets) and emotional -- your analysis can change.
Mike Garner I am pro-rent. When you rent, you tend to live in a smaller place, which forces you to be frugal. If you are frugal enough, you can save to buy a plot of land and build your own house.
The numbers he gave in the 2008 one were absurd and not realistic, they should honestly delete that video as it's very misleading. They don't consider house prices going up nor the fact that a house investment is done after 20-30 years and rent is for life.
This is Fun! (x 2)
1) The tax assessor's estimate of the land value is $75,000, and the building value estimate is $125,000. Your depreciation expense that you take each year against rental income would be $125,000 divided by the IRS allowed 27.5 years of useful life (residential real estate) for a depreciation expense each year of $4532.99
52.143
@@ijirving Dude... he literally predicted the housing market crash, where housing values substantially depreciated. Interest rates pre-GFC were also relatively high. I would say it is very, very far from misleading.
That house in the top left corner is beautifully drawn! Sorry for the off topic comment :)
No, you should be ashamed of yourself! How dare you give him a compliment! Jk😂
Thank you for saving my life AGAIN! I used you as my math curriculum when I was homeschooled, I used you to survive organic chem and physics, and now you'll help my with my living situation in grad school ( on campus housing is few and far between) From the bottom of my heart, thank you!❤
There is so much information that my teachers in high school and in university haven't given me. We are making our choices for our life without the knowledge of the most important things that will trully make a difference!
Well you learn a bit of Math and Econ and that's a good foundation for proper decision making. The actual decisions are left to you as they should be.
Beautifully explained. Thank you for posting this.
This is an oversimplified look at the issue.
Where I live rent goes up every year no questions asked.
So even if buying is more expensive initially, your mortgage payments do t go up.
So in 5 years you are paying less than those that rent and that's not even taking inflation into account making your mortgage payments effectively cheaper every year.
How do you write so neatly with a mouse?
+Shaheen Qazi Electronic writing pad and pen.
Drawing tablet.
Thanks Sal. Really appreciate it.
I got the answer for my month long confusion. Thank you so much.
he hit on the idea that not using a deposit for buying means you have that $100k for investment (saying 2-4% return ~$2-4k) without hitting on the fact that houses go up each year, doubling on average over 10 years, that's a 7.1% gain on his 400k house meaning about $28k per year, that's a pretty significant factor to be overlooking.
Yes, housing appreciates, however those gains can not be realized till you sell the house. It would be much easier taking some of the gains out from other investments than selling the house.
Renting can be can be a good option when you build and sell. You rent while you are building your next house.
Great info I'll be sure to share with my clients!
This video is a good exploration of the maths behind house buying as opposed to renting. It's the basics. It's not necessarily making a case for one over the other. Whether to buy or rent is a complex decision which most people make without understanding fully the implications behind each choice. It's a place to start one's education in this area.
Thanks for the effort man
Thank you for the information,😊
Buying or renting a home really depends on a person or a family’s needs. Great video for showing a comparison between the two.
thank you!!
thanks sal.
Tell me if I wrong. When you buy you can always sell and get your money back and may be move to a nice cheap retirement area while still able to enjoy the rest of the money, while the same is not true for renting.
Nice job professor.
People who rent don't have 100K to invest at your 2%. I like your vids Khan. When you buy you HAVE to put cash down. There are all different walks of life. Renting can be attractive to well to do people. Anyhow I'm drunk and rambling.
That's what I was wondering, how many people starting out are sitting on $100k. Of course I'm not thinking of people waiting until mid 40's, set in their careers already, finally buying a house.
Never realized how much factors have to be taken into account.
Khan - I think you should put together a template spreadsheet to help putting the analysis together that lets the user input the values (Price, Rent, Interest, etc.) I think it'd be extremely useful once the next series of videos are uploaded.
I think the biggest thing the author isn't talking about is the potential increase in housing price. Which generally happens, though not always. Plus the leverage from the mortgage really juices the returns.
