I wished home price were that cheap where I live. You have to sell kidneys and a first born child for anything more than a cardboard box in some places.
Great video! Watched many of these recently. There seems to be one MAJOR flaw in this line of reasoning that everyone is missing: the whole advantage of buy vs. rent is that buying offers leverage, whereas renting does not. You are putting a (relatively) small amount as down payment and then the bank fronts you the remainder as a mortgage. When you go to sell in the future, you will reap the benefits (or losses) from the change in value of the property. For the rent scenario, you are not employing leverage. To make a fair comparison, you would need to use an investment vehicle that uses leverage, not just a stock following fund. Or that you ask the bank for a loan equivalent to the mortgage size and invest that in the market as well. Think about it: you take X amount of dollars and invest in real estate at 3.8% annual increase or X amount of dollars and invest in S&P500 (your scenario) at 7% - it should be obvious that the S&P will return much more, but in your calculations it doesn't. Why? Because you are not investing the same initial amount in both scenarios. In one scenario you're investing all of your own money, in the second scenario you're investing the bank's money (that they loaned you as a mortgage). The problem with leverage is that it will exacerbate any movements in the market. If you invest $100k in stocks and they drop 10% and you need to get out, you lose $10k. If you invest $100k in a house and take on $500k in mortgage, if the market takes a 10% drop and you need to get out, you lose $60k instead of $10k. So this really boils down to risk appetite - the "buy real estate" scenario is inherently more risky than the "rent + stocks" strategy in the example you present, and as most investors know, risk and reward are proportional to each other.
my thing is uncertainty. i can’t see myself making such a long commitment while worrying about job loss, health problems, etc. alot can change in 15-30 years and covid has shown us all these employers won’t think twice to lay us off without warning
The couple issues I see with this is that. 1) you only reduce your taxable income if you can claim more than the standard deduction which most people aren’t doing with property tax and interest. The standard deduction this year is about 27k for married. The average person might be maybe breaking 10k with with property tax and interest. 2) maintenance and related costs for a home can be large + there’s an opportunity cost for having a larger emergency fund when owning a home.
I also thought the maintenance costs were low. Experts suggest setting aside 1-2% of your home's value annually for maintenance and repairs, which obviously varies depending on the age of the home and other factors, but even if we're generous with the low end of that range, that's $106/month more than the estimate. Also, the appreciation seems to be miscalculated by about +$38/mo. The opportunity cost of the higher monthly out-of-pocket expenses for owning also needs to be calculated, as that money could be put to work as well. This is trickier to calculate since it starts much higher and actually inverts towards the end, but my VERY rough estimate is an extra $145/mo investment income over the course of 13 years from renting. Combine these and subtract the tax benefits that most people won't be able to make use of, and the true costs are more like $1531/mo to buy versus $1999/mo to rent. Still better to buy, but much closer than is suggested, and HOA or Condo fees could easily close that gap.
@@dustinasche Excellent points! I knew there was a little something off given the way she was calculating the maintenance/repair costs and supposed tax benefits…
Good video! The mortgage interest deduction is a bit more complex, since it goes on itemized deductions and you can instead use the standard deduction. For many, the standard deduction may be higher than itemized, rendering the mortgage interest deduction worthless. Even if you itemize, you can really only count the amount of deductions over the standard when computing the savings.
Good point! I thought it odd she didn’t mention that renters get a standard deduction. She also missed that renters could invest savings from not owning into the stock market and come out ahead of owners.
I've both rented and owned numerous homes/apartments/condos. In the end, renting is always cheaper. It allows one to be fluid to changing circumstances, forces one to focus on other aspects of life besides the endless "projects" that seems to always come up, and keeps money liquid versus buried in a contract. Remember, mortgage comes from the latin "mortir". Like mortuary. It's a death note.
If you are moving often, I agree in most cases. If you stay put, owning is cheaper. I bought my house 23 years ago and I pay half of what the current rent rate is.
