More and more people might face a tough time in retirement. Low-paying jobs, inflation, and high rents make it hard to save. Now, middle-class Americans find it tough to own a home too, leaving them without a place to retire.
The increasing prices have impacted my plan to retire at 62, work part-time, and save for the future. I'm concerned about whether those who navigated the 2008 financial crisis had an easier time than I am currently experiencing. The combination of stock market volatility and a decrease in income is causing anxiety about whether I'll have sufficient funds for retirement.
This is precisely why I like having a portfolio coach guide my day-to-day market decisions: with their extensive knowledge of going long and short at the same time, using risk for its asymmetrical upside and laying it off as a hedge against the inevitable downward turns, their skillset makes it nearly impossible for them to underperform. I've been utilizing a portfolio coach for more than two years, and I've made over $800,000.
I was about to argue until you said owning a home under 400k might make more sense. :) My 1st home was 85k, paid it off in 10.5 years and turned it into a rental. It has now made back all the money I paid for it and is worth around 125k now.
@@ddnn3 , If he was in Toronto he would of found nothing going for under 500K so you're wrong. I guess you missed his Toronto joke which made the same point. 13:03
@@ddnn3 you missed the part where it’s worth 125k but he also makes additional money from rent and had a place to live in exchange for the time he spent in it (therefore not spending that money on rent)
As a Doctor (of physical therapy. Don’t worry I don’t make money like an MD) who several years ago decided to rent a nice apartment and sell their home and put that money into their investments. As well as save nearly 50% of my income towards my retirement early. I completely agree with what you’ve done here. We did this similar analysis when we were homeowners and came to the decision that owning a home only saved us about $3000 a year. However the amount of time and energy then went into maintaining that house far exceeded the value of $3000 a year. Renting has given me back so much of my personal time and that has a tremendous amount of value too. Nice job.
I agree with your comment. The older I get, the more I am realizing that it is more than just a cost savings analysis. You would be wise to also consider, as you mention, the time and stress side of the equation. I've just gone from being a homeowner of 5 years back to being a renter in a much smaller space. The lower stress level and the increased amount of free time really doesn't compare at this stage in my life to being a property manager. I don't know that I would want to go back to being a homeowner at this point now that I've gotten a taste of how much simpler it is to rent. I may just downsize early and permanently instead of waiting until many others do until they are retired. The one caveat I would add is that I don't think it makes financial sense to be a permanent renter because you will be eaten alive by inflation over the course of 30 years. But as a short-term decision of 5-10 years, I see no harm in it.
@@minhngo154 No it's not. All houses are different but typically you just deal with the occasional broken item and upkeep things as needed. Renting is always going to be more expensive. That's why real estate investing is so popular, you make a lot of money renting out property to people like her that don't want to bother. In the end the person living in the house always pays. Need a new water heater? Up the rent. Need a new roof? Up the rent.
I think another important point that was missed is that rent goes up just about every year whereas payments are fixed for the life of the mortgage loan. Short term, this is not a big deal. But once you get to a place in your life where you are on a fixed income, it becomes problematic and financially straining to continually pay higher and higher rents.
Payments do not stay constant if you’re on a mortgage. Your property taxes and HOA fees will continue to increase with an effect quite similar to a rent increase of 25-50 a year.
@@GrantKot I'm skeptical about that. Probably largely depends on the state you live in. Even so, I bet rent increases are more frequent than property tax increases. HOA obviously doesn't apply if you aren't in a development. Using my own example, my property tax has gone up once in 5 years and that was because we added an enclosed sun room, which increased the square footage, and I guess triggered a tax reassessment. Had I been renting the same house, rent would have likely gone up yearly. HOA dues have remained the same for 5 years. YMMV
@@1FlyingSolo1 Yeah, probably varies with location. I own in Brooklyn, NY and my property taxes increase every year, never decreases. They are double from when I initially bought. Even last year they went up, even though renters got to enjoy a price drop because of the pandemic and people not wanting to be in a dense city.
@@GrantKot Oh ok, yeah the NYC market is ridiculous. That explains a lot. We get a lot of NY and New Jersey people relocating here in Delaware. I often hear it's due to home prices and property taxes being so much lower here.
He did mention that while on rent you would have to invest all the money that you save. I think it readies you that, when it reaches to a point where the 5% in the homeownership makes more sense, that's when you'd use your savings to buy a house.
Great video! I'm still undecided about crypto. I'm a big fan of gold, which I used to hoard to protect my money from the Wetherspoons and the student union bar. However, I ended up selling all the gold I accumulated and now I want to put it into a safe investment. I want to see what it's worth in 5 years. If you had £500k and you weren't allowed to leverage, would you buy physical property or REITs?
It's hard to give a proper answer, buddy, as this decision is ultimately up to you, your own level of risk (I realise most of us are still figuring this out!) and what you feel comfortable with. Finding a mentor or an experienced person to lead you is something I would advise especially in this volatile market.
@@liambracey6708 In fact, fiduciary counsellors have access to private data sources and knowledge that is not generally available to the public. With the help of my fiduciary counsellor, I generated about £200k in pure profits in Q1 of 2023 and I'm hoping for more.
@@taylorcoggan2054 My financial advisor is Lisa Ellen Shaw. I found her on a CNBC interview where she was featured and reached out to her afterwards. She has since provided entry and exit points on the securities I focus on. You can do a quick online research with her name if you want to check her out. I basically follow her market moves and I haven't regretted it so far.
@@sebastianspiegler5801 I'm literally holding onto straws right now, so your tip couldn't have come at a better moment! I planned to call her after doing a quick internet search for her.
I realized that the secret to making a million is making better investment. I always tell myself you don't need that new Car or that vacation just yet and that mindset helps me make more money invest:ng. For example last year I invested 70k in blue chip stocks and crypt0 s (with the help of my advisor of course) and made about 380k, but guess what? I put it back and traded with her again and now I'm rounding up close to a million. Delayed gratification always pays off
I believe everyone should own stocks. stocks have consistently proven the best way for the average person to build wealth over the long term. I bought my first house from its proceeds.
I’ve made a few thousands trading stocks, I’m currently trying to get into crypto trading. I have a target of hitting $300,000 annual returns this year and I believe that’s achievable.
I’m trying to take full advantage of the new year, I’ve allocated my capital in a safe and sustainable way but still leave room for excitement for individual stocks, cryptos and new exciting opportunities!
What a funny opening! I once bought a house with mortgage and realized, I only pay for interest for for the first few years. I finally pay my mortgage and move to another country. I decided to rent, and then Friends start to question me, when I will stop renting and buying a house. I told them I’m not interested based on my experience owning. A house, and they just rolling their eyes. I think the pressure from society is shaping the mindset that owning a house is an ultimate goal of life.
It's all interest on the payments initially, but the property also appreciates equity during that time. If you rent, the property you are renting also appreciates equity. Which equates to a larger rent bill the next year...with a mortgage you get a fixed rent...and your equity/net worth grows.
Think the most important factors in this decision should be: 1) rent if you are planning to move or your home requirements will likely change in the next 5-7 years 2) rent if you do not have enough money for a down payment
The big thing nobody seems to talk about when it comes to home ownership is that even when your home does increase in value, and you’re able to sell your home for perhaps double what you paid, you still need to go and buy another home! Unless you’re able to own 2 homes simultaneously and rent one out while it builds equity and eventually sell for profit, you will always be in a mortgage situation.
Yes I agree and you're obviously going to upgrade into something better so you're still on the hook for more money and you don't profit anything there goes your down payment and your closing cost it's gone plus future closing costs you'll have to pay plus you can't live close to where you work. The biggest thing for me was was that I hear from people that my rent is about the same as it caused them to live in a place that they own after the mortgage is paid off. The only benefit is that you have something to sell that's it
You are correct however you want to factor in tax savings, deferrals, depreciation, and deductions for having a business. Having a mortgage isn't automatically bad however it will add more psychological pressure for most people.
Yeah but that's bad only if you think having cash, is king. But if you focus on getting credit (cash and credit are both money), then increasing your net worth is seen as important, which buying a home helps you do.
Interesting concept, however it seems that the 5% rule ignores the returns associated with the leverage of having a mortgage. For example, if you put 20% down, and property values grow by 3%, the return on your down payment isn’t 3% it is 15%, because you are getting 3% return on the entirety of the property value not just the down payment. Granted you will have unrecoverable costs, however even if they are similar to rent the return on your cash will be far greater than stocks.
You can also buy leveraged ETFs that grows 3x faster than the normal ETFs. For example, QQQ vs TQQQ. So the leverage of owning a home isn't that much more advantaged.
@@erikbai Leveraged ETFs suck because of a simple mathematical concept, going up 10% is not as powerful as going down 10% and that is why these ETFs unperform their index
what you missed with the property value increase vs stock market percentage is that you get the percent increase on the whole value of the home, not just your down payment. So if you put 5 percent down and get a 3 percent return that is actually a 60% return on investment. In essence you are earning a return on the banks money.
Eventhough the annual growth of a property is less than the stock market, you are still taking advantage of a significant 80 percent leverage that comes into play by investing into a property. The annual growth value/return is based on the total asset. Part of the 5% cost can be removed by renting out your basement.
Yes, this is the most obvious problem with the model assumed by the 5% rule. The opportunity cost is just on the downpayment but the upside is over the whole asset.
A few things. There are tax deductions in the U.S. for interest paid on a primary residence, so the true cost of capital is lower than 3% and only paid on a portion of the home based on how much you borrow. Also, your down payment is typically leveraged. So, the total home value might only increase 3% per year, but with only a 20% down payment, that's the equivalent of a 15% return on investment (3% ÷ 20% = 15%). Additionally, you likely have pay capital gains taxes on your stock market returns reducing that true return to below 6%. Finally, a purchase is mostly a fixed cost and some of the unrecoverable costs decrease over time like interest as you pay down your principal. However, rent almost always increases annually and you aren't even guaranteed a place to live after your lease term expires. So, I hope you enjoy regularly looking for a new home and have lots of friends and few belongings that you have to move.
no, you do not pay capital gains tax unless you SELL your investments. You're misinforming people. In addition, You're not mentioning the HUGE cost of maintaining and repairing a house. I've owned one. You are constantly spending MOney and TIme on repairs, plus Taxes, plus yard maintenance, etc. etc. Homes do not usually outperform the. Stock Market on average. Your life energy is completely Sucked away when you own a house.
So are you a realtor or a mortgage broker? I am in my 40’s and have never owned a home. But I built my net worth into the hundreds of thousands with no debt. While my brother who bought a home during the housing crisis in 08 and watched the value go way up us now watching it go back down. At no point has his net worth exceeded mine and both he and his wife earn six figures. But mortgage, taxes, insurance, maintenance, holiday decorations, lawn care, increased utility bills, trick or treaters, plus dealing with things like snow and leaf removal…all stuff renters don’t deal with, has kept his money low. Plus rents do not increase every year. Ive only had about 7-8 increases in the last 15 years. But the costs of maintaining a home go up every year, so do property taxes. To be fair, I am unmarried with no kids and my brother has a wife a 2 kids. He needs a house and I don’t. Everyone has a different situation and owning is not better for everyone. Especially if you don’t want to stay in one spot for 30-40 years. I have lived in 4 states over the last 20 years. And I am planning to move to a 5th.
I can not even imagine if we had rented for the last 40 years living in a Florida beach area. We’ve bought 5 houses. All the least nice house in a great neighborhood and lived in them for 2-3 years while fixing them up. So, 6 or so months of renovating. 1.5- 2.5 years of enjoying them and then selling for tidy profits. All along investing 20% of our income in the market. Now, at retirement age. We have a dream house in our dream neighborhood and no mortgage. Plus market income. The bulk of our wealth has been through this real estate strategy. Not to mention the quality of life. We rented for 2 years of that time due to a job transfer. Money out the window. No sense of “home” or pride of ownership. No pets allowed. First house was sold out from under us and we had to pay to move. Rents raised. I haven’t even mentioned the fact that it’s much, much more expensive to rent than to own in a Florida beach town. No brainer for us. Another thing you didn’t mention is we’ve made our house to suit us. Our style. Our hot tub and pool. Our whole house generator. Our style of roof. Our home is one of our home runs in life.
Thank you for this. Now I don't have to write a similar post hahaha. People don't understand the money out the window part and keep talking about the maintenance not realising after 15-30years all you pay for is just maintenance (and taxes I know) but no more rent for the rest of your days, nobody knows the power of equity.. anyway I'll stop or I'll be writing a book over here hahaha!!!
It depends from individual financial situations, unfortunatelly not everyone can afford to get a mortgage, here in London UK house prices have gone too expenses and wages haven't increased much at all. Thenonly way to do it is to earn different sources of income
Renting also means that you will not be tempted to make expensive upgrades to your home that you may not be able to recoup when you sell. My dad was a Realtor for over 50 years and he had numerous times seen people spend money on their homes that they could never get back out of it.
But the bank is not a landlord who does renovictions on people who are up to date on their ~rent, nor does the bank tell you that you have to move because they want to now sell the house because the market is so hot. You only have to pay them and they're satisfied. They don't get to boot you from your home one way or another to find a way to make more money even when you've honored your end of the bargain.