Great analysis of what expenses need to be considered in renting or buying. Would be great to have a follow up video on long term economic benefits of investing in property. A tutorial on how to build wealth with a portfolio of real estate assets would also be so helpful. You know, whether it's better to buy and then sell and buy again, or buy and rent out and buy again with the leverage of those assets. I guess there would be a lot of variables like mortgage rates, market fluctuations etc, rental prices, but still, a template or tutorial on how to compare factors would be handy. :)
$100,000 down payment?
you have good art 🙂
good video 10/10
I love these videos, but a 1% property tax is pretty low. Where I live, the property tax is 3.3%, so the property tax on a $400k house would be $13,200/year.
Great insight. Thank you. Correct me if I'm wrong, but in the Rent scenario wouldn't you have to pay taxes on the interest $2k earned with the $100,000 investment? Certainly a percentage based on your tax bracket --not the full $2k, but still something to consider....
yes, but please ask yourself why are we paying taxes on money that’s already been taxed? it’s highway robbery if you ask me. but the system is designed this way to keep us part of the system.
Another thing is many states protect your primary house as an asset- meaning you can't be sued for your house, just like you can't be sued for your retirement. You can, however, be sued for money you have in a bank account or non-retirement stocks/bonds. Thus, you can invest a large amount into your home and retirement and never lose those investments from being sued.
or don’t do things to get you sued.
@@brookef2457 People make stupid mistakes all the time. For instance, anyone can get into a car accident.
I think financially speaking they are really close to equal. You should really put most of your considerations to the "intangible" things he mentioned since those are the biggest differences. For example I am planning on renting for a while since unemployment is correlated with owning a house (since you are less likely to look for jobs in other cities if you own a house). Renting gives me the flexibility to move around and take better and better jobs. The pay increase of switching companies every few years is usually better than the yearly pay increase that you get sticking around in one company. Since that kind of flexibility is important to me I would prefer to rent. You should think about your lifestyle and make your decision on that. Don't make your decision based on speculation on whether you expect housing prices to rise and drop. Because you can't predict the future.
Perhaps if you had enough money you could buy multiple houses upfront, and have time to allow them to sell whenever you move.
can i just have your brain lol i LOVE how you explain things. so many lightbulbs
awsome
You need to take into account inflation rate as well.
Should also consider cashflow after the completion of mortgage payment
A good way to start 2014! Buying houses.
Love love ...
Also that unbeatable sense of ownership... Beats em all imo.
thats a beautiful house mate
Very nice video. Just one point is missed about buying house with loan. It is that you become dependant on whether you have income or no enough to pay. And things in life change. Today you might have great salary and next day you never know. So I wouldn't say buying a house with a loan is stability.
One thing that Sal didn't mention is that mortgage fees eventually go away while rent will stay for the duration of living in your house. When the mortgage has been completed the expenses for buying decreases dramatically.
Well, in the scenario provided. He said you were paying an Interest only mortgage - meaning that your mortgage is forever and therefore are the fees. Mind you, he didn't take out the tax savings for property taxes and he did assume a 33% tax rate which is unlikely for most Americans. There are also other small tax implications that weren't taken into account either such as a majority of the savings from interest and taxes are already given to you through the standard deduction. Also, keep up with politicians, many of them want to make mortgage interest non-deductible.
Okay, right off the bat this is wrong. There is NO WAY you could rent a $400000 house for 1500. There is actually a rental formula you can google and the price for rent would be more like $3000! That would change all of this considerably.
I understand that yearly payments for renting a house looks better than buying a house, but my thought process behind renting and buying is if you buy the house, you will eventually own it. If you rent it, you will constantly be paying rent indefinitely. Of course this is under the assumption that you will be able to pay off your house within your lifetime. Is this a sound way of thinking about this?
There's also a certain risk with buying a house completely in some areas, since you might have to get it insured against any number of disasters, and if a storm knocks a tree into it, it gets in a fire or you later discover some structural problems that will take even more money out of it, renting is better.