@@johnyracercat 23 yrs ago wow, the housing definitely changed drastically from then to know. I feel owning is not the same as it was. Still great to do as I was a previous home owner, but don’t think it’s for me
Of course a "owner" of condos/apartments would entice people with how cheap renting is 😆😆😆 it's in your nature to say that because that's your cash flow. Would you have continued to rent if you didn't own those said properties? I didn't think so. It's great that renting worked for you but not everyone owns condos/apartments like you.
Great analysis! Did the same analysis for a condo in New Jersey (close to NYC) and turns out renting is much cheaper over the long run when buying in this area. Absolutely insane housing prices.
Not sure what numbers you are running, but if you run the same numbers in this video for the Northern NJ region it still comes out on top to buy a condo vs renting if you live there for about 13ish years. I live in Bergen County btw and im currently searching for a 2 bedroom condo in Sussex County. It also depends on the house price...im curious, what price range are you looking at? im looking at around 180K
@@PrimitiveAK I am looking at the Newport Jersey City area and the price of a 2-bed 2-bath here is around 1.4 Million dollars. With property taxes and HOA fees the monthly costs comes to around 13K. Whereas you can rent here for around 6K the same size apartment. So with these numbers it does not make sense to buy even if you plan to stay in the home for the next 30 years.
@@helloram300 hmm…I don’t know if you can with your current situation but if you can buy the ideal option is to just get out of Bergen county period. Bergen is one of the highest COL areas in the country. Once you go to like Sussex county/Passaic, or even as far as Rockland county NY, the prices are a night and day difference. Best of luck!
I would expect house price appreciation to be minimal for a while since appreciation went up so drastically in the last few years. Both buying and renting has advantages and disadvantages. Buy when you’re ready and it makes sense for you.
Wrong. Once interest rates are cut, housing will explode 2-3x within a couple of years. The bottom line is government policies have reduced construction drastically and lead to a dramatic shortage of houses compared to those looking to buy. The result is more qualified buyers for fewer homes leading to bidding wars for even the crappiest houses. It’s going to take new laws and 20 years to solve this crisis.
What may not be thought of in this is with renting it's not secure!The owner may at some point want to sell the house you're renting! Whereas owning a home you stay for as long as you want & leave when YOU decide!
Great video. I decided to stop getting stressed looking for a house to purchase in today's market. An apartment will give me much needed peace at this time
I chose to rent because I could get a decent 3 bedroom next to the river, with a shared pool for less then $2000. Houses next to the river are nowhere near the same monthly mortgage amount. I could buy a 2 bed/1 bath house way out side of the city for the same monthly cost, but my quality of life would be less. I spend so much time walking, running and biking along the river that its greatly improved my health, instead of driving everywhere. I don't really like including the equity of a house in my assets either, because the only way to realize is to sell, but then you have to buy another house anyway. When I'm dead my kids can include it in their inheritance. Maybe when I'm older I'll look for a cheaper house to buy with all the money I'm saving, but for now I like where I'm at.
This is exactly the breakdown I needed explained to me. I’m renting now. Where I live inventory is down 20 % from last year. Houses are still overpriced and a lender said my loan would be at 7.1%! What you explained makes perfect sense. I want to wait a bit though. Hoping to get that interest rate down a bit. Credit score above 740 would help with that. Im pretty close little more work to do. Thanks for sharing.
I want go with a third option. Buy a property and live in it for a couple years before moving on to buy a second property, turning the first one into a rental. Maybe hire a property manager if I don't want to deal with tenants and toilets.
BEWARE. Depending on property agents is a bad plan. Their contract gives them a bonus (paid by you) when they fill a vacancy. As such, there is no incentive on their part to screen out crappy, fly-by-night, deadbeat tenants who may trash your property. Of course, for an additional fee, they will coordinate repairs (probably by their cousin). The vacancy-fill bonus actually incentivizes agents to turn over tenants as often as possible. I ran rentals for 30 years. REIT’s did not exist then. Put your money into a REIT, there are several types available, from timber to billboards to housing. The sizable housing ones have enough units that one person moving doesn’t make their vacancy rate change much. If you own one rental and your tenant moves, your vacancy rate is 100%. The big REIT’s have regular maintenance staff on site, and do a good job of screening tenants for you (unlike agents) REIT’s want good tenants who will stay put. Turnover is expensive. Buy a REIT with your investment, put it in your Roth IRA (because the dividends will not be taxed, unlike non-IRA held. Then you can forget plugged up toilets in the middle of the night. Start with Realty Income (O) “The Monthly Dividend Company”. Put $100.00 a month into it for a year, let me know if you’re happy. Good luck.