Hi Cash College, Don't you think this analysis doesn't take into account cash flow from rental income as well? Speaking from an investor perspective, renting out the home you bought can pay off all your mortgage + insurance + taxes + vacancy and still net you with positive cash flow each month. In this scenario each month that goes by, you aren't losing money on your home but rather gaining money in the form of cashflow + equity in the home. Not to mention the chance of appreciation of the house and tax write offs as well.
Yes this! If you put 40k into a house instead of stocks, you lose the opportunity ~5% of stock interest, but if you rent it out and the income pays of 13k, then you've made a 33% return...
And if you put a renter in it and have little turnover after 15-30 years you own a house for free! (Yeah yeah down-payment closing costs etc are also payed by the renter if you got a good deal)
The 5% rule was telling me to buy a house. It ended up costing more to rent than buy. You gotta love Massachusetts.The rents here are crazy, especially in Boston.
I just sold my house of 24 years and am now renting. I was looking for some buy-rent evaluations and found your video. Nicely done. One thing that I found missing though is that you don't address leverage. With 20% down, you're leveraging that additional 80% compounded over time with tax deductions for the interest. And, in comparison to other leveraged equity investments, there's no margin calls if things turn south for awhile. For most average people, home ownership has historically been, and continuities to be a path to wealth.
Great until you got to the opportunity cost part…with an expected home value appreciation of 3%, you’re not making 3% on the down payment. It’s 3% of the total value of the home. For example with a $20,000 down payment, you could get a $100,000 home which at a 3% appreciation is $3,000 a year, with only a 20,000 investment. This comes out to a 15% return on your money which is much better than the 6% stock market return.
This is true, however a loan of $80,000 at 3% interest rate is $2,400 per year, meaning you're netting $600 on the $3k appreciation, which is is 3% of the $20k downpayment. The less initial capital, the larger the loan, and the more money that goes towards interest.
never buy a home, instead buy rental units, serves as an investment and makes your profit. I currently have 4 rental units I rent on airbnb and making almost 40k in profit per year.
I feel like everyone misses the fact that renters DO have maintenance costs as well, less than homeowners/landlords usually, but a renter still has to maintain their unit... and then there is the unspoken "having to pay for your peace of mind" with a landlord/slumlord who won't pay for maintenance or proper professional maintenance or if you decide to stand up for your rights they will in retaliation just renovict you to put up the price of the place and get someone in who knows less of their rights and the laws around it leave you to have to stalk them or hire some one to stalk them to prove a bad faith eviction. but all that depends on the landlord you get in Toronto.
In large cities like Toronto or New York/California it can make sense to rent due to already insane home prices but almost anywhere else it's almost always better to buy a house. Also the 3% average appreciation on a home is not a return on your down payment, it's a return on the total value of the home. Real estate has a much better return since you can leverage your 5% down payment and control 20x the asset value. Assuming you get a mortgage for a home that is. Also, (not sure about Canada taxes) interest and property tax is a write off on taxes that can typically negate the total interest payment. Not to mention, (again not sure about Canada) when you sell your personal residence you do not have to pay taxes on up to $250,000 if you're single. Something you would need a Roth IRA for and wait until you are 59 1/2 to start pulling from.
In Canada, there is no capital gains tax on your principal residence. When you sell, you walk away with what you sold for minus your realtor and closing costs. No tax
boreguarde 500k house appreciation @3% for 30 years is becomes a little over 1.2mil in value. Realtor 6% fee on 1.2 mil is only 72k (if you sell). 100k down plus mortgage/maintenance becomes 1.2 mil of worth in 30 years (it’s at least break even and you have something to pass on to the kids). On the other side, 100k in the market @6% for 30 yrs becomes 574k but then subtract 720,000 (2,000/mo rent for 30 years) and capital gains taxes you’re in the red by over 200k. Again this is over simplified and every market will have different results depending on home values, rent amounts and how long you actually stay in the home. Having said that I’m in SF and we rent because it makes more sense here. If values decline we may decide to buy
Agreed that unrecoverable costs on home ownership gets overlooked, but misses a lot of key points. 1. You can get into your first home for 3% down, even 0% down with some loan types. 2. You can rent out a portion of your home to roommates (or buy a duplex) and immediately build an additional income stream. 3. Home ownership allows you to further leverage that equity down the road to get into more real estate. 4. There are more places where you can get a home for under $400k than places you can’t. With the rise of remote working you can easily find a city that has a lot to offer along with reasonable housing prices.
Also it's not true that owning a house makes it difficult to travel. Rent it out when you go which is what my wife and I have just done, some one else is now paying the mortgage for us with a little left over to pay for the maintenance or to over pay the mortgage. My view is that you can make either work well for you but it mainly comes down to what you want and your local housing situation
How do you deal with maintenence scenarios (ie water heater breaking) while you are away? Do you have the tenant call you, and you have a contractor go there?
@@EragonxVxRevan you can if you want to, f ease we have a letting agent deal with everything and they get in touch if there is something that needs fixing. It comes at a cost but for ease it's worth it. They do so the referencing credit checks finding a tenant etc too.
I actually have totally different viewpoint on this. Have you thought that 1) Debt is money, 2) you can use property to leverage more debt 3) you can repeat number 1 and 2. When you own and rent 10 properties instead one, you will multiply your accumulation of assets by 10 time wise. I own 1 house and and 1 property which both I’m renting and I live in rent apartment myself. Just today I sealed a deal of buying one more, in which I will be moving in myself. It has 3 bedrooms and I need only one, so I will start renovating it a little bit while living there and then I’ll rent each room to some students. The place is near university. After that I will move to some rental apartment again. I try to keep the rental places expenses running on their own so they are assets instead of liabilities and I don’t need to spend my own money on them. Every now and then I can add one to the collection. In the meanwhile I will be working normally and putting some money into stocks. That’s my plan of making money instead of saving.
Someone was reading "Rich Dad vs Poor Dad" ... Well done.
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Goes well untill you have tenants that don't pay or wreck the place or both. Or we go through a recession which will happen one day or another or the rates are changing on you! If you're in the US you can likely lock your rate for a long time but in Canada you're basically doomed to cry out loud every 5 years. If you're young enough without much of a situation you can probably house hack like there is no tomorrow and live like a rat for 5-10 years leveraging the hell out of your properties. But passed a certain point you'll eventually have to compromise if you find a partner and have kids.
@ well, my places are cheap housing for people so I don’t think there’s any issues with rates. I live in Finland. We have some rules for rent rates etc. Also I have insurances. And I recently took interest rate caps for my housing loans. There’s some renovation happening and more coming but that is only good thing since after renovation I can refinance and make the process faster. So far working awesome. So far I am still living in this 3 bedroom apartment with my gf because I like the place. Maybe 1-2 more years. Then it’s time for another one. Right now I am investing in other forms. Crypto trading and mining. Just recently got 5 gpu miner and put couple of thousand into different cryptos. And acquired some private company stocks from my employer. I also got summer cottage with very cheap price tag last summer. You know what they say. Ignore the naysayers..
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@@mikkoh85 Yeah, it's a completely different market and rules. I spent 5 weeks in Finland working near Hamina. I couldn't believe how easy it was to get in the real estate out there. Not to mention most of my colleague had on-call rotation which had a specific rate in Finland, they were fighting to death to get the on-call rotation lol. I really liked it and almost relocated from Belgium to Finland. But I had to make the call and left my job and moved to Canada. I stayed in Kotka, went to the gym next to the army cadet school's gym in Hamina. Then headed out fishing every other day, the place was packed with Russian truck driver stopping by to catch some fish. The thing that kept threw me off was how difficult the language was and the damn VAT and price of goods since a lot of stuff are imported it cost a leg! Anyhow, when it comes to crypto, I've mined for a bit a few years ago and sold the equipment before it lost too much value, not to mention crypto crashed shortly after. I also bought some crypto. Obviously I am up on the investment except that I can't cash it out and that's basically what I hate about it, it's super easy to buy but when time comes to cash out. The local BTC ATM transaction fee is 27% and there is no wire transfer or anything like that with the broker I use, so basically I have to let that crypto thing sit there until I'll eventually find something interesting to buy with it and hope the transaction fee isn't going to defeat the purpose. Not to mention that all it takes is your country's gov to ban it and then what? Yeah you've managed your risk so ignoring the naysayers is good! Keep it up man!
I work very long days, plus out of town for about 50% of the time, so I basically just sleep at my place occasionally. Sooo I just rent a basic / cheap room, and invest the rest. Portfolio is growing quickly =)
TL;DR: Cost of rent and cost of buying comparable in my area for my living (at time of purchase)* (* If you are under 26 y old). In my area there is a very limited amount of apartments to rent. If I compare the apartment I live in (owned, although through a structure that's common in Sweden, where you also pay a fee that goes to common maintenance and common goods, for example cold water), to rentable "youth"-apartments (apartments you can rent, but you can only move in if you are
I'd say that stabilizing the cost of housing by owning your home is good for the long term maybe if you will stay in a place 10+ years. For younger people, tgere are career changes, you might move for a job, find an opportunity overseas, better to rent and dont tie yourself down. Either that or house hack or buy an investment property first.
The problem is that nobody will lend you 10-20x leverage to invest in stocks. You could leverage trade but they are generally more volatile than property and you would likely get margin called, especially considering how ridiculously overbought the markets are. Due to housing’s nature you should have more legal safeguards against foreclosure (depending on jurisdiction) and may be better able to wait out a downturn. On top of this, property is inflation hedged and land is finite. There is also value in the raw materials.
Largely disagree with the 5% rule. You also didn't factor in leverage with the house purchase. Dumb for most people not to use leverage. Fully agree with the phycological aspect, some need an inceptive to build wealth aka paying off their mortgage
Genuinely interested how leverage and leveraging would drastically skew the whole argument of the video considering the video already highlighted the concept of unrecoverable cost, in which debt interests fall under.
Leverage is a great one, I’ve considered this rule on my math when I was working from $0-150k, but then it changed, and better options were available. To keep growing towards 7 digits.
I actually commented on this issue before I saw your comment. This was my comment: Isn't there a problem with comparing the appreciation of a home with the appreciation of the down payment for that home? Even if the down payment invested in the stock market increases at double the rate of the home, it is still only a fraction (about 20%) of the home. So for example, over 10 years, a $250,000 home would appreciate to $336,000 (at a 3% annual rate). That's an $86,000 gain in appreciation alone! However, a down payment for that home ($50,000) invested in an index fund instead for 10 years would appreciate far less than that, simply because it is a much smaller starting value. So, even though you're getting a lower return rate with the home, you're effectively using leverage to reap the appreciation gains of an asset 5x the value of the cash you had on hand.
@@benfrizzy6728 this and the fact the interest on your main bone can be claimed back on tax offsets.. so the 2-3% appreciation on house price compared to the downpament can be 4-5x, which isn’t bad at all.
I’ve lived in my house for 10 years. I’ve only changed the bulbs. My house is gone up in value 40,000. My insurance on house is 300.00 a year. Property tax is 275.00. My house was bought for 45,000 and interest rate was 3.5%. I paid it off in 5 years. You do the math.
@p chatterjee or invest in both :) Leveraging the banks money when you mortgage an 800k home. It would be like investing 800k in the stock market at a lower risk. 😉
@Doors067 In 10 years, your condo property taxes will have increased, plus all your appliances will need to be replaced, plus the roof, the parking lot, or the pool will need to be replaced (which will be a special assessment in addition to HOA fees), plus your monthly HOA fees will have doubled, just because of inflation. Now consider that condos are a gamble regarding their resale value.....As new more stylish condos are built, your old condo value stays the same, at best. Plus all the money you put down you now don't have in the bank in case you lose your job. And once the real estate market cools off, it will take 2 years to sell your condo. I sincerely hope it works out for you but, compared to renting, condos do not work well financially for most people.
It totally matters where you buy the home though and when you sell the home.. If you bought a home in say point loma san diego two years ago that 770,000 home is now worth 1.1 million dollars... that is a 42% increase in 24 months... Same thing goes for Phoenix
@@steveantonioni What if that person invested in Crypto instead that on stocks on that example, and why you didn't use it? i get it's riskier but if the person is ok with it anyway
The 5% rule also leaves out the cost or rent increases over the years. For example using historical numbers and increases Monthly mortgage (mortgage, taxes, insurance) compared to rent. Owning: $2,400 Renting:$1,900 29 years later Owning: $2,700 Renting:$6,700 Now the next two years the monthly cost is even more dramatic change.
I rented throughout my twenties and a few years ago at age 29 I bought an appartement. Could not have been happier. Here it can be cheaper to own instead of renting. (I live in the Netherlands) But great video, most people look over this stuff. Like in my twenties It was just better for me to rent. Now I'm in a stage of my life its better for me to buy.
Exactly the same for us (also Netherlands). For the 4 bedroom house i'm paying 1040 every month for the mortgage. When i rented the same size i was down 1200. Plus i'm also seeing it like this. After all those years i have something to leave our kids. Or if they don't want to we have something to sell that'll have us enjoy retirement more. To me renting is just throwing money away every month with nothing in return after many years.
Where we live Philadelphia PA region rentals are way more than the 5% rule. For instance a town in south Jersey near Philadelphia. 1200 sq ft house market value $250k. Rentals are around $1600 a month. That would put the value at $384k. Then you take a row house in Philadelphia 900 sq ft in a decent neighborhood. Rentals are $1600 - $2k a month. That puts value of home at $1600 a month to $384k.