Also if you end up not liking the area, the neighbors or finding somewhere else you would rather live in.
***** thanks for you argument.
People keep bringing up the point that, unlike renting, buying a house means eventually you can stop making monthly payments.
Now, as you've conceded that renting might (emphasis on "might"--I know it's not always the case) save you some money each month, where do you think that money goes? If you choose to save it and invest wisely, you will accumulate a sizable sum over 15 or 30 years. (Throw in the initial down-payment the renter never made as well--that money is still being invested!) That sum can keep earning you interest, which you can use to pay rents in the future. If your interest income equals your rent payments, you are indifferent economically about renting/owning. I would even argue that since you don't have to pay upkeep or taxes for your rented home at this point, renting can keep saving you money.
Please also remember that the math in this video assumes that you are only paying interest on the home mortgage. If you want to own the home in 30 years, you have to pay additional money for the principal every year. You are, after all, borrowing to buy the home via the mortgage; to really own the equity in it, you have to pay off the debt principal. Considering further that your investments can earn more than 2% a year, and the discrepancy grows fast!
My entire point is that the argument you bring up does NOT work in every situation. It really depends. It's just important that people don't blindly assume that owning/buying is better than renting based on flawed logic and facts. Cheers!
Tue Tran You're not talking to me are you?
Yep this is also assuming someone has the discipline to invest income that would otherwise go to the mortgage
Good video, but....I don't understand why you did not add equity to your equations. Your equity will always go up - always.
If you buy a heavily leveraged loan (which is not a great idea), and your property value goes down, AND you decide to sell, you will lose your equity (because if you owe more money than you sell it for, you have to pay that back). That's called being upside down.
Also, rent will always - under all circumstances - go up. Unless you are willing to lower your standard of living, which virtually nobody is, your rent will always go up.
As the years go by, your equity will become a bigger and bigger bank account. Also, you can depreciate the value of your home on your taxes.
In general, property values go up. If you are going to live in an area for 5 or more years, then buying a home makes sense.
If you want to move every year or two, don't buy a house --- or better yet -- buy a house and do house swaps.
One big thing to consider. If you buy a house, try to put down as much as you can, and pay off the loan as early as you can. Due to interest, a small $100k loan, for a 30yr fixed rate mortgage will end up costing you about $350k. Therefore, if you can loan from a family member do it, or if you can buy a super cheap house as a first time home-buyer, do it. As you build equity and your property value goes up, sell the home after 10yrs and upgrade your home if that is your desire.
Rental properties are also a very good idea if you can swing it.
Pat vulk That always assumes property values going up. Clearly that isn't the case. They often do not even increase at a rate higher than inflation. If it DOES increase at a rate higher than inflation, you're in a bubble and in danger of going upside down if the bubble bursts. Equity is great, but is no guarantee. It's not always the best idea to buy. That myth contributed to the housing bubble (a small amount.)
Hi Steve. No, I mention overpriced markets several times. I also mention not to buy in a hot market. Equity - unless you're in a hot market that is about to fail - will indeed beat inflation because USUALLY a home value goes up with inflation and your equity increases bc you're paying into it. The myth of the bubble is that the 'market' will increase forever. For the general consumer buying a home is a great idea bc they will build equity...that's a fact in most circumstances. What is a REALLY BAD idea is to rent forever - bc you NEVER gain ANYTHING and will pay rent FOREVER and ever and ever and ever and ever. Unless you are investing in something else - which most people don't - you'll never have anything you own. The same concepts apply to renting a car. Folks must have a little common sense. If you work at McDonald's you know you can't afford to buy a Ferrari. Likewise, you should buy a home with a highly leveraged balloon loan that is 80% of your salary per month ---- which IS what people were being ENCOURAGED to do ---- THAT is how people got into trouble.