@@dakotabearjojo Better plan. O is a dividend aristocrat, they’ve raised their dividend every year for over 25 years. Don’t skip the IRA part. REIT dividends outside an IRA are taxed as ordinary income, which eats into your return.
as a 21 year old that wants to get into real estate But at the split between rentals or dividend stocks like O iv came to the conclusion its gonna be a bitch in real estate, the market currently aside tenants etc can mess you up But thats the cost of having a higher appreciation rate no? Both capital apprecitation over time on the property and loan paydown by another person You just gotta be skilled in not being scammed by contractors and property managers while saving reserves so basically as far as im aware @@harleyb.birdwhisperer
The most irritating thing about these videos is that they are made for people or couples making nearly $200,000 a year or more. Most people in this country are nowhere near that rate of income. Most of us can not afford $1,200+ mortgage payments on top of everything else we need in the modern era.
This should be the kind of class that should be happening in high school for real!!. I am holding back on home purchase until I understand what the impact of this current news sweeping YT on de-dollarisation by BRICS and the potential outcome if it does go through over the next 2-3 years.
Its wrong to assume we renters will always choose to rent somewhere more expensive over time. Landloards still have to compete for our business. Ive rented for 14 years and my rent only went up about 2% and my place is nicer.
Couple of considerations to add - the renters tend to move more often, so you gotta calculate the cost of moving at least twice in the 13 years over the home owner. Also, historically, nationwide, home appreciation averages at 4%, not 2%. Great comparison though, very thorough.
Timing is everything. If you buy now, you are paying an inflated cost and high rate. If you buy and housing prices continue to drop, eroding your equity below 20% you may not be able to refinance to a lower rate as the bank won't do it, or you'll have to have PMI. Prices on homes need to decrease more in order to achieve affordability with today's higher rates as everyone buys and qualifies on monthly payments. RIGHT now, is not a good time, but as prices continue drop and inventory increases, which they will into 2023 there will be opportunities. Timing the absolute bottom is fools' game, but we are nowhere close that right now. Patience......
@@MicheleNichols2 That's true and you never really have to worry about what housing prices do as long as you can always afford the payment. But, with pricing fluctuating wildly and the fed forcing a recession to tamp down inflation job losses could ensue, meaning people are going to lose their homes again. It's unfortunate that the fed allowed this bubble to form with terrible monetary policy. On the other hand, no one forced people to buy at these inflated prices. People throwing money hand over fist at homes, waving inspections, appraisals, writing love letters to seller, etc. etc. - all the signs were there this was a crazy bubble.
The problem I always see with these comparisons is when you rent depending on your situation you don't rent a house you usualy rent a smaller apartment so the costs are much cheaper. Most single people or even couples without children tend to rent smaller 2 bedroom apartments instead of renting out houses. When you rent an apartment in a mutli family apartment building the rent is much cheaper than buying a home. Plus utilities in a smaller apartment are also much cheaper than in a home so that tends to also not get factored in. If I were to buy a home in my area I would be spending 1000 dollars more a month than I am now. I invest my savings and I also have a decent sum of money in a high yield savings account that currently gives me 5.04 percent interest. So on top of my savings I'm getting an extra 1200 or so passive income on my interest and investments. Plus I'm liquid and my money isn't tied up in to something that takes 6 months or so to sell. Then when and if you sell your home most of the money would go towards finding another place to live unless you decide to downsize and start renting. Although its not as much with rent you can still claim the rent you spend on your state taxes here in Massachusetts so you do get a small tax break as well. The thing is people dont usually rent the same type of house or property that they would consider buying. It's just not an accurate comparison.
I rent and usually move every 3-5 years. I always rent a brand new 1 bedroom apartment. For me renting is better because I’m always in a new apartment and plus it’s nice living in a brand new unit. I plan to purchase a condo in a building in my retirement years which is about 15 years away.