As you said, this 5% rule is over simplified. And I think it's incredibly flawed. He's basing the number of PE, which is undershooting the value. Take the companies in the S&P 500, for example. They have shown for several years that they are able to have a 10% return on equity. And to be quite honest, that nunber is actually probably much closer to 15%. I myself am averaging around 14% annually. So for me, it's really a 16% rule. That changes things in an unbelievable way. It's why my brother and I are always getting in fights over home purchasing versus renting. He just doesn't understand the cost of equity. My rent is 800 a month, so if I were to take that 16%, I'd have to purchase a home for 60k. That's a unicorn house, in my market. It doesn't exist. And if it were, it would be a foreclosure that's in a rough area and needs lots of money to fix up. No thanks. I'll continue stacking cash by sticking with apartment rent.
I may be missing some details, but it’s face this doesn’t seem to add up. I agree that property taxes are unrecoverable, but at least some home repairs and maintenance are recoverable. Replacing/repairing your roof (given the example) is recoverable at the time of selling your home AND in preventing increase in home owner insurance and personal property damage/loss. Additionally, home owner insurance will pay/offset for issues like roof repair, HVAC replacement, water heater replacement, etc. Try selling a home with a damaged roof, the potential buyers won’t touch it if the inspector report states it needs to be replaced, unless it comes out of the selling price.
Although this video shows some calculations on historical data comparing stocks and housing value increases, it does not take in count that: 1) Not everyone is interested in investing in stocks, in part because they (all of them, alike gold, oil, etc.) can go up or down at any time based on a wide variety of factors, including technical analysis, fundamental analysis, market manipulation, all types of national and international news, companies' performance, among others. So, to me, this is not a good reference parameter that makes me prefer buying stocks than a home and continue to pay rent. 2) EVERYONE NEEDS a home to stay. So, when paying rent the money is gone forever; conversely, when buying a home to reside by using a mortgage loan, such home not only may increase in value over time (one of the best ways to create wealth), but it will be paid off at the end of the loan after having paid a monthly mortgage bill (that includes amortization to capital, interest, and escrow for property taxes and insurance) much lower than what the monthly cost to rent that same house would be. Besides, there are various types of mortgage loans available in the market, some that require down payment as low as $0.0. 3) Buying a house by using a mortgage loan is such a great deal, that most landlords buy their rental properties not in cash, but financing. Think on Robert Kiyosaki and Grant Cardone, for example.
I agree with the fact that owning home is not for everyone and there are advantages and disadvantages, but a few things you missed in regards to home ownership are tax breaks, property Management for rental income properties, and depreciation on the home's value. Rental income allows you the time and freedom you're looking for, property management will take care of the property while you travel the world and still earn the rental income, and the homes deppreciation will take care of some of that "unrecoverable expense". To each his own, but I would advise you to inform yourself a little better if you plan on talking about pros and cons when it comes to home ownership. The fact is that rent money is money you will never see again, while investing in a home is just that, an investment. Look into Robert Kiyosaki, I'm happy to answer any questions you may have and I appreciate your hard work doing these videos.
Great video, really is just not black and white is it, and I’d love to maybe do a uk version of this as the fee’s and prices are much different. my house is valued at 240k we brought it 9 years ago for 156k our mortgage is currently at a 5yr fix of 2.04% it’s a 4 double bed home and quite large for the area, average house prices in a 5miles radius are about 160k in 2020. Our mortgage is £394 a month, with £21 a month for housing insurance, and £11 for contents and personal insurance, so everything house and personal including phones clothes appliances roofs etc is all covered for £32 a month total. So I have everything owned and protected for £426, now to rent my home would be around £800 to £900 per month. My deposit 9yrs ago was 21k I’m gonna have to go and do the maths on this, but I’m certain I’m winning by buying, but I’d be interested to see the actual numbers, but like you say it’s a mind thing, I would never have invested any money 9rs ago lol.
@@samiabamia hi I I’m Burton on trent in the midlands, don’t get me wrong the town is pretty wank, but We have some beautiful places very close, only a 2 min walk and I’m on the river trent, it’s all decked out to feed the ducks and swans , really beautiful and loads of dog walking paths, I actually paid 127k but I got a 40k gifted deposit as there were a few cosmetic issues with the house at the front, we have sorted all that and built a beautiful Victorian bay window window for 5k, we landscaped the garden putting a bbq area and a lovely planted area we did the work ourselves for 3k, obviously we have decorated inside etc but we got a valuation last week for 249k, it’s 4 double bed 3 story Victorian, but we are nowhere near London that’s why lol.
@@Ineedtorecover I was thinking it can't be anywhere near or even a little outside of London. It might not be London but it sounds like a lovely area from what you've described, and a lovely home, that's grown in value nicely.
Yes shares make you a higher percentage ...in your example: if you invest 100k in stocks you makes $6k, however if you invest the 100k in property and borrow a million, then you make 3% which is $30k. Leverage makes all the difference.
bought my house in 2009 when i was 23years old for $75k. its now worth $150k. So it worked for me . And i dont have a landlord. I was still able to save and invest as well. I stared with a net worth of 0 and im now worth about $400k
@10:37 the 3% is on total value of the house, or roughly 4 times the equity of a 20% down payment. This is closer to 12% ROI near the beginning of the mortgage, and closer to 3% towards the end of the amortization. Overall though, this is a very thought provoking piece that challenges social norms of "success". Everyone's situation is different and their approach shouldn't be skewed by socio-culturally tinted, rose colored glasses. Did I mention maintenance SUCKS!
Generally speaking, away from the big cities buying or building seems to be a better option long term if you are settled on a area. Not so good if you would need to do a massive commute or need to relocate for a new jerb at some point in the future. A lot of folks who bought in my dirty old oil town bought near the peak and prices dropped 20 to 40% when oil tanked and most were heavily leveraged via a mortgage. Some are staring down the barrel of 5+ years worth of post-tax income and have since been made redundant. Divorce or self destruction often followed. Beware the boom towns, kids there are always big winners and big losers when property prices are volatile.
Not everybody wants to be a real estate owner/manager/landlord. Those of us who want to just be and live in 1 area most of our life and just travel to other places during our vacation time, but also love to acquire a few hobbies that require storage space, it always makes more sense to buy a house with a bit of land attached, even if it's just 1/4 acre. Rental Apartments are great if you have no life and rental homes are investment properties that WILL be sold (usually every 6-10 years) and then you have to move out. When you rent, you can't ever really move in.
this video forgets one really important variable... the peace of mind of a paid off mortgage. not owing anyone anything. quitting your job. enjoying your life and hobbies and family. why would i want to pay rent instead?
Unfortunately I have to disagree. You didn't include the fact that your monthly payments and maintenance to the house are all tax deductibles if you buy the house on your businesses name. And owning the house will open up a additional loophole that allows you to deduct x (x = property value ÷ 27.5) the 27.5 is the average yearly "life expectancy" accepted by the government of a residential house. So that means that they acknowledge that by the time a house reaches that age on average will need a major rebuild or for example a roof replacement. Therefore you can also deduct "x" drom your company's income along with the mortgage payed on it. That makes it pretty obvious that you will be better off buying instead of renting. And to register a company can be done buy anyone. You don't always need a running business so register one for the tax benefits. There is ways to get one registered even if you are just a average employee. (A tax advisor can tell you more on that) read the book "Tax free wealth" for a little more in depth details on my statement.
Using this calculation- we should maybe buy if we can find a home for $810k or less (not hard in San Diego) but highly unlikely with our current incomes. (Just over $100k)
As an ex-technician now-design engineer, all I can say is - the world changes if you ACTUALLY put numbers to things. That is for example, calculating the true and total cost of things. Comparing two scenarios with all constraints involved. There are way too many paradigms in our heads, mostly inherited from advertising, that turn out to be very different when looking at the grand total. You got to think, there is a reason engineers can transfer careers to finance. Solid analytical skills aren't the key to success but certainly it eliminates an awful lot of guesswork. I've only recently realised after a few years in the career that I could use my engineering analysis skill for personal finance and I'm absolutely loving it.
I am very tempted to send this video to several of my family members and older colleagues, haha. I live in DC, a very expensive real-estate market. After getting married recently, I had several people ask when we're going to buy a home. My first thought, "uh, maybe never?"
It can be good or bad, depends on all the other variables (credit, cost of living, cash flow, opportunity cost, leverage, future plans, etc), but the one thing the video is right on is that rent CAN be a good option.
Recently moved back to Austin TX, and bought a 2600 sq ft home nearby with a USDA loan, zero down, 2.5% fixed for 30 years. My mortgage payment with escrow included is the same as a rental payment for a house in the area, and only slightly higher than an apartment, both having less sq ft space. I think I made out pretty well, and fell way below the 5% rule.
Toronto market is just insane... I live in downtown Montréal in a relatively big 1 bedroom appartment and I pay 550 $ / month... I live with my boyfriend so in reality I pay just 275$ !! It would be completely at our disadvantage to buy a house... However we still want to buy one ! So the plan is to wait a few years to save enough money, invest that money week after week and in 2 or 3 years, we will have enough money for a big down payment on a 350 000 $ house (yes, there are still houses that cost under 400 000 $ in Montréal lol)
This is fantastic. Thanks for making this video. This is well explained,and helped ease things go for me. It's so difficult to find Canadian content on UA-cam about these kinds of things. So I'm so happy you made this, and with a Canadian perspective.
I'm a home owner ...about the pay the house off..after paying it off my taxes, insurance, utilities will still be do every month . As I'm watching this, I'm also looking at my neighbor across the street working on his basement as his floor cracked and water flooded his basement. Insurance does not cover what they call "seepage" and they will not be paying a dime to him. His cost ...$15,000 out of his pocket that HE HAS TO PAY. Most people buying a house don't consider future expenses l. Very good video
I’m a renter just to start this out one day I plan to own. The one caveat to your argument is that if you’re comparing your down payment return with real estate to the stock market. Let’s say 20% on a 500k house, so 100k down payment. You make 6.57% percent in the stock market on your 100k like you said; correct. I think the missing point here that I see is that yes housing appreciates on average 3% per year, however, that 3% interest you make is not on the 100k, that 3% you are making is on the 500k. So, 6.57% on $100k is $6570 the first year. 3% on $500k your first year is $15k. I’d say real estate wins. Let me know if I’m missing something here I’d be curious on your thoughts? Thanks and nice videos ✌🏼
There are a couple significant misses here in logic. The minimum down payment for most 1st time home buyers in the US is only 3% of purchase price. This makes the 3% gain on full value a 100% ROI year one. The system does force you into investing additional money each year and over 30 years you will diminish that return down to 3%. The other thing that happens, is the debt service cost deceases as you payoff your loan while rents rise. In the short term, you can rent and save and grow those funds in the stock market, however, as rents increase, you will flip upside down and you will be able to save and invest the difference between the mortgage payment and rent and invest and grow those funds.
And then when you buy a house at 3 percent, have the value increase, continue paying your extra PMI, you will feel smart. Then a correction happens, you're upside down in your mortgage, you lose your job, and then you need to sell at a loss to relocate for work. There's a risk to home ownership that you need to account for in the calculation.
It is basically the same math everywhere. It goes like this: Buying your own hom IS BETTER than renting for most people. However, one must try and buy the cheapest home they can in an area where property prices are rising (easier in a major city like London). For example, After a long illness I am making 33k. If I put down a 20% deposit on a 1 bed flat/apartment, then I need to find a chepa place - say 180k, or leave the city and look at 150k. Get a lodger + salary increaes and bam! paid it off in under 12 years. It depends on how you want to live your life. I want a quiet life. Calm, minimilistic and creative. If you want more then get creating.
Renting is good for the rich and mobile, young (by necessity say students) etc, for temporary housing. Otherwise buying is definitely better, but of course chains you to a location (good or bad). Financially better to buy a home in your means with historically low interest rates
I’ve owned houses and the lack of flexibility was the hardest part, selling takes a longer time than just ending a lease and moving. I love quit a bit for work so renting has been great and a fairly constant cost, whereas housing pricing for buying seems to dramatically change regularly
It's always based on the individual's circumstances of course, but generally speaking, in the long run, homeownership will almost always prove to be the better investment option, even assuming you are generating returns in the stock market from the difference between the estimated mortgage payment and your monthly rent. There are quite a few reasons why this is the case, and others have highlighted them. For those watching this just bear in mind that there are pros and cons of both and generally speaking your circumstances should be the ultimate deciding factor.
Thanks for the breakdown, it was really helpful to rationalize whether I should save to buy a home or invest the extra income. All my life, buying a home ASAP has been something I thought about as a no brainer, but now that I’m thinking about how I may move around when I’m young, this definitely makes me think a bit more. As you said, tons of benefits as a renter when you have one cost and don’t have to worry about things like property tax, maintenance, HOA, etc…
Great video. But I do have to agree with everyone else, owning a property is priceless. I have bought the appartment where I was already living in two years ago, because the landlord was gonna sell it for a really good price. At first I was hesitant, there went all the money I had saved up for and along came a fifteen year commitment. And it was not that it was the appartment I would have always dreamed about. However, it didn't take long to get accustomed to. Because it was so cheap, I can easily pay for it myself. And mostly, I have something to fall back to if things don't work out. No going back to my parent's house when I would split up with my boyfriend for instance. And that ease of mind, that is truly priceless for me
What about all the tax breaks what about the depreciation what about the passive income what about the journey towards being a multimillionaire at your age in 10 years if you keep using the equity to buy further properties go girl
Seems like it all depends on personal preference and lifestyle choices, let's say you want to build out that secret lair where you work on your masterpieces, you probably won't be able to do that while being a renter, since the lease most likely won't permit you to (and it would be financially insane to spend money renovating a property that isn't yours). So buying a home makes sense for most people because it's a property that is yours to do as you wish, as opposed to living as a renter with restrictive lease.