If a person buys a moderate home, that has a mortgage that is perhaps 1/4 their income, they will be fine and building equity is definitely a good idea.
We can agree to disagree.
This has been my personal method of gaining wealth even during the burst markets.
Best wishes
what about renting and investing with dividend over the same amount of time it would take to own a house?
Do you have one on the Formula calculation a they used in the process of know what you may have to pay..Before Buying Any home....Becoming Aware of any Financial Calculation a Before hand can help me decide before call or making a appointment..the steps or the process.
My mom bought a house, the interest was at its lowest ever when she got it. Her mortgage is 600 dollars a month but the rent for the other houses are 1100 dollars (these are town houses so they are exactly the same). Her interest is fixed so it will never go up. It's cheaper to own than to rent sometimes.
"Her interest is fixed so it will never go up."
It will when the fixed-interest period ends. They don't last forever,
Spudgun88 That's if you're an idiot and don't fight for a contract that doesn't pay off your mortgage by the time the fixed-interest ends. My mothers fixed-interest will end when she pays off her house. Unless she plans on missing payments, or something seriously bad happens to the bank, I don't see her interest getting higher any time soon. If it does, she'll only have 3 more payments to make. Hell, she could take out a loan and still get a better net income if that happens (her bank has little to no interest due to being a credit union designed for vets).
Bumbleness Supreme Brady How long is the fixed period for then? The most you'll see where I'm from is around five years.
Spudgun88 She said it was a fixed interest rate. I think you're talking about an adjustable rate loan, or an ARM. This is why so many people screwed themselves in the bubble,because they don't understand loans.
SEEKER8558 Righteo. I only wonder because such fixed-rate mortgages over here only exist for a period of about five years, after which they become 'tracker' mortgages, which follow a base interest rate, up or down.
You left house appreciation out of the ownership side of the equation.
And bubble popping
And being able to do as you want with your purchase ( of course depending on deed restrictions) i hated renting because i wanted to paint and decorate. I love owning. I can do what I want.
Renting only looks better than this particular type of loan where you only pay the interest.
If you get a loan which you actually pay off, the interest becomes lower as you pay the principal amount.
In the case of this 300k loan at 6% over 30 years, if you pay 1.8k each month instead of 1.5k you would pay approximately 347k total interest in 30 years. For the same period, the rent would be 540k.
how the hell do you write so neat with a mouse!
He's probably using a writing pad.
E pen
If the interest earned from savings is case of renting is taken into account, then the appreciation of the value of house should also be considered.
There is an additional figure you must deduct to the buying option on the example. Since you are evaluating the first year, you must deduct the equity obtained at the end of that period. $ 9 k if the loan is for 15 years and $ 3k for 30 years term. With this numbers buying will be a better Option. If you do the same evaluation within 5 years you will see a big difference. Buying is definitively the best option, just be careful with the term, choose 15 years if you can afford it.
Just my thought, isn't return on commercial real estate higher than the return on residential real estate? So in a situation where you have the option to either buy commercial or residential at the same price I would buy the comm. real estate then use the return on rent to pay the mortage of the building and rent a residential property.
what painting software and hardware did you use to create this lecture?
I want to create video lectures in Vietnamese like yours. I tried Smooth Draw and Wacom Small as you suggested in one of your videos (how to make a Khan Academy video). But I still dont get used to them.
This video is great.
Thanks
Tue Nguyen I would also like to know. I love this!!
What about the $1500+ for the fire insurance when you buy
it sucks the education system doesn't teach this so i had to come here.
Another large factor you might want to consider: the rate of inflation. Buying a house is an easy way for your average person to short the US dollar. If the rate of inflation averages 2.5%-3% per year, over thirty years, we're not taking about insignificant money.
I liked this explanation though I would've liked to see Sal go through the process of what would be typical when moving while you're paying off a loan for a home instead of renting. When you pick up and move while renting you don't have any property to sell off like you do when you buy. Does the loan transfer to someone else and begin a new life or does it continue on as before or do you sell if back to the bank or what? Whatever happens when moving is definitely a huge part of the decision, especially if your homes value drops below what you were paying for it.