It’s a perfect time for this video! I will be relocating in the near future and I will watch this several times. This will be helpful. Thank you so much. And, glad to see another video from you. You do such a great job.
@@KarsonGaule I am worried about buying a house now, as real estate prices appear to begin falling.... and at these higher interest rates. I could refinance when rates come down, but the value of a house might fall as well, thus preventing a mortgage company from doing a refinance.
I‘d love to see the statistics on what percentage of the U.S. population obtains a Conventional Loan without PMI (requires 20% minimum down payment) versus those putting down less than 20% or obtaining Non-Conventional Government backed loans such as FHA that requires 3.5% down and VA loans with no money down; and I think that both includes private mortgage insurance (PMI) due to having less than the 20% down payment. 🤔💭📊
buying vs renting the same home comparison is easily buying the home. But if you can rent for much cheaper as a single person renting is often better if it allows you to save even more money so that you can either invest or put a great downpayment on a home later. While buying a home is often the better choice, People are making the mistake of buying too much home too quickly.
Hey Karson you could actually make a series of videos doing this for different regions of the US, considering the numbers vary so wildly from place to place. For whatever reason it's just fun watching you break it down like this, so I think a lot of people would be interested, and you'd capture more specific audiences based on the regions you'd cover. You could do different states, different housing types, rural/urban/suburban, etc. I have a feeling in some of the HCOL areas you might eventually find a place where renting is actually better, even accounting for appreciation.
I really enjoyed the video, but whenever I see this debate about homes appreciating and making a profit when you sell, I always have to wonder, are people always assuming that they are then going to find a much less expensive place? Because if their house has appreciated in value, so has everyone else's, and whatever profit benefits they would have made all hinges on whether they can find a less expensive living arrangement. Not to mention the moving costs. I have known several people who did sell their house for a profit, but by the time they paid for a new place to live and all the moving costs, they barely broke even or it actually cost them more to sell and move.
This really vary from person to person. During covid, my dad sold his houses and tooked out a mortgage with an really low interest rate at company he worked at for his new house. Conveniently, this was around the time he wanted to change job, and it is common in his field of work for the companies to cover the moving cost, so everything works out. Homes always appreciate in value over time, seems historicall true, not because my mom always say "by the time you are out of collage your ass won't be able to afford a toilet, much less a house."
Agent fees for selling your house is usually 6% plus closing costs so yes moving is usually a loss. So its better to stay the 13 years or more that Carson uses as an example. For me I bought a bigger house in the same neighborhood and rented out the cheaper house. After a few years both houses appreciated more than enough to cover all the costs and agent fees.
i wish you calculated the extremes on both end, like, the point at which it becomes more/less viable than the other option. For example, What if your rent was really really cheap? Or what if property prices and interest rates for mortgages were really high? The property in my area (Seattle) is INSANELY expensive, and i happen to have a really good deal on rent at the moment. Unless my rent skyrockets, i think i actually save WAY more money buy not buying.
I watched this video and the one from a year or so ago. Don't think you made the observation but the $300000 house was in Texas and the average taxes over a 13 year period would be $610 per month But in this video the $370,000 house near Mesa Arizona the taxes only average $265 per month. Point is the variable of where you live makes a difference, $345 per month more for taxes if in Texas.
I think it’s kind of stupid to compare “apples to apples.” Because at least for me, what I look for when I’m buying and renting are totally different. I would NOT buy what I rent or rent what I would buy. Also around where I live, the houses are ridiculously expensive and there aren’t many houses for rent. The best thing about renting is everything is taken care of and I can move any time. Other things to take into consideration: Would you rather be rich when you’re old or be able to spend money on experiences when you’re still young? What if you die young? Do you want to be stuck in the same neighborhood and school districts? My husband is self-employed, and the less time has to spend worrying about taking care of stuff like mowing the lawn, he’s makes more money. Studies show that people are overall happier when someone else takes care of mundane stuff and chores than doing them themselves.
Do you want to spend all your money on experiences when you are young and healthy and otherwise able to work, and then be the person in a walker greeting people at Walmart because you have nothing saved and are struggling to pay your rent when you are old and feeble? Every young person in the history of Earth that thought that they would be young forever got old. And very few died young following a short, glamorous life.