I think that most of the time, the less quantitative way of arriving at this conclusion is to ask if you can rent the same thing as you can buy. Often a single family home in a nice neighborhood, good schools, etc, is not available to rent. Or you may find one to rent, but it is likely to be outdated and you cannot do any updating yourself as it is a rental. On the quantitative side, I agree with your conclusion as this is how I already approach our shelter. We rent to avoid having the opportunity cost of a down payment, which in our area will be large. For this reason, I think you need to do more math on the cost of capital section. Cost of capital for your mortgage is the debt (say 3%/year), but the cost of capital for your equity (down payment and principal payments), will likely be higher. Say you put 20% down to purchase a $500,000 home ($100,000). This amount will increase in value 3% within the home asset. This amount invested will increase by 5-7%. The range of equity cost here is actually 2-4% (you took the middle 3%), which is based on a high stock market valuation today. This says nothing of the stock market 10 years from now, when you will still be paying your mortgage. Looking at long term US stock returns of rolling 30-year periods going back 100 years, the average is 10% with 3% inflation. I think your cost of equity needs to be 7% as that is a longer view that matches the maturity date on a new 30-year mortgage. Most people actually never pay off their mortages as they take out loans or trade up over time, so this effectively has a term of perpetuity. If you apply this math: $100,000 down paymet @ 7% cost of equity = $7000 $400,000 mortgage @ 3% cost of debt = $12,000 $500,000 @ 1% tax = $5,000 $500,000 @ 1% maintenance = $5,000 $29,000/$500,000 = 5.8% weighted average cost of opportunity. My current 2-br duplex rent in Seattle = $2,295/month -or- $27,540/year This means I can afford a home under $475,000. I will need to move out to a crappy part of town to make that happen. The lowest cost home in our neighborhood in similar quality to our duplex is going for $580,000 minimum.
But the home goes up 3% a year so 500k home will be 515k next year . My math would subtract 15 from your 29k . So 14k total unrecoverable cost for a home half of your rent cost. Your rent will always go up (making landlord rich ) vs mortgage payment stay the same 🤣🤣
I wouldn't do anything else than to own my apartment. I have a very nice rent and have saved CAD$ 100 000 compared to renting 90m2. Even our pension authorities have calculated that owning your apartment is the way to go if you want to be well off when retired. But, don't buy too much house with money you don't have!
Love apartment living . Not a house guy at all . These new complexes are the bomb . Pool , sauna , tennis court , movie theatre . Concierge for deliveries . No mowing the lawn or gardening or maintenance . Each to their own thou .
Rent just follows housing prices. It doesn’t just go up for the hell of it, but one thing that wasn’t covered in the video was inflation and the opportunity involved with the shrinking cost of the debt. The reality is that on a long enough timeline buying a house will always be better, but this video was talking about the short term.
You misunderstood the part about the average home value increasing. If you put 20 percent down on a 100k home, which grows at 3 percent per year in value, your capital is not the only part which increases in value. Rather, you have a 4 to 1 debt ratio. So, when the home rises 3 percent, you actually make a 12 percent return on your invested capital, which doubles your referenced stock market annual return
The problem is you’re not taking into account that land and property values will continue to rise while salaries stay the same. At some point if you don’t jump into the market you may be priced out forever unless you don’t mind living far from a major city away from everything
Thanks for sharing your thoughts. I can see your point but the rule simply compares the *costs* of home ownership versus renting. It's up to you to apply your income accordingly and decide whether renting or buying makes sense.
Cash College Agreed and I enjoyed your video but investments need to be taken into account in long term increments. While renting might may sense in the course of a year, when you look at 5, 10, 15-30 year trends, they do not. Not to mention the equity you can take out on a property can be reinvested in high return investments. It will never make sense to rent over buying over a long period of time. Condos are also not the best investments although in my case I made a 120% profit after 6 years. i has to sell because condo fees were going up and the building was becoming more run down. Great work on your channel.
You raise some good points for sure. I appreciate the discussion 🙂 I think otherwise investing money into equities that would have went into buying property would outpace housing on average long term (based on the data). Which would enable you to enter the housing market at a later point if you wish. But of course there's all sorts of housing markets out there, some hot and some not.
Cash College As you can see, the market is not stable and fluctuates. You can be riding high one day and then it tumbles. Then it takes time to self correct meanwhile housing pricing continues to rise. Toronto and Vancouver housing prices as disgusting. I don’t think you can get your money’s worth anywhere in TO anymore.
This is such a LOGICAL/RATIONAL perspective. The first 3 mins are a silly waste of time, just get to the point, but once into it, it is VERY informative. I feel like homeowners treat the topic of residential RE like religion or politics. You're RIGHT if you seek to own a home and you're WRONG if you seek to rent. This video probably made one of the strongest cases I've seen on the topic... I'm VERY much in a similar boat as you are, and renting for me would be VERY, VERY convenient and likely economically efficient. Thank you!
Steve, in the US, there's a big tax advantage for paying mortgage interest. You touched on that, but your equation is very different for us down here. We can afford much more in a PITI payment than we could in rent. Footnote 1: That tax advantage is less now than it used to be, but it still exists for many people. Footnote 2: PITI = Principal, Interest, Tax, and Insurance Footnote 3: If you put down a smaller down payment, you have to pay mortgage insurance too. It's a fraction of a percent, but still there.
Nah. There’s no way my net worth would be what it is if I would have rented. Renting is glorified camping. You walk away with nothing and you are at the mercy of someone else’s rent increases. Nothing like good ole appreciation. Buy the smallest home on the best block that you can afford and watch that beautiful equity grow. Interest rates are at record lows. You’d be an idiot not to buy right now.
It all evens out. No matter what route this guy has good info. My down payment was 90,000 on a 460,000 home. 2021, home is now worth 640,000 and home equity is 280,000. 280,000-120,000(lawn, maintenance costs,etc.)= 160,000 net equity. But for peace of mind I rather rent. Too much time wasted and I value my time way more than money
Your video doesn't apply to most places on earth. I don't know how landlords in Toronto make money (probably only in bulk and bought their properties at a good time), but for most places the landlords make you pay their entire mortgage, insurance, taxes, maintenance costs and then take in a profit on the side. Moreover, *once you have the house paid off you no longer have to pay someone else for the privilege of shelter*
Love this. What do you think about investing in the stock market with that "downpayment" money if you think you might want to buy in the next, say, 2 years? I've heard investing in stocks isn't worth much short term, and I don't want my money to be locked up when we are ready to buy. I also don't want to have my money sit in a bank when it could be doing more for the next few years of renting. Thoughts?
this just proved owning is still better where I live (Newcastle, England). Looking at an £80k property, x0.05 = £4000, /12 = £333. Currently costs around £450-£550 to rent a property of that value.
Great video! You did a great job at explaining the topic! The nice thing about renting is that once you get old you can actually use the money you invested whereas if you buy a home the money is tied up in the home until you sell it but I guess there are pros and cons to renting and buying.
If you have 500k saved up invested and make your 35k a year in gains and spend it you eventually would have very little due to inflation . Saving 500k in 1980 is equal to 1.6m today . So withdrawing money from the stock market is harder and have to pay taxes. A brand new home was 80k in the 80’s in ca vs 800k . Pays 3k a month today in rent and will always increase with inflation
I commented this under Ben Felix post some time ago. All of these arguments would make sense, if landlords didn't make profit. All the unrecoverable costs you laid out are included in your rent payment, don't you worry about that. Else, renting property would not make a profitable business. No one would be buying property, everyone would want to rent. And comparing to stock market needs to add a beta for higher risk (much higher) plus the fact you cannot actually live in your stock portfolio
A similar home will rent for more than the mortgage payment. Because landlords typically don't lose money on a monthly basis. So you can't assume a home will rent for the same monthly cost as owning.
It’s crazy that people feel your are throwing money away to not live in a tent on a sidewalk. People rent cars and pay for Netflix and Spotify. You never own the movies or music. It’s never a waste if it beings value to your own personal life. People let this get to them and they end up buying homes they can’t really afford when they are not ready just because they let their friends and society shame them for renting.
This is an excellent video, with all the right caveats and nuances. Thanks! For me, I had a rent for a studio for $1300/month, going up $100 every year. I bought a house for $250,000 (in March 2020); it’s a two bedroom and share it with a roommate and my boyfriend. My expenses are much lower now, and I’m building equity, and I have a good time sharing my space with others instead of living alone during the pandemic. I would never have traded for a $400,000 house without anyone to share the expenses with so I think your 5% rule makes mathematical and intuitive sense to me. Well done. I live in Philadlephia though, not Toronto! The housing market there sounds horrible.
This math is sound. It makes sense. But 1 thing you don't really lean into is the fact that with homes, you OWN it. Meaning you can do whatever you want with it and sell it later on if you want to. You'd be able to make back all the inrecoverable costs. Maintenance also increases the value of the home, and, you might not need maitenance for a few years, meaning you'll save alot of money per month. Money you could be investing. If I own a home and I need to repair the roof after 10 years of owning the home, I could have saved so much money monthly leading up to that repair. The money saved in those years would be invested and grown and would make the repair seem almost for free.
Dude I'm literally thinking about moving out of my parents place after Covid and renting an apartment. You've uploaded this in the perfect time. As always, appreciate your videos!
@@b4rs629 I stay at home right now and I am also a native american and work on the reserve making $20 an hour tax free. I am going into marine navigation as well so income tax wont be a thing.
Say you put 20% down on a 600k home… the home goes up 3%… you’d be profiting 5x your downpayment because the whole house went up, not just your 20% down payment. Something to think about when comparing house valuations vs stock market returns. I love real estate and stocks ☺️
@@stuckupcurlyguy That's a good point! Cashflow is essential here. Still enjoying real estate a year after I've made this comment... I'm actually happier with my decision now lol
More and more people might face a tough time in retirement. Low-paying jobs, inflation, and high rents make it hard to save. Now, middle-class Americans find it tough to own a home too, leaving them without a place to retire.
The increasing prices have impacted my plan to retire at 62, work part-time, and save for the future. I'm concerned about whether those who navigated the 2008 financial crisis had an easier time than I am currently experiencing. The combination of stock market volatility and a decrease in income is causing anxiety about whether I'll have sufficient funds for retirement.
This is precisely why I like having a portfolio coach guide my day-to-day market decisions: with their extensive knowledge of going long and short at the same time, using risk for its asymmetrical upside and laying it off as a hedge against the inevitable downward turns, their skillset makes it nearly impossible for them to underperform. I've been utilizing a portfolio coach for more than two years, and I've made over $800,000.
How can I reach this person?
'Carol Vivian Constable’ maintains an online presence. Just make a simple search for her name online.
I checked Carol up out of curiosity and i must say i am impressed by her Credentials. i emailed her already, waiting on her response.
I was about to argue until you said owning a home under 400k might make more sense. :) My 1st home was 85k, paid it off in 10.5 years and turned it into a rental. It has now made back all the money I paid for it and is worth around 125k now.
85k to 125k in 10.5 years. Yikes. Should’ve bought in Toronto. You’d be a millionaire by now.
@@ddnn3 , If he was in Toronto he would of found nothing going for under 500K so you're wrong. I guess you missed his Toronto joke which made the same point. 13:03
@@samsmith2506 I live in OC CA and nothing special starter homes are 1.5M; my 5% rule calculations puts me in a 500K home .... renting clearly wins.
@@ddnn3 you missed the part where it’s worth 125k but he also makes additional money from rent and had a place to live in exchange for the time he spent in it (therefore not spending that money on rent)
I living in California. A 1 bedroom condo will cost you minimum $300k smh 😔
As a Doctor (of physical therapy. Don’t worry I don’t make money like an MD) who several years ago decided to rent a nice apartment and sell their home and put that money into their investments. As well as save nearly 50% of my income towards my retirement early. I completely agree with what you’ve done here. We did this similar analysis when we were homeowners and came to the decision that owning a home only saved us about $3000 a year. However the amount of time and energy then went into maintaining that house far exceeded the value of $3000 a year. Renting has given me back so much of my personal time and that has a tremendous amount of value too. Nice job.
Also freedom, you rent whatever you want and leave any city any time you want.
I agree with your comment. The older I get, the more I am realizing that it is more than just a cost savings analysis. You would be wise to also consider, as you mention, the time and stress side of the equation. I've just gone from being a homeowner of 5 years back to being a renter in a much smaller space. The lower stress level and the increased amount of free time really doesn't compare at this stage in my life to being a property manager. I don't know that I would want to go back to being a homeowner at this point now that I've gotten a taste of how much simpler it is to rent.
I may just downsize early and permanently instead of waiting until many others do until they are retired.