What happens to your portfolio after 25 YRS in both cases factoring in inflation and real-estate appreciation ?
Who drew the house? Was it you Sal?:)
9:54 Rent ALWAYS goes up. If the market is flat it goes up 3%. When the market boomed, I had my rent go up 25%. There's no "could go up". I lived in a community where renewing your lease meant a 3% hike, but if you moved to another same-sized apartment in the same community, your rent would stay the same. That was the only time I've heard of rent not going up. Everyone knows owning a home is the way to go. The mortgage payment stays the same, and the dollar depreciates over time. If everyone had $100,000 for a down payment, no one would rent.
Understood, but the big difference after the 30 years of rental or paying on a mortgage, in this case 1 million house. At the end of 30 years you would now have an asset free and clear worth 1 million dollars whereas if you were a rental you would have nothing?
People should really take into account whether you're in a buyers' market or a sellers' market. If you're looking to buy a house but it costs $40k more than what it's worth, you should probably rent for a little while and save up until the prices go down.
very nicely explained but left one important thing out of the consideration:
You stay on rent for 15 years paying $18K yearly, what do you have at the end of 15 years, nothing...
You buy a house and pay $18k yearly as a mortgage and after 15 years when your mortgage is over, you are the owner of the house which you can sell for probably more than what you bought it for.....
Hey Sal, I'm a finance student and find your channel really useful. I was just wondering why in each of the buying versus renting videos you have made you don't take into account the expected savings you would make for the years after you have paid off your mortgage (ie. once full mortgage repayment has occurred, in the indefinite future renters would still have to be paying rent whereas homeowners would have comparatively considerably less expenses since no more mortgage repayments are required). Taking into account the time value of money these savings may not be very significant in present value terms because it takes considerable time for these savings to be realized, but nonetheless should these savings be considered when deciding to buy or rent with a long term perspective in mind, or am I missing something (probably the case)? Can anyone help me out here?
He is comparing the expenses of buying vs renting ( mortgages interest Vs Rent expenses). The $18k/year that he counted for the mortgage is just the interest of $300K/year.
yes, but what if you rented the entire time and invested that saved money, you could theoretically be way ahead versus a home owner. just depends. but typically there are many restrictions on renting like what you can do with the property and whatnot.
in Canada, interest can not be deducted.
when buying a home, he hasn't factored in that a lot of people do not pay it off soon; many overextend themselves and remortgage time and time again to pay off other debts only to find out 20 years later they have no equity.
Rich people buy houses because of equity and in case they ever get sued
or if any legal actions go against them. If you own a home, then you are
not forced to sell your house if someone sues you and wins a ton of
money from you. But if you have investments that are non-retirement
accounts they can take the money from those accounts.
Renting is better in my oppinion, because it's not so hectic.
are you taking in account that after paying the house you own it? that means you will have $400k+appretiation at the end, and with renting you will only have $100k+(2k*30years=60k) at the end because you are using your returns to pay for the rent.
3:50 ah yes… all of us making under $100,000 a year just felt that sadness 😔
The market is unpredictable, and as time moves forward becomes more and more unpredictable. Jobs don't pay what they use to and a lot of people are not in a position to buy a home. Buying a home is nice if you know you're going to be at your job long enough to pay off the mortgage, or if you invest wisely or create a solid business all of which are gambles. In today's economy education is becoming outdated much faster than it used to be, so you can expect people to last much less time at their jobs unless they keep up with the new age educational demands. Also, there are various illnesses you can get for no damn reason if you are unfortunate and this happens across the economic board and it only continues to get worse. Renting is safer, and buying is a gamble. My advice is to live a modest life, with all the work that comes with owning a home I think it's better to own a nice apartment. People are weird, they want a living room, a dining room, a kitchen, an entertainment room, a video game room, individual bedrooms for all their children and a huge backyard where the kids can go out and play. Reality is most kids are on their phones all day, on the internet, or playing video games. If you want them outside send them to the local park and let them play there it's much better than your lame ass backyard, give them some money and let them go to the arcade, mall or movies with their friends. You've got this big ass house for the sole purpose of trying to be like everyone else and don't think about how many other options there are for your family. Most people make around 45k a year...what world is everyone living in where buying a house actually makes sense on that kind of income lmao I guess if you believe in self fulfilling prophecies you can take the gamble, but life is a roller coaster and unless you've got a supportive family you'll find yourself in sticky situations so it's just better to play it safe and make the most of what you have.