First homeowner in my family since my great great grandfather. I'm trying hard to shift my family and friends' perspective on renting and this is a perfect breakdown of the debate. Thank you so much!
Dear @KarsonGaule, I am surprised by how many of the commenters complain about the NUMBERS you use (and identify as assumptions that vary by person) rather than thanking you for identifying all the expense CATEGORIES. I live in the North East. If I buy, my purchase price would probably be around $500k. Am I going to complain about your use of $350k? No. Your analysis is pristine. Thanks so much
I don't understand the house appreciation, it doesn't really help you pay off the monthly costs and you are more likely to pay more property tax. The house appreciation doesn't really help you make payments. The true cost if you are not selling your house for a higher price would be 1480+950 = $ 2430. As a single person household , I am never going to rent a huge house, but would go for a smaller cheaper apartment
While it is ok to use inflation to calculate cost of living expenses, I do not think it is accurate to use it to calculate rent or even property prices. Why? Because rent is increased on a periodic basis allowable by the law. So if for example rent can be increase at a rate of 10-20% every year then you should use that instead on inflation. The difference will absolutely be significant and I think the result will be more accurate
Wonderful detailed breakdown! It’s impossible to capture a scenario that applies to everyone but I think you hit majority of the key factors. Differences that I would have to adjust for; much higher taxes in my area even though houses are around $375K, rents are closer to $3100 for a $375k house.
I like this rationale better than Dave Ramsey. It’s more realistic and actually gets down to the numbers. Yes, maintenance is hardly ever factored in a rent vs buy decision but as someone that has done both, the only high dollar maintenance items is roof every 10-20 years and new $5,000 AC every 10-20 years.
@@JohnDoe-fs6lz That’s the high dollar items. There are thousands of small fixes. The apartment complex I moved into has a team of 6 or so maintenance guys that stay busy all day. They don’t even do lawn maintenance, since it’s contracted out to another service.
Where is the scenario where the renter puts any monthly savings in the S&P. That scenario shows the renter coming out ahead of the homeowner. Owning is forced savings at a suboptimal rate of return. It is true that many renters won’t invest their savings from renting rather than buying.
Absolutely true. There may be short periods where renting is cheaper than buying, but if that lasts too long the landlord will sell your place out from under you.
Edit: So I found a rental house, 2acres, 2010sqft, 4br, tons of parking and every feature I love. So basically I should lock in a deal for a longer lease since rent is only $1900😂 Just fell in love with this new rent house. Id totally buy it if I could. In a university town so I figure I could rent out rooms if needed.
Hi, good overview. One thing I noticed is that most renters do not have savings. Most have nothing and on average are lucky to have $10k. Again, a lot of renters live month to month and reality do not have any savings at all.
If you bought a house with interest rate 7% this year, and next year the average interest rate goes down because of supply/demand, do you still pay 7% interest rate on your specific deal that you made?
The only benefit to renting is the ease of mind and finances you aren’t responsible for repairs and the ability to be relatively transient. Otherwise, it’s actually cheaper to own a home than it is to rent overall
You either didn't mention it or forgot to include: 1. Rent price includes cost of utilities (at least in my country), while in your own home you have to pay that yourself - increasing the cost of owning a home. 2. While rent is initially $2275 it gradually rises. Cost of owning $2987 is more fixed. That means if I am about to buy or rent, I have higher of these amounts available. So if I rent for $2275, I have bonus $712 to invest each month.
Also that scenario is not always like that, depending on the city. I live in Auckland, nz. The house we are renting is valued at 1.2 millions. The rent is just under $600 a week. Nzd but the math stands. Interest rates are over 5%, still going up and the reserve Bank just raised the OCR buy 75pc yesterday. I did the math and lo and behold: unrecoverable costs are double what the rent is now, and thats for a 30 year mortgage. Think missed interest on the 200k required for such a mortgage. Then actual interest on the 900k plus mortgage at 6% plus. Council rates. Insurance. And it is not a new build, in fact if I was to buy i would have to fix the deck straight away. And replace the carpet. Maybe a fence since I have kids and we are close to a main road. So in this case and for most houses in this city, I am not saying it is better to rent, though it might be, but those calculations she used will be flipped around.