The one caveat I would add is that I don't think it makes financial sense to be a permanent renter because you will be eaten alive by inflation over the course of 30 years. But as a short-term decision of 5-10 years, I see no harm in it.
great to hear a interesting insight from a homeowner. Is it really stressful to take care of a house?
how are your investments doing now? I'm willing to guess you'd be much more ahead if you owned a property.
@@minhngo154 No it's not. All houses are different but typically you just deal with the occasional broken item and upkeep things as needed. Renting is always going to be more expensive. That's why real estate investing is so popular, you make a lot of money renting out property to people like her that don't want to bother. In the end the person living in the house always pays. Need a new water heater? Up the rent. Need a new roof? Up the rent.
I think another important point that was missed is that rent goes up just about every year whereas payments are fixed for the life of the mortgage loan. Short term, this is not a big deal. But once you get to a place in your life where you are on a fixed income, it becomes problematic and financially straining to continually pay higher and higher rents.
Payments do not stay constant if you’re on a mortgage. Your property taxes and HOA fees will continue to increase with an effect quite similar to a rent increase of 25-50 a year.
@@GrantKot I'm skeptical about that. Probably largely depends on the state you live in. Even so, I bet rent increases are more frequent than property tax increases. HOA obviously doesn't apply if you aren't in a development. Using my own example, my property tax has gone up once in 5 years and that was because we added an enclosed sun room, which increased the square footage, and I guess triggered a tax reassessment. Had I been renting the same house, rent would have likely gone up yearly. HOA dues have remained the same for 5 years. YMMV
@@1FlyingSolo1 Yeah, probably varies with location. I own in Brooklyn, NY and my property taxes increase every year, never decreases. They are double from when I initially bought. Even last year they went up, even though renters got to enjoy a price drop because of the pandemic and people not wanting to be in a dense city.
@@GrantKot Oh ok, yeah the NYC market is ridiculous. That explains a lot. We get a lot of NY and New Jersey people relocating here in Delaware. I often hear it's due to home prices and property taxes being so much lower here.
He did mention that while on rent you would have to invest all the money that you save. I think it readies you that, when it reaches to a point where the 5% in the homeownership makes more sense, that's when you'd use your savings to buy a house.
Great video! I'm still undecided about crypto. I'm a big fan of gold, which I used to hoard to protect my money from the Wetherspoons and the student union bar. However, I ended up selling all the gold I accumulated and now I want to put it into a safe investment. I want to see what it's worth in 5 years. If you had £500k and you weren't allowed to leverage, would you buy physical property or REITs?
It's hard to give a proper answer, buddy, as this decision is ultimately up to you, your own level of risk (I realise most of us are still figuring this out!) and what you feel comfortable with. Finding a mentor or an experienced person to lead you is something I would advise especially in this volatile market.
@@liambracey6708 In fact, fiduciary counsellors have access to private data sources and knowledge that is not generally available to the public. With the help of my fiduciary counsellor, I generated about £200k in pure profits in Q1 of 2023 and I'm hoping for more.
@@sebastianspiegler5801 Who is this person? Is he/she worth recommending?
@@taylorcoggan2054 My financial advisor is Lisa Ellen Shaw. I found her on a CNBC interview where she was featured and reached out to her afterwards. She has since provided entry and exit points on the securities I focus on. You can do a quick online research with her name if you want to check her out. I basically follow her market moves and I haven't regretted it so far.
@@sebastianspiegler5801 I'm literally holding onto straws right now, so your tip couldn't have come at a better moment! I planned to call her after doing a quick internet search for her.
I realized that the secret to making a million is making better investment. I always tell myself you don't need that new Car or that vacation just yet and that mindset helps me make more money invest:ng. For example last year I invested 70k in blue chip stocks and crypt0 s (with the help of my advisor of course) and made about 380k, but guess what? I put it back and traded with her again and now I'm rounding up close to a million. Delayed gratification always pays off
@Stacy White I found her on a CNBC market interview, so I looked her up and we begun our awesome partnership
@Stacy White You can connect with her on what'saap
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I believe everyone should own stocks. stocks have consistently proven the best way for the average person to build wealth over the long term. I bought my first house from its proceeds.
I’ve made a few thousands trading stocks, I’m currently trying to get into crypto trading. I have a target of hitting $300,000 annual returns this year and I believe that’s achievable.
Stocks and crypto trading are no doubt one of the simplest forms of generating passive income, I recently added some NFTs to my portfolio.
@Sean Roger having such expertise must be thrilling. I need more info on Frost Hilda’s services, you got any means of connecting with him?
I’m trying to take full advantage of the new year, I’ve allocated my capital in a safe and sustainable way but still leave room for excitement for individual stocks, cryptos and new exciting opportunities!
That's funny @sean roger scammed me 1 billion dollars I want my money back .
What a funny opening! I once bought a house with mortgage and realized, I only pay for interest for for the first few years. I finally pay my mortgage and move to another country. I decided to rent, and then Friends start to question me, when I will stop renting and buying a house. I told them I’m not interested based on my experience owning. A house, and they just rolling their eyes. I think the pressure from society is shaping the mindset that owning a house is an ultimate goal of life.
It's all interest on the payments initially, but the property also appreciates equity during that time. If you rent, the property you are renting also appreciates equity. Which equates to a larger rent bill the next year...with a mortgage you get a fixed rent...and your equity/net worth grows.
Think the most important factors in this decision should be: 1) rent if you are planning to move or your home requirements will likely change in the next 5-7 years 2) rent if you do not have enough money for a down payment
The big thing nobody seems to talk about when it comes to home ownership is that even when your home does increase in value, and you’re able to sell your home for perhaps double what you paid, you still need to go and buy another home! Unless you’re able to own 2 homes simultaneously and rent one out while it builds equity and eventually sell for profit, you will always be in a mortgage situation.
EXACTLY!
Yes I agree and you're obviously going to upgrade into something better so you're still on the hook for more money and you don't profit anything there goes your down payment and your closing cost it's gone plus future closing costs you'll have to pay plus you can't live close to where you work. The biggest thing for me was was that I hear from people that my rent is about the same as it caused them to live in a place that they own after the mortgage is paid off. The only benefit is that you have something to sell that's it
You are correct however you want to factor in tax savings, deferrals, depreciation, and deductions for having a business.
Having a mortgage isn't automatically bad however it will add more psychological pressure for most people.
Being in a mortgage situation isn't bad You're just paying yourself
Yeah but that's bad only if you think having cash, is king. But if you focus on getting credit (cash and credit are both money), then increasing your net worth is seen as important, which buying a home helps you do.
Interesting concept, however it seems that the 5% rule ignores the returns associated with the leverage of having a mortgage. For example, if you put 20% down, and property values grow by 3%, the return on your down payment isn’t 3% it is 15%, because you are getting 3% return on the entirety of the property value not just the down payment. Granted you will have unrecoverable costs, however even if they are similar to rent the return on your cash will be far greater than stocks.
100% i always leveraged my home and was able to pay off $200k worth of debt over 8 years
You can also buy leveraged ETFs that grows 3x faster than the normal ETFs. For example, QQQ vs TQQQ. So the leverage of owning a home isn't that much more advantaged.
@@erikbai Leveraged ETFs suck because of a simple mathematical concept, going up 10% is not as powerful as going down 10% and that is why these ETFs unperform their index
My house went up 27% last year or cad 180k. None of my investment can grow that big ( no leverage )
Can somebody help me understand what is return associated with the leverage of having a mortgage?
Would appreciate it
what you missed with the property value increase vs stock market percentage is that you get the percent increase on the whole value of the home, not just your down payment. So if you put 5 percent down and get a 3 percent return that is actually a 60% return on investment. In essence you are earning a return on the banks money.
Eventhough the annual growth of a property is less than the stock market, you are still taking advantage of a significant 80 percent leverage that comes into play by investing into a property. The annual growth value/return is based on the total asset.
Part of the 5% cost can be removed by renting out your basement.
Yes, this is the most obvious problem with the model assumed by the 5% rule. The opportunity cost is just on the downpayment but the upside is over the whole asset.
A few things. There are tax deductions in the U.S. for interest paid on a primary residence, so the true cost of capital is lower than 3% and only paid on a portion of the home based on how much you borrow. Also, your down payment is typically leveraged. So, the total home value might only increase 3% per year, but with only a 20% down payment, that's the equivalent of a 15% return on investment (3% ÷ 20% = 15%). Additionally, you likely have pay capital gains taxes on your stock market returns reducing that true return to below 6%. Finally, a purchase is mostly a fixed cost and some of the unrecoverable costs decrease over time like interest as you pay down your principal. However, rent almost always increases annually and you aren't even guaranteed a place to live after your lease term expires. So, I hope you enjoy regularly looking for a new home and have lots of friends and few belongings that you have to move.
no, you do not pay capital gains tax unless you SELL your investments. You're misinforming people. In addition, You're not mentioning the HUGE cost of maintaining and repairing a house. I've owned one. You are constantly spending MOney and TIme on repairs, plus Taxes, plus yard maintenance, etc. etc. Homes do not usually outperform the. Stock Market on average. Your life energy is completely Sucked away when you own a house.
Rent does not increase every year, property tax does
A tax deduction, is not a reason to buy a home lol.
@@SamuelGriffin The math is also wacky lol. He's not including any costs to his supposed gains.
So are you a realtor or a mortgage broker? I am in my 40’s and have never owned a home. But I built my net worth into the hundreds of thousands with no debt. While my brother who bought a home during the housing crisis in 08 and watched the value go way up us now watching it go back down. At no point has his net worth exceeded mine and both he and his wife earn six figures. But mortgage, taxes, insurance, maintenance, holiday decorations, lawn care, increased utility bills, trick or treaters, plus dealing with things like snow and leaf removal…all stuff renters don’t deal with, has kept his money low.
Plus rents do not increase every year. Ive only had about 7-8 increases in the last 15 years. But the costs of maintaining a home go up every year, so do property taxes.
To be fair, I am unmarried with no kids and my brother has a wife a 2 kids. He needs a house and I don’t. Everyone has a different situation and owning is not better for everyone. Especially if you don’t want to stay in one spot for 30-40 years. I have lived in 4 states over the last 20 years. And I am planning to move to a 5th.
13:15 As a former Toronto resident, that joke was a knee-slapper.
🤭
I can not even imagine if we had rented for the last 40 years living in a Florida beach area. We’ve bought 5 houses. All the least nice house in a great neighborhood and lived in them for 2-3 years while fixing them up. So, 6 or so months of renovating. 1.5- 2.5 years of enjoying them and then selling for tidy profits. All along investing 20% of our income in the market. Now, at retirement age. We have a dream house in our dream neighborhood and no mortgage.
Plus market income. The bulk of our wealth has been through this real estate strategy.
Not to mention the quality of life. We rented for 2 years of that time due to a job transfer. Money out the window. No sense of “home” or pride of ownership. No pets allowed. First house was sold out from under us and we had to pay to move. Rents raised.
I haven’t even mentioned the fact that it’s much, much more expensive to rent than to own in a Florida beach town. No brainer for us.
Another thing you didn’t mention is we’ve made our house to suit us. Our style. Our hot tub and pool. Our whole house generator. Our style of roof. Our home is one of our home runs in life.
Thats the best advice I have ever heard. Thank you
I’m in Arkansas and rent is about 7-8 hundred. You can buy same place for 350.
Thank you for this. Now I don't have to write a similar post hahaha. People don't understand the money out the window part and keep talking about the maintenance not realising after 15-30years all you pay for is just maintenance (and taxes I know) but no more rent for the rest of your days, nobody knows the power of equity.. anyway I'll stop or I'll be writing a book over here hahaha!!!
It depends from individual financial situations, unfortunatelly not everyone can afford to get a mortgage, here in London UK house prices have gone too expenses and wages haven't increased much at all. Thenonly way to do it is to earn different sources of income
Long-winded and anecdotal, but good that things worked for you...
“The whole reason we grow wealth in the first place to gain happiness in one way or another” that’s a key thing to remember throughout all of this.
Renting also means that you will not be tempted to make expensive upgrades to your home that you may not be able to recoup when you sell. My dad was a Realtor for over 50 years and he had numerous times seen people spend money on their homes that they could never get back out of it.
When you have a morgtage your landlord is the bank.
Do tell him that I referred you to him✔️
Don't be dumb.
And the government
But the bank is not a landlord who does renovictions on people who are up to date on their ~rent, nor does the bank tell you that you have to move because they want to now sell the house because the market is so hot.
You only have to pay them and they're satisfied. They don't get to boot you from your home one way or another to find a way to make more money even when you've honored your end of the bargain.
@@a.j.4644 and you can paint your walls and have a damn dog lol
Hi Cash College,
Don't you think this analysis doesn't take into account cash flow from rental income as well? Speaking from an investor perspective, renting out the home you bought can pay off all your mortgage + insurance + taxes + vacancy and still net you with positive cash flow each month. In this scenario each month that goes by, you aren't losing money on your home but rather gaining money in the form of cashflow + equity in the home. Not to mention the chance of appreciation of the house and tax write offs as well.
Yes this! If you put 40k into a house instead of stocks, you lose the opportunity ~5% of stock interest, but if you rent it out and the income pays of 13k, then you've made a 33% return...