If you only make $45k a year don't have kids you can't afford them!
This actually forgets the fact that interest rates can vary as well. Infact in some cases they actually vary a whole lot more. In some cases they'd spike to 15% at particularly bad times (from 6%) wheras there's no way rent as a trend would actually go up that much.
Do you draw with a mouse?
If you are going to talk about the investment income on the $100,000 of unused money that was saved for the down payment on the renters side you need to balance that with the appreciation of the $400,000 asset (the house) on the buyers side. That down payment IS an investment in itself. It also lets you get appreciation on the amount you borrowed which (in addition to the tax credit) lets you offset the expense of interest even further.
why doesnt the audio work for me!
Buy two houses with 50k deposit on each. Rent them both at an amount greater than the mortgage and monthly cost of each. Use the surplus to assist rent in your ideal home. At the end you could very well get a 2% return on renting AND in the end you'll have 2 properties to sell to buy another ideal home.
Eventually, but what if you can't find anyone to rent it at the price you need? Or something happens to the house, like a fire or a tree hits it?
Say we're working with 10 years. You'd allocate say a total of 4 months of unrented costs into the the rent over the 10 years. This goes the same for insurance for the house, which is included in the cost I mentioned before. So say an extra $5/month for not renting, then say some amount for insurance. Investments often come with risk, but I believe this method, in this current climate, to be the best method of maximizing wealth overall
Move to an area where housing prices are low
Question: What if you buy a house and it is just for investment (means it is just for leasing, you don't live there). The house condition is not bad (means the quality of the house is good, and there is no big accident), and the local economy is stable. Will you or your tenant gain more benefit? If so in long term or short term?
I would buy my own house to live in,but if I had $400,000 to invest in a rental property, I would purchase 4 $100,000 houses---bread and butter properties(thank you Carlton Sheets), the rent would be 1% of the purchase price at minimum so my income would be $4,000 a month and the math would change for the better.
Thank you for showing that owning is better.
population is increasing in my city and we're not building enough houses according to some articles I've read, so the rent is bound to go up where I'm living. I wish I could buy a house for that matter but I'm just too poor.
I understand a mortgage comes with interest as well but let's just say you have enough money to buy the house upfront. Live in your parents' home until you can save up for your own house in full. Then it's just always cheaper to buy.
are you anticipating a price correction / return to 2018 prices?
LOL $1,500 a month to rent a $400,000 house?! No.
in what world does this guy live? it would take over 22 years for the rent to cover the cost of the house without interest.
You have zero idea what finance is =))) And I bet you never watch the clip
In what world do you live ?
Not unreasonable at all. That's close to what I'm paying and the house is worth about that.
mortgage is not buying a house....mortgage is still renting....
considering this rent of 1500 a month makes no sense at all
Most renters don't charge much above the mortgage. That's not a terrible price for either side. If there are a lot of rentals on the market in the area but no renters, the rent price will be very close to the mortgage. If there are no rentals in the area and a lot of renters, they can gouge for more. Also, don't expect everywhere in the world (or the US) to have the same market prices. I live in a rural area where you'd be hard pressed to find any home going for $400,000. I also used to live in the suburbs of Atlanta, where its hard to find a home for less than 1/2 a mil.