Did she include home maintenance and repairs in that analysis or did I miss it? Also states like Florida have seen rapid and astronomical increases in Home Owners insurance and property taxes that have practically tripled, I’m assuming FL isn’t the only state that is dealing with these increases.
I know she's going by averages but a housing crash is a very likely outcome from this scenario, so assuming it goes down and then back up you probably broke even on the house price
The value of that house is artificially over inflated and that value will drop soon making it unable to be valued at 600k in 13 yrs without additional artificial inflation.
Why would you include tax deduction for interest paid on mortgage when you must do itemized deductions for that?! over 90% of taxpayers use standard deduction that stays the same whether you have mortgage or not.
Your ability to deduct taxes and interest is limited by the SALT tax limit at 10k and if you don’t have enough other deductions, you wo t itemize to get that tax savings for interest either.
2,175.00 x 175 months will buy the house and and change left over but renting is a lot of money thrown away with nothing to show for it who wants to rent a nice house like that for 10 or 15 years or even 20 years and get attached to the house and don’t want to leave do the math and you will own nothing and be happy the longer you rent it
I agree with wat you say.... But having the mind set of saving money wen renting is different than buying. For myself if I didn't buy a house I would have not saved renting .
Interesting analysis but has a few flaws. First assuming that appreciation will be 3.8% is unrealistic. In any case you should assume a period of price correction of 155 in total until 2025 and then assum the increase 3.8%. Additionally this analysis is only for a specific conunty in AZ. For instance in Colorado you can rent a house worth $1M for $3,500. So please make a disclaimer that your analysis is only applicable to your county in Phoenix AZ. But for the rest i Like it
Am I missing something? With a mortgage payoff of 437 on a 324K mortgage you are still left with a 168K mortgage at the end of 30 years, which has to be payed with a new mortgage or the appreciation on your house. That's a 470 dollar hit on those 1480 dollars you mention. On top of that during the initial years out of pocket expenses for renting are far lower than those for buying, so renters could (and probably should) invest that. I have no idea how to calculate those profits though with the rising rent, could not make that much of a difference I guess. And the same could be said for tax savings in favour of buyers, but the costs for financing and selling (partially) working against them in that regard. Just spitting some ideas here, I feel like renters have much more room to invest then you outline in this video. But to be frank, I don't know much about it 😅
Even so in a city like Auckland nz. We are renting a house value at 1.2 million. Rates are 6% and rising. Rent is under 30k per year. Do the math. Deposit needed over 200k or 20%. Interest on the borrowed money at 6%.
You're correct. Real historical home appreciation (after unrecoverable expenses) is about 1% whereas globally diversified stocks/bonds is about 4%. As long as renters invest regularly, they're better diversified than owners.
@@joemeyer2726 That's the S&P 500, not global stocks/bonds. Also over the last decade S&P 500 returns have been unusually high. Historically they've been much lower.
This video seems to make some dangerous assumptions. Namely, banking on a house appreciating in value 3.8% year over year (or $1480/mo on a $2153/mo mortgage) is irresponsible. This is especially true given that we're just post-peak on a housing cycle (the last one peaked at $220,765 in 2005 Phoenix and hit bottom at $80,902 in 2011---in terms of inflation adjusted median price). We could easily see prices falling into 2025 before recovering. As the video points out, the house would have to be worth at least $600k at the end of 13 years for the assumption to bear out. That could happen, but I certainly wouldn't bank on it if deciding whether I should buy a home. Also, as others have pointed out, the not insignificant $437/mo tax deduction would not apply to anyone using a standard deduction. Similarly on the other hand, the video assumes an average rent/mo at $2,873 even though the actual rent is $600 less at $2,275. It is certainly possible that by 2036 the average rent on the property from now until then will have worked out to $2873, but I certainly wouldn't make a financial decision in 2023 based on that hypothetical. We're currently seeing average rent fall in the Phoenix metro, so using the actual cost of rent would be much more useful than a speculative number based on constant increases. arizonarealestatenotebook.com/phoenix-real-estate-market-glance-charts/
And it was assumed that your stock investments would increase 7% per year. What if the market fell 30% and it took 10 years to get back to where it was when you first invested the money? This is why she used historical averages.