And if you put a renter in it and have little turnover after 15-30 years you own a house for free! (Yeah yeah down-payment closing costs etc are also payed by the renter if you got a good deal)
The 5% rule was telling me to buy a house. It ended up costing more to rent than buy. You gotta love Massachusetts.The rents here are crazy, especially in Boston.
I’ve been viewing different areas. The rent there is higher than some Cali places…
I just sold my house of 24 years and am now renting. I was looking for some buy-rent evaluations and found your video. Nicely done. One thing that I found missing though is that you don't address leverage. With 20% down, you're leveraging that additional 80% compounded over time with tax deductions for the interest. And, in comparison to other leveraged equity investments, there's no margin calls if things turn south for awhile. For most average people, home ownership has historically been, and continuities to be a path to wealth.
Great until you got to the opportunity cost part…with an expected home value appreciation of 3%, you’re not making 3% on the down payment. It’s 3% of the total value of the home. For example with a $20,000 down payment, you could get a $100,000 home which at a 3% appreciation is $3,000 a year, with only a 20,000 investment. This comes out to a 15% return on your money which is much better than the 6% stock market return.
This is true, however a loan of $80,000 at 3% interest rate is $2,400 per year, meaning you're netting $600 on the $3k appreciation, which is is 3% of the $20k downpayment. The less initial capital, the larger the loan, and the more money that goes towards interest.
That's why if you're on the younger side, you shouldn't own a home, you should own investment property.
never buy a home, instead buy rental units, serves as an investment and makes your profit. I currently have 4 rental units I rent on airbnb and making almost 40k in profit per year.
I feel like everyone misses the fact that renters DO have maintenance costs as well, less than homeowners/landlords usually, but a renter still has to maintain their unit... and then there is the unspoken "having to pay for your peace of mind" with a landlord/slumlord who won't pay for maintenance or proper professional maintenance or if you decide to stand up for your rights they will in retaliation just renovict you to put up the price of the place and get someone in who knows less of their rights and the laws around it leave you to have to stalk them or hire some one to stalk them to prove a bad faith eviction. but all that depends on the landlord you get in Toronto.
In large cities like Toronto or New York/California it can make sense to rent due to already insane home prices but almost anywhere else it's almost always better to buy a house.
Also the 3% average appreciation on a home is not a return on your down payment, it's a return on the total value of the home. Real estate has a much better return since you can leverage your 5% down payment and control 20x the asset value. Assuming you get a mortgage for a home that is.
Also, (not sure about Canada taxes) interest and property tax is a write off on taxes that can typically negate the total interest payment.
Not to mention, (again not sure about Canada) when you sell your personal residence you do not have to pay taxes on up to $250,000 if you're single. Something you would need a Roth IRA for and wait until you are 59 1/2 to start pulling from.
In Canada, there is no capital gains tax on your principal residence. When you sell, you walk away with what you sold for minus your realtor and closing costs. No tax
You cant write it off on your taxes in canada
When you sell, don’t forget realtor costs of 5-6% of the sale price, not your down payment. As well as closing costs for lawyers, etc.
boreguarde realtor costs in canada average 3% and lawyers about $1,500
boreguarde 500k house appreciation @3% for 30 years is becomes a little over 1.2mil in value. Realtor 6% fee on 1.2 mil is only 72k (if you sell). 100k down plus mortgage/maintenance becomes 1.2 mil of worth in 30 years (it’s at least break even and you have something to pass on to the kids).
On the other side, 100k in the market @6% for 30 yrs becomes 574k but then subtract 720,000 (2,000/mo rent for 30 years) and capital gains taxes you’re in the red by over 200k.
Again this is over simplified and every market will have different results depending on home values, rent amounts and how long you actually stay in the home. Having said that I’m in SF and we rent because it makes more sense here. If values decline we may decide to buy
Agreed that unrecoverable costs on home ownership gets overlooked, but misses a lot of key points.
1. You can get into your first home for 3% down, even 0% down with some loan types.
2. You can rent out a portion of your home to roommates (or buy a duplex) and immediately build an additional income stream.
3. Home ownership allows you to further leverage that equity down the road to get into more real estate.
4. There are more places where you can get a home for under $400k than places you can’t. With the rise of remote working you can easily find a city that has a lot to offer along with reasonable housing prices.
Also it's not true that owning a house makes it difficult to travel. Rent it out when you go which is what my wife and I have just done, some one else is now paying the mortgage for us with a little left over to pay for the maintenance or to over pay the mortgage. My view is that you can make either work well for you but it mainly comes down to what you want and your local housing situation
How do you deal with maintenence scenarios (ie water heater breaking) while you are away? Do you have the tenant call you, and you have a contractor go there?
@@EragonxVxRevan you can if you want to, f ease we have a letting agent deal with everything and they get in touch if there is something that needs fixing. It comes at a cost but for ease it's worth it. They do so the referencing credit checks finding a tenant etc too.
I actually have totally different viewpoint on this. Have you thought that 1) Debt is money, 2) you can use property to leverage more debt 3) you can repeat number 1 and 2. When you own and rent 10 properties instead one, you will multiply your accumulation of assets by 10 time wise.
I own 1 house and and 1 property which both I’m renting and I live in rent apartment myself. Just today I sealed a deal of buying one more, in which I will be moving in myself. It has 3 bedrooms and I need only one, so I will start renovating it a little bit while living there and then I’ll rent each room to some students. The place is near university. After that I will move to some rental apartment again. I try to keep the rental places expenses running on their own so they are assets instead of liabilities and I don’t need to spend my own money on them. Every now and then I can add one to the collection. In the meanwhile I will be working normally and putting some money into stocks. That’s my plan of making money instead of saving.
Someone was reading "Rich Dad vs Poor Dad" ... Well done.
Goes well untill you have tenants that don't pay or wreck the place or both.
Or we go through a recession which will happen one day or another or the rates are changing on you! If you're in the US you can likely lock your rate for a long time but in Canada you're basically doomed to cry out loud every 5 years. If you're young enough without much of a situation you can probably house hack like there is no tomorrow and live like a rat for 5-10 years leveraging the hell out of your properties. But passed a certain point you'll eventually have to compromise if you find a partner and have kids.
@@viktoriyameikle2052 true. Much has been learned since this. But hey it is working
@ well, my places are cheap housing for people so I don’t think there’s any issues with rates. I live in Finland. We have some rules for rent rates etc. Also I have insurances. And I recently took interest rate caps for my housing loans. There’s some renovation happening and more coming but that is only good thing since after renovation I can refinance and make the process faster. So far working awesome. So far I am still living in this 3 bedroom apartment with my gf because I like the place. Maybe 1-2 more years. Then it’s time for another one. Right now I am investing in other forms. Crypto trading and mining. Just recently got 5 gpu miner and put couple of thousand into different cryptos. And acquired some private company stocks from my employer. I also got summer cottage with very cheap price tag last summer. You know what they say. Ignore the naysayers..
@@mikkoh85 Yeah, it's a completely different market and rules. I spent 5 weeks in Finland working near Hamina. I couldn't believe how easy it was to get in the real estate out there. Not to mention most of my colleague had on-call rotation which had a specific rate in Finland, they were fighting to death to get the on-call rotation lol. I really liked it and almost relocated from Belgium to Finland. But I had to make the call and left my job and moved to Canada. I stayed in Kotka, went to the gym next to the army cadet school's gym in Hamina. Then headed out fishing every other day, the place was packed with Russian truck driver stopping by to catch some fish. The thing that kept threw me off was how difficult the language was and the damn VAT and price of goods since a lot of stuff are imported it cost a leg!
Anyhow, when it comes to crypto, I've mined for a bit a few years ago and sold the equipment before it lost too much value, not to mention crypto crashed shortly after. I also bought some crypto. Obviously I am up on the investment except that I can't cash it out and that's basically what I hate about it, it's super easy to buy but when time comes to cash out. The local BTC ATM transaction fee is 27% and there is no wire transfer or anything like that with the broker I use, so basically I have to let that crypto thing sit there until I'll eventually find something interesting to buy with it and hope the transaction fee isn't going to defeat the purpose. Not to mention that all it takes is your country's gov to ban it and then what? Yeah you've managed your risk so ignoring the naysayers is good! Keep it up man!
I work very long days, plus out of town for about 50% of the time, so I basically just sleep at my place occasionally. Sooo I just rent a basic / cheap room, and invest the rest. Portfolio is growing quickly =)
TL;DR: Cost of rent and cost of buying comparable in my area for my living (at time of purchase)* (* If you are under 26 y old).
In my area there is a very limited amount of apartments to rent. If I compare the apartment I live in (owned, although through a structure that's common in Sweden, where you also pay a fee that goes to common maintenance and common goods, for example cold water), to rentable "youth"-apartments (apartments you can rent, but you can only move in if you are
I'd say that stabilizing the cost of housing by owning your home is good for the long term maybe if you will stay in a place 10+ years. For younger people, tgere are career changes, you might move for a job, find an opportunity overseas, better to rent and dont tie yourself down. Either that or house hack or buy an investment property first.
What's a house hack?
The problem is that nobody will lend you 10-20x leverage to invest in stocks. You could leverage trade but they are generally more volatile than property and you would likely get margin called, especially considering how ridiculously overbought the markets are. Due to housing’s nature you should have more legal safeguards against foreclosure (depending on jurisdiction) and may be better able to wait out a downturn. On top of this, property is inflation hedged and land is finite. There is also value in the raw materials.
Largely disagree with the 5% rule. You also didn't factor in leverage with the house purchase. Dumb for most people not to use leverage.
Fully agree with the phycological aspect, some need an inceptive to build wealth aka paying off their mortgage
Genuinely interested how leverage and leveraging would drastically skew the whole argument of the video considering the video already highlighted the concept of unrecoverable cost, in which debt interests fall under.
Leverage is a great one, I’ve considered this rule on my math when I was working from $0-150k, but then it changed, and better options were available. To keep growing towards 7 digits.
Leverage is nice when you're on the right side of the trade. But new homeowners are about to get squeezed as interest rates rise. It's inevitable.
I actually commented on this issue before I saw your comment. This was my comment:
Isn't there a problem with comparing the appreciation of a home with the appreciation of the down payment for that home? Even if the down payment invested in the stock market increases at double the rate of the home, it is still only a fraction (about 20%) of the home. So for example, over 10 years, a $250,000 home would appreciate to $336,000 (at a 3% annual rate). That's an $86,000 gain in appreciation alone! However, a down payment for that home ($50,000) invested in an index fund instead for 10 years would appreciate far less than that, simply because it is a much smaller starting value. So, even though you're getting a lower return rate with the home, you're effectively using leverage to reap the appreciation gains of an asset 5x the value of the cash you had on hand.
@@benfrizzy6728 this and the fact the interest on your main bone can be claimed back on tax offsets.. so the 2-3% appreciation on house price compared to the downpament can be 4-5x, which isn’t bad at all.
I’ve lived in my house for 10 years. I’ve only changed the bulbs. My house is gone up in value 40,000. My insurance on house is 300.00 a year. Property tax is 275.00. My house was bought for 45,000 and interest rate was 3.5%. I paid it off in 5 years. You do the math.
house for 45k, WHERE!?
@@trevonlynum2785 look up southern Arkansas on Zillow
My home ownership is a bit different. By purchasing a multi family you can collect rent and own. Smartest move I ever made
i wanna do that one day
my buddy: how's your condo different then my apartment?
Me: in 10 years my mortgage is still $750 and your rental is no longer 750 its 1500
@p chatterjee and your condon is worth 800k more 😉
@p chatterjee or invest in both :) Leveraging the banks money when you mortgage an 800k home. It would be like investing 800k in the stock market at a lower risk. 😉
@Doors067 In 10 years, your condo property taxes will have increased, plus all your appliances will need to be replaced, plus the roof, the parking lot, or the pool will need to be replaced (which will be a special assessment in addition to HOA fees), plus your monthly HOA fees will have doubled, just because of inflation. Now consider that condos are a gamble regarding their resale value.....As new more stylish condos are built, your old condo value stays the same, at best. Plus all the money you put down you now don't have in the bank in case you lose your job. And once the real estate market cools off, it will take 2 years to sell your condo. I sincerely hope it works out for you but, compared to renting, condos do not work well financially for most people.
@@danmarjenka6361 very good points
perfect video for this day and age
Thanks man! Hopefully it gives another perspective to consider for people stressing over housing.
@@steveantonioni o
It totally matters where you buy the home though and when you sell the home.. If you bought a home in say point loma san diego two years ago that 770,000 home is now worth 1.1 million dollars... that is a 42% increase in 24 months... Same thing goes for Phoenix
@@steveantonioni
What if that person invested in Crypto instead that on stocks on that example, and why you didn't use it? i get it's riskier but if the person is ok with it anyway
The 5% rule also leaves out the cost or rent increases over the years. For example using historical numbers and increases
Monthly mortgage (mortgage, taxes, insurance) compared to rent.
Owning: $2,400
Renting:$1,900
29 years later
Owning: $2,700
Renting:$6,700
Now the next two years the monthly cost is even more dramatic change.
I rented throughout my twenties and a few years ago at age 29 I bought an appartement. Could not have been happier. Here it can be cheaper to own instead of renting. (I live in the Netherlands)
But great video, most people look over this stuff. Like in my twenties It was just better for me to rent. Now I'm in a stage of my life its better for me to buy.