How do you make so many videos
This persons username Is to scary to be displayed they're ten minutes long so. And he's knows his stuff
What about the equity you built by buying the house and when it appreciates? What about tax savings on the gain when you sell the house? What about inflation?
Manny Sibrian Jr All those things are addressed in a spreadsheet that Khan made for his rent vs buy series
interest rates will rise, a new wave of crisis will hit, housing will get cheaper again. Just you wait. 2 more years. I'm holding onto fistful of cash now. Buying time. no pun.
It's been '2 more years' for a while now. I do agree that the price of houses will go down, but we never will know when that might be
Hypothetical Analysis. But why would I rent for 30 years when I can own? In an ownership society, property is key. The earlier you buy and own, the better. Main constraint of course- stable income.
Why does the government give you a tax break for mortgage interest payments if they're gonna pretty much add it right back in property tax?
*Mortgage, Taxes, Insurance & Maintenance...*
Only 2% return?!?!? You can get 3.9% GIC or 10% with an index ETF. Renting blows buying out of the water.
Exactly, that's a great example. Why he is using a 2% return boggles my mind.
So if I buy a house I can keep it forever but the only thing I have to pay now is my bills for water,electric,phone and all that
Why is he assuming that you are going to pay only the interest to the bank each month, instead of the loan itself? If you pay only the interest, you will still have to pay $300k in 20 years or so if you want to actually buy the property that you borrowed from the bank to live there. Sounds like you are getting all of the downsides of owning with none of the perks of renting?
equity is only an idea until you liquidate. equity is dependant on the market and is out of your control. it isn't yours until the last payment is made-many people do not get this.
it is an asset immune to market changes only when you owe no money on it.
You gave an interest rate nearly double what is realistic and didn't factor in the value of the house appreciating. If you're factoring in investment income on the down payment, you have to consider the house value going up (also, you should note that investments and house prices can also go DOWN).
Am i the only one that caught that the principle isnt touched at all? Or is the amount included then it isnt interest only?
If its not then its more like 20k+. You also save more renting and can accrue interest on the difference
Lets say I have $ 2 Million. And the house costs 500 $ is it better to buy the house without borrowing money or just paying a monthly rent.
I make about 150k a year.
+Richard Rodriguez Buy, pay everything at once, that way you won't lose money on interest the way most people do when they stretch it for 30 years.
Everyone that is wondering his name is sal
Or buy a house, and rent it out to pay for itself. In 20 years, you'll own it.
then once u own it, move into it, do the same for more houses, and u'll have a nice income to retire to and be able to leave something for ur grandchildren to inherit :)
One can dream, but it's not very realistic. For one thing, you'll never get a loan for a house that your rent out unless you can present a BIG downpayment. And if you rent out, you still have to pay most of the maintenance costs and you're not guaranteed that the house will be rented out for 100% of the time, or even if the residents pay their rents in time.
I know a couple who accidentally rented out their house to heroin addicts who stopped paying rent after 3 months and turned the place into a 'safehouse'. By the time they finally could kick them out, they completely trashed the place. They never got any rent for 6 months and the place was such a mess that they it took another 6 months of work before they could rent it back out.
So that's a year worth or rent gone and additionally they had put in a new floor, fix the plumbing, install a new bathroom and kitchen... and you meanwhile you still have to pay property taxes. No use in trying to find a settlement in court because those people don't have any money anyway.
Say if that happens to you and you are paying off a loan AND additionally rent an apartment yourself, there's no way you're going to survive this. The only thing you could try to do then is get another loan to pay for your loan, or lose the house.
Boris Stoyanov
Which is why everybody does that and everybody is rich, right? It's not that simple in real life and you're not considering everything.
michael that is the greatest myth. If you rent out a house, then you have to payrents to live soewhere else... unless you live in a tent but after that you might have to sell the house to buy health, or you might not live confortable enough to develop your career.
noure dont forget you would also need to rent to live