Good video. How are you getting $265 in property taxes? Phoenix property tax is 1.29%, right? That would imply that the property’s assessed value is only $246.5K, no? Also, general rule of thumb is 1% of our purchase price for monthly repair and maintenance. Why are you estimating so far below that? Not saying you’re wrong, just trying to understand your thinking here.
Now that Inflation and interest rates are through the roof! Here is a little update video for 2023. Hope you all enjoy :)
do yu think prices will go down end of next year? what about a duplex or triplex we live in? is it cheaper than buying a single family home?
I wished home price were that cheap where I live. You have to sell kidneys and a first born child for anything more than a cardboard box in some places.
Townhomes and condos are cheaper
Or a not so desirable neighborhood will have nice homes but if u have kids dint send them to the neighborhood school
Great video! Watched many of these recently. There seems to be one MAJOR flaw in this line of reasoning that everyone is missing: the whole advantage of buy vs. rent is that buying offers leverage, whereas renting does not. You are putting a (relatively) small amount as down payment and then the bank fronts you the remainder as a mortgage. When you go to sell in the future, you will reap the benefits (or losses) from the change in value of the property. For the rent scenario, you are not employing leverage. To make a fair comparison, you would need to use an investment vehicle that uses leverage, not just a stock following fund. Or that you ask the bank for a loan equivalent to the mortgage size and invest that in the market as well.
Think about it: you take X amount of dollars and invest in real estate at 3.8% annual increase or X amount of dollars and invest in S&P500 (your scenario) at 7% - it should be obvious that the S&P will return much more, but in your calculations it doesn't. Why? Because you are not investing the same initial amount in both scenarios. In one scenario you're investing all of your own money, in the second scenario you're investing the bank's money (that they loaned you as a mortgage).
The problem with leverage is that it will exacerbate any movements in the market. If you invest $100k in stocks and they drop 10% and you need to get out, you lose $10k. If you invest $100k in a house and take on $500k in mortgage, if the market takes a 10% drop and you need to get out, you lose $60k instead of $10k.
So this really boils down to risk appetite - the "buy real estate" scenario is inherently more risky than the "rent + stocks" strategy in the example you present, and as most investors know, risk and reward are proportional to each other.
Nobody is buying a home. They are getting a mortgage.
Someone knows. Mortgage, to mortician
my thing is uncertainty. i can’t see myself making such a long commitment while worrying about job loss, health problems, etc. alot can change in 15-30 years and covid has shown us all these employers won’t think twice to lay us off without warning
Amen
Good plan, be a renter for your entire life
@@joemeyer2726 not everyone can nor want to be a home owner
I feel you, seems more safe to invest in S&P or whatever performing ETF
@@michael567jober agreed, 44% of adults will never own home, statistically no millionaire without owning house
The couple issues I see with this is that.
1) you only reduce your taxable income if you can claim more than the standard deduction which most people aren’t doing with property tax and interest. The standard deduction this year is about 27k for married. The average person might be maybe breaking 10k with with property tax and interest.
2) maintenance and related costs for a home can be large + there’s an opportunity cost for having a larger emergency fund when owning a home.
I also thought the maintenance costs were low. Experts suggest setting aside 1-2% of your home's value annually for maintenance and repairs, which obviously varies depending on the age of the home and other factors, but even if we're generous with the low end of that range, that's $106/month more than the estimate. Also, the appreciation seems to be miscalculated by about +$38/mo.
The opportunity cost of the higher monthly out-of-pocket expenses for owning also needs to be calculated, as that money could be put to work as well. This is trickier to calculate since it starts much higher and actually inverts towards the end, but my VERY rough estimate is an extra $145/mo investment income over the course of 13 years from renting.
Combine these and subtract the tax benefits that most people won't be able to make use of, and the true costs are more like $1531/mo to buy versus $1999/mo to rent. Still better to buy, but much closer than is suggested, and HOA or Condo fees could easily close that gap.
@@dustinasche Excellent points