Renting in the private sector in the Netherlands is more expensive than mortgage. So it’s logical to buy instead of rent.
Exactly the same for us (also Netherlands). For the 4 bedroom house i'm paying 1040 every month for the mortgage. When i rented the same size i was down 1200. Plus i'm also seeing it like this. After all those years i have something to leave our kids. Or if they don't want to we have something to sell that'll have us enjoy retirement more. To me renting is just throwing money away every month with nothing in return after many years.
@@tim-ferentar1759 Goed bezig!
Where we live Philadelphia PA region rentals are way more than the 5% rule. For instance a town in south Jersey near Philadelphia. 1200 sq ft house market value $250k. Rentals are around $1600 a month. That would put the value at $384k. Then you take a row house in Philadelphia 900 sq ft in a decent neighborhood. Rentals are $1600 - $2k a month. That puts value of home at $1600 a month to $384k.
As you said, this 5% rule is over simplified. And I think it's incredibly flawed. He's basing the number of PE, which is undershooting the value. Take the companies in the S&P 500, for example. They have shown for several years that they are able to have a 10% return on equity. And to be quite honest, that nunber is actually probably much closer to 15%. I myself am averaging around 14% annually. So for me, it's really a 16% rule. That changes things in an unbelievable way. It's why my brother and I are always getting in fights over home purchasing versus renting. He just doesn't understand the cost of equity.
My rent is 800 a month, so if I were to take that 16%, I'd have to purchase a home for 60k. That's a unicorn house, in my market. It doesn't exist. And if it were, it would be a foreclosure that's in a rough area and needs lots of money to fix up. No thanks. I'll continue stacking cash by sticking with apartment rent.
I may be missing some details, but it’s face this doesn’t seem to add up. I agree that property taxes are unrecoverable, but at least some home repairs and maintenance are recoverable. Replacing/repairing your roof (given the example) is recoverable at the time of selling your home AND in preventing increase in home owner insurance and personal property damage/loss. Additionally, home owner insurance will pay/offset for issues like roof repair, HVAC replacement, water heater replacement, etc. Try selling a home with a damaged roof, the potential buyers won’t touch it if the inspector report states it needs to be replaced, unless it comes out of the selling price.
Although this video shows some calculations on historical data comparing stocks and housing value increases, it does not take in count that: 1) Not everyone is interested in investing in stocks, in part because they (all of them, alike gold, oil, etc.) can go up or down at any time based on a wide variety of factors, including technical analysis, fundamental analysis, market manipulation, all types of national and international news, companies' performance, among others. So, to me, this is not a good reference parameter that makes me prefer buying stocks than a home and continue to pay rent. 2) EVERYONE NEEDS a home to stay. So, when paying rent the money is gone forever; conversely, when buying a home to reside by using a mortgage loan, such home not only may increase in value over time (one of the best ways to create wealth), but it will be paid off at the end of the loan after having paid a monthly mortgage bill (that includes amortization to capital, interest, and escrow for property taxes and insurance) much lower than what the monthly cost to rent that same house would be. Besides, there are various types of mortgage loans available in the market, some that require down payment as low as $0.0. 3) Buying a house by using a mortgage loan is such a great deal, that most landlords buy their rental properties not in cash, but financing. Think on Robert Kiyosaki and Grant Cardone, for example.
I agree with the fact that owning home is not for everyone and there are advantages and disadvantages, but a few things you missed in regards to home ownership are tax breaks, property Management for rental income properties, and depreciation on the home's value. Rental income allows you the time and freedom you're looking for, property management will take care of the property while you travel the world and still earn the rental income, and the homes deppreciation will take care of some of that "unrecoverable expense". To each his own, but I would advise you to inform yourself a little better if you plan on talking about pros and cons when it comes to home ownership. The fact is that rent money is money you will never see again, while investing in a home is just that, an investment. Look into Robert Kiyosaki, I'm happy to answer any questions you may have and I appreciate your hard work doing these videos.
Great video, really is just not black and white is it, and I’d love to maybe do a uk version of this as the fee’s and prices are much different.
my house is valued at 240k we brought it 9 years ago for 156k our mortgage is currently at a 5yr fix of 2.04% it’s a 4 double bed home and quite large for the area, average house prices in a 5miles radius are about 160k in 2020.
Our mortgage is £394 a month, with £21 a month for housing insurance, and £11 for contents and personal insurance, so everything house and personal including phones clothes appliances roofs etc is all covered for £32 a month total. So I have everything owned and protected for £426, now to rent my home would be around £800 to £900 per month.
My deposit 9yrs ago was 21k I’m gonna have to go and do the maths on this, but I’m certain I’m winning by buying, but I’d be interested to see the actual numbers, but like you say it’s a mind thing, I would never have invested any money 9rs ago lol.
Cant be in London, curious where in the UK did you purchase your property got 156K for a 4 bed? def a steal, such a good deal .
@@samiabamia hi I I’m Burton on trent in the midlands, don’t get me wrong the town is pretty wank, but We have some beautiful places very close, only a 2 min walk and I’m on the river trent, it’s all decked out to feed the ducks and swans , really beautiful and loads of dog walking paths, I actually paid 127k but I got a 40k gifted deposit as there were a few cosmetic issues with the house at the front, we have sorted all that and built a beautiful Victorian bay window window for 5k, we landscaped the garden putting a bbq area and a lovely planted area we did the work ourselves for 3k, obviously we have decorated inside etc but we got a valuation last week for 249k, it’s 4 double bed 3 story Victorian, but we are nowhere near London that’s why lol.
@@Ineedtorecover I was thinking it can't be anywhere near or even a little outside of London. It might not be London but it sounds like a lovely area from what you've described, and a lovely home, that's grown in value nicely.
Yes shares make you a higher percentage ...in your example: if you invest 100k in stocks you makes $6k, however if you invest the 100k in property and borrow a million, then you make 3% which is $30k. Leverage makes all the difference.
bought my house in 2009 when i was 23years old for $75k. its now worth $150k. So it worked for me . And i dont have a landlord. I was still able to save and invest as well. I stared with a net worth of 0 and im now worth about $400k
How long did it take you to pay it off ?
At this point, where I live (FL) I’m being forced into the buyers market because I can’t afford rent but I can afford a mortgage. It so crazy!
@10:37 the 3% is on total value of the house, or roughly 4 times the equity of a 20% down payment. This is closer to 12% ROI near the beginning of the mortgage, and closer to 3% towards the end of the amortization.
Overall though, this is a very thought provoking piece that challenges social norms of "success". Everyone's situation is different and their approach shouldn't be skewed by socio-culturally tinted, rose colored glasses. Did I mention maintenance SUCKS!
Seems I rarely learn anything new or at least applicable these days in YT finance, I appreciate this. Checked both boxes
Generally speaking, away from the big cities buying or building seems to be a better option long term if you are settled on a area.
Not so good if you would need to do a massive commute or need to relocate for a new jerb at some point in the future.
A lot of folks who bought in my dirty old oil town bought near the peak and prices dropped 20 to 40% when oil tanked and most were heavily leveraged via a mortgage. Some are staring down the barrel of 5+ years worth of post-tax income and have since been made redundant.
Divorce or self destruction often followed. Beware the boom towns, kids there are always big winners and big losers when property prices are volatile.
Not everybody wants to be a real estate owner/manager/landlord. Those of us who want to just be and live in 1 area most of our life and just travel to other places during our vacation time, but also love to acquire a few hobbies that require storage space, it always makes more sense to buy a house with a bit of land attached, even if it's just 1/4 acre. Rental Apartments are great if you have no life and rental homes are investment properties that WILL be sold (usually every 6-10 years) and then you have to move out. When you rent, you can't ever really move in.
this video forgets one really important variable... the peace of mind of a paid off mortgage. not owing anyone anything. quitting your job. enjoying your life and hobbies and family. why would i want to pay rent instead?
Unfortunately I have to disagree. You didn't include the fact that your monthly payments and maintenance to the house are all tax deductibles if you buy the house on your businesses name. And owning the house will open up a additional loophole that allows you to deduct x (x = property value ÷ 27.5) the 27.5 is the average yearly "life expectancy" accepted by the government of a residential house. So that means that they acknowledge that by the time a house reaches that age on average will need a major rebuild or for example a roof replacement. Therefore you can also deduct "x" drom your company's income along with the mortgage payed on it. That makes it pretty obvious that you will be better off buying instead of renting.
And to register a company can be done buy anyone. You don't always need a running business so register one for the tax benefits. There is ways to get one registered even if you are just a average employee. (A tax advisor can tell you more on that) read the book "Tax free wealth" for a little more in depth details on my statement.
We sold our house last year and now rent. We now pay $1100 less a month by renting. The sale of our house was the best financial decision we’ve made!
Using this calculation- we should maybe buy if we can find a home for $810k or less (not hard in San Diego) but highly unlikely with our current incomes. (Just over $100k)
As an ex-technician now-design engineer, all I can say is - the world changes if you ACTUALLY put numbers to things. That is for example, calculating the true and total cost of things. Comparing two scenarios with all constraints involved. There are way too many paradigms in our heads, mostly inherited from advertising, that turn out to be very different when looking at the grand total. You got to think, there is a reason engineers can transfer careers to finance. Solid analytical skills aren't the key to success but certainly it eliminates an awful lot of guesswork. I've only recently realised after a few years in the career that I could use my engineering analysis skill for personal finance and I'm absolutely loving it.
I am very tempted to send this video to several of my family members and older colleagues, haha. I live in DC, a very expensive real-estate market. After getting married recently, I had several people ask when we're going to buy a home. My first thought, "uh, maybe never?"
Haha ah yes the classic post marriage "so when's the house coming?" 😅
It can be good or bad, depends on all the other variables (credit, cost of living, cash flow, opportunity cost, leverage, future plans, etc), but the one thing the video is right on is that rent CAN be a good option.
Recently moved back to Austin TX, and bought a 2600 sq ft home nearby with a USDA loan, zero down, 2.5% fixed for 30 years. My mortgage payment with escrow included is the same as a rental payment for a house in the area, and only slightly higher than an apartment, both having less sq ft space. I think I made out pretty well, and fell way below the 5% rule.
I’ve been renting for about 2 years now, but the reason I want to buy is so I can rent out a bedroom to a friend for an extra $600-700 a month
Toronto market is just insane... I live in downtown Montréal in a relatively big 1 bedroom appartment and I pay 550 $ / month... I live with my boyfriend so in reality I pay just 275$ !! It would be completely at our disadvantage to buy a house... However we still want to buy one ! So the plan is to wait a few years to save enough money, invest that money week after week and in 2 or 3 years, we will have enough money for a big down payment on a 350 000 $ house (yes, there are still houses that cost under 400 000 $ in Montréal lol)
This is fantastic. Thanks for making this video. This is well explained,and helped ease things go for me.
It's so difficult to find Canadian content on UA-cam about these kinds of things. So I'm so happy you made this, and with a Canadian perspective.
I'm a home owner ...about the pay the house off..after paying it off my taxes, insurance, utilities will still be do every month . As I'm watching this, I'm also looking at my neighbor across the street working on his basement as his floor cracked and water flooded his basement. Insurance does not cover what they call "seepage" and they will not be paying a dime to him. His cost ...$15,000 out of his pocket that HE HAS TO PAY. Most people buying a house don't consider future expenses l. Very good video
I live in NYC and rent is $2k for a rinky dink apartment and houses go for about $1mil and up.
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Do tell him that I referred you to him✔️
I’m a renter just to start this out one day I plan to own. The one caveat to your argument is that if you’re comparing your down payment return with real estate to the stock market. Let’s say 20% on a 500k house, so 100k down payment. You make 6.57% percent in the stock market on your 100k like you said; correct. I think the missing point here that I see is that yes housing appreciates on average 3% per year, however, that 3% interest you make is not on the 100k, that 3% you are making is on the 500k. So, 6.57% on $100k is $6570 the first year. 3% on $500k your first year is $15k. I’d say real estate wins. Let me know if I’m missing something here I’d be curious on your thoughts? Thanks and nice videos ✌🏼
There are a couple significant misses here in logic. The minimum down payment for most 1st time home buyers in the US is only 3% of purchase price.
This makes the 3% gain on full value a 100% ROI year one. The system does force you into investing additional money each year and over 30 years you will diminish that return down to 3%. The other thing that happens, is the debt service cost deceases as you payoff your loan while rents rise. In the short term, you can rent and save and grow those funds in the stock market, however, as rents increase, you will flip upside down and you will be able to save and invest the difference between the mortgage payment and rent and invest and grow those funds.
Was thinking this the entire time. My first home has already appreciated in value way beyond the down payment in just two years.
And then when you buy a house at 3 percent, have the value increase, continue paying your extra PMI, you will feel smart.
Then a correction happens, you're upside down in your mortgage, you lose your job, and then you need to sell at a loss to relocate for work.
There's a risk to home ownership that you need to account for in the calculation.
Unless you can pay cash for the house or put down over 60 percent. People have no business buying a house.
It is basically the same math everywhere. It goes like this:
Buying your own hom IS BETTER than renting for most people. However, one must try and buy the cheapest home they can in an area where property prices are rising (easier in a major city like London).
For example, After a long illness I am making 33k. If I put down a 20% deposit on a 1 bed flat/apartment, then I need to find a chepa place - say 180k, or leave the city and look at 150k. Get a lodger + salary increaes and bam! paid it off in under 12 years.
It depends on how you want to live your life. I want a quiet life. Calm, minimilistic and creative. If you want more then get creating.
This is HUGELY helpful, thank you so much. I've been struggling with this debate myself.
Renting is good for the rich and mobile, young (by necessity say students) etc, for temporary housing. Otherwise buying is definitely better, but of course chains you to a location (good or bad). Financially better to buy a home in your means with historically low interest rates
I’ve owned houses and the lack of flexibility was the hardest part, selling takes a longer time than just ending a lease and moving. I love quit a bit for work so renting has been great and a fairly constant cost, whereas housing pricing for buying seems to dramatically change regularly
It's always based on the individual's circumstances of course, but generally speaking, in the long run, homeownership will almost always prove to be the better investment option, even assuming you are generating returns in the stock market from the difference between the estimated mortgage payment and your monthly rent. There are quite a few reasons why this is the case, and others have highlighted them. For those watching this just bear in mind that there are pros and cons of both and generally speaking your circumstances should be the ultimate deciding factor.
Man I've just discovered your channel! I love your work and LOVE the sounds you use in your videos.
Thanks for the breakdown, it was really helpful to rationalize whether I should save to buy a home or invest the extra income. All my life, buying a home ASAP has been something I thought about as a no brainer, but now that I’m thinking about how I may move around when I’m young, this definitely makes me think a bit more. As you said, tons of benefits as a renter when you have one cost and don’t have to worry about things like property tax, maintenance, HOA, etc…
Great video. But I do have to agree with everyone else, owning a property is priceless. I have bought the appartment where I was already living in two years ago, because the landlord was gonna sell it for a really good price. At first I was hesitant, there went all the money I had saved up for and along came a fifteen year commitment. And it was not that it was the appartment I would have always dreamed about. However, it didn't take long to get accustomed to. Because it was so cheap, I can easily pay for it myself. And mostly, I have something to fall back to if things don't work out. No going back to my parent's house when I would split up with my boyfriend for instance. And that ease of mind, that is truly priceless for me
What about all the tax breaks what about the depreciation what about the passive income what about the journey towards being a multimillionaire at your age in 10 years if you keep using the equity to buy further properties go girl
Seems like it all depends on personal preference and lifestyle choices, let's say you want to build out that secret lair where you work on your masterpieces, you probably won't be able to do that while being a renter, since the lease most likely won't permit you to (and it would be financially insane to spend money renovating a property that isn't yours). So buying a home makes sense for most people because it's a property that is yours to do as you wish, as opposed to living as a renter with restrictive lease.
I think that most of the time, the less quantitative way of arriving at this conclusion is to ask if you can rent the same thing as you can buy. Often a single family home in a nice neighborhood, good schools, etc, is not available to rent. Or you may find one to rent, but it is likely to be outdated and you cannot do any updating yourself as it is a rental.
On the quantitative side, I agree with your conclusion as this is how I already approach our shelter. We rent to avoid having the opportunity cost of a down payment, which in our area will be large. For this reason, I think you need to do more math on the cost of capital section. Cost of capital for your mortgage is the debt (say 3%/year), but the cost of capital for your equity (down payment and principal payments), will likely be higher.
Say you put 20% down to purchase a $500,000 home ($100,000). This amount will increase in value 3% within the home asset. This amount invested will increase by 5-7%. The range of equity cost here is actually 2-4% (you took the middle 3%), which is based on a high stock market valuation today. This says nothing of the stock market 10 years from now, when you will still be paying your mortgage. Looking at long term US stock returns of rolling 30-year periods going back 100 years, the average is 10% with 3% inflation. I think your cost of equity needs to be 7% as that is a longer view that matches the maturity date on a new 30-year mortgage. Most people actually never pay off their mortages as they take out loans or trade up over time, so this effectively has a term of perpetuity.
If you apply this math:
$100,000 down paymet @ 7% cost of equity = $7000
$400,000 mortgage @ 3% cost of debt = $12,000
$500,000 @ 1% tax = $5,000
$500,000 @ 1% maintenance = $5,000
$29,000/$500,000 = 5.8% weighted average cost of opportunity.
My current 2-br duplex rent in Seattle = $2,295/month -or- $27,540/year
This means I can afford a home under $475,000. I will need to move out to a crappy part of town to make that happen. The lowest cost home in our neighborhood in similar quality to our duplex is going for $580,000 minimum.
But the home goes up 3% a year so 500k home will be 515k next year . My math would subtract 15 from your 29k . So 14k total unrecoverable cost for a home half of your rent cost. Your rent will always go up (making landlord rich ) vs mortgage payment stay the same 🤣🤣
I wouldn't do anything else than to own my apartment. I have a very nice rent and have saved CAD$ 100 000 compared to renting 90m2. Even our pension authorities have calculated that owning your apartment is the way to go if you want to be well off when retired. But, don't buy too much house with money you don't have!
Rent almost always goes up and living in a apartment isn't for me.
Love apartment living . Not a house guy at all . These new complexes are the bomb . Pool , sauna , tennis court , movie theatre . Concierge for deliveries . No mowing the lawn or gardening or maintenance . Each to their own thou .
Rent just follows housing prices. It doesn’t just go up for the hell of it, but one thing that wasn’t covered in the video was inflation and the opportunity involved with the shrinking cost of the debt.
The reality is that on a long enough timeline buying a house will always be better, but this video was talking about the short term.
Gee too bad condos don't exist
You misunderstood the part about the average home value increasing. If you put 20 percent down on a 100k home, which grows at 3 percent per year in value, your capital is not the only part which increases in value. Rather, you have a 4 to 1 debt ratio. So, when the home rises 3 percent, you actually make a 12 percent return on your invested capital, which doubles your referenced stock market annual return
The problem is you’re not taking into account that land and property values will continue to rise while salaries stay the same. At some point if you don’t jump into the market you may be priced out forever unless you don’t mind living far from a major city away from everything
Thanks for sharing your thoughts. I can see your point but the rule simply compares the *costs* of home ownership versus renting. It's up to you to apply your income accordingly and decide whether renting or buying makes sense.
Cash College Agreed and I enjoyed your video but investments need to be taken into account in long term increments. While renting might may sense in the course of a year, when you look at 5, 10, 15-30 year trends, they do not. Not to mention the equity you can take out on a property can be reinvested in high return investments. It will never make sense to rent over buying over a long period of time. Condos are also not the best investments although in my case I made a 120% profit after 6 years. i has to sell because condo fees were going up and the building was becoming more run down. Great work on your channel.
@@MegaMusicMuse agreed, my comment noted above aligns with your statement.
You raise some good points for sure. I appreciate the discussion 🙂 I think otherwise investing money into equities that would have went into buying property would outpace housing on average long term (based on the data). Which would enable you to enter the housing market at a later point if you wish. But of course there's all sorts of housing markets out there, some hot and some not.
Cash College As you can see, the market is not stable and fluctuates. You can be riding high one day and then it tumbles. Then it takes time to self correct meanwhile housing pricing continues to rise. Toronto and Vancouver housing prices as disgusting. I don’t think you can get your money’s worth anywhere in TO anymore.
This is such a LOGICAL/RATIONAL perspective. The first 3 mins are a silly waste of time, just get to the point, but once into it, it is VERY informative. I feel like homeowners treat the topic of residential RE like religion or politics. You're RIGHT if you seek to own a home and you're WRONG if you seek to rent. This video probably made one of the strongest cases I've seen on the topic... I'm VERY much in a similar boat as you are, and renting for me would be VERY, VERY convenient and likely economically efficient. Thank you!
The level of detail and your graphics are off the charts! Good video and well explained
Thank you! Had a lot of fun making them.
Steve, in the US, there's a big tax advantage for paying mortgage interest. You touched on that, but your equation is very different for us down here. We can afford much more in a PITI payment than we could in rent.
Footnote 1: That tax advantage is less now than it used to be, but it still exists for many people.
Footnote 2: PITI = Principal, Interest, Tax, and Insurance
Footnote 3: If you put down a smaller down payment, you have to pay mortgage insurance too. It's a fraction of a percent, but still there.
Nah. There’s no way my net worth would be what it is if I would have rented. Renting is glorified camping. You walk away with nothing and you are at the mercy of someone else’s rent increases. Nothing like good ole appreciation. Buy the smallest home on the best block that you can afford and watch that beautiful equity grow. Interest rates are at record lows. You’d be an idiot not to buy right now.
Yup.
It all evens out. No matter what route this guy has good info. My down payment was 90,000 on a 460,000 home. 2021, home is now worth 640,000 and home equity is 280,000. 280,000-120,000(lawn, maintenance costs,etc.)= 160,000 net equity. But for peace of mind I rather rent. Too much time wasted and I value my time way more than money
I owned a home once. I don't like to think about all the money I spent on taxes, repairs, insurance, interest on the loan, upgrades.
Your video doesn't apply to most places on earth. I don't know how landlords in Toronto make money (probably only in bulk and bought their properties at a good time), but for most places the landlords make you pay their entire mortgage, insurance, taxes, maintenance costs and then take in a profit on the side.
Moreover, *once you have the house paid off you no longer have to pay someone else for the privilege of shelter*
Love this. What do you think about investing in the stock market with that "downpayment" money if you think you might want to buy in the next, say, 2 years? I've heard investing in stocks isn't worth much short term, and I don't want my money to be locked up when we are ready to buy. I also don't want to have my money sit in a bank when it could be doing more for the next few years of renting. Thoughts?
this just proved owning is still better where I live (Newcastle, England). Looking at an £80k property, x0.05 = £4000, /12 = £333.
Currently costs around £450-£550 to rent a property of that value.
Great video! You did a great job at explaining the topic! The nice thing about renting is that once you get old you can actually use the money you invested whereas if you buy a home the money is tied up in the home until you sell it but I guess there are pros and cons to renting and buying.
If you have 500k saved up invested and make your 35k a year in gains and spend it you eventually would have very little due to inflation . Saving 500k in 1980 is equal to 1.6m today . So withdrawing money from the stock market is harder and have to pay taxes. A brand new home was 80k in the 80’s in ca vs 800k . Pays 3k a month today in rent and will always increase with inflation
I commented this under Ben Felix post some time ago. All of these arguments would make sense, if landlords didn't make profit. All the unrecoverable costs you laid out are included in your rent payment, don't you worry about that. Else, renting property would not make a profitable business. No one would be buying property, everyone would want to rent. And comparing to stock market needs to add a beta for higher risk (much higher) plus the fact you cannot actually live in your stock portfolio
Wow this just made me feel so much better about renting! Thanks for breaking this down.
Owning a house is a way to save money for yourself. Money wise owning is good in the long run.
A similar home will rent for more than the mortgage payment. Because landlords typically don't lose money on a monthly basis. So you can't assume a home will rent for the same monthly cost as owning.
It’s crazy that people feel your are throwing money away to not live in a tent on a sidewalk. People rent cars and pay for Netflix and Spotify. You never own the movies or music. It’s never a waste if it beings value to your own personal life. People let this get to them and they end up buying homes they can’t really afford when they are not ready just because they let their friends and society shame them for renting.
This is an excellent video, with all the right caveats and nuances. Thanks!
For me, I had a rent for a studio for $1300/month, going up $100 every year. I bought a house for $250,000 (in March 2020); it’s a two bedroom and share it with a roommate and my boyfriend. My expenses are much lower now, and I’m building equity, and I have a good time sharing my space with others instead of living alone during the pandemic.
I would never have traded for a $400,000 house without anyone to share the expenses with so I think your 5% rule makes mathematical and intuitive sense to me. Well done.
I live in Philadlephia though, not Toronto! The housing market there sounds horrible.
This math is sound. It makes sense. But 1 thing you don't really lean into is the fact that with homes, you OWN it. Meaning you can do whatever you want with it and sell it later on if you want to. You'd be able to make back all the inrecoverable costs. Maintenance also increases the value of the home, and, you might not need maitenance for a few years, meaning you'll save alot of money per month. Money you could be investing. If I own a home and I need to repair the roof after 10 years of owning the home, I could have saved so much money monthly leading up to that repair. The money saved in those years would be invested and grown and would make the repair seem almost for free.
Dude I'm literally thinking about moving out of my parents place after Covid and renting an apartment. You've uploaded this in the perfect time. As always, appreciate your videos!
Synchronicity!
why not just stay at mums for free mate
stay at home and save cash + invest if you can + always stay hustling or grinding & You'll be 95% ahead of everyone else before your 25.
@@b4rs629 I stay at home right now and I am also a native american and work on the reserve making $20 an hour tax free. I am going into marine navigation as well so income tax wont be a thing.
I’d buy
Say you put 20% down on a 600k home… the home goes up 3%… you’d be profiting 5x your downpayment because the whole house went up, not just your 20% down payment. Something to think about when comparing house valuations vs stock market returns. I love real estate and stocks ☺️
Minus your interest payments, maintenance, property taxes, and opportunity cost, yes.
@@stuckupcurlyguy That's a good point! Cashflow is essential here. Still enjoying real estate a year after I've made this comment... I'm actually happier with my decision now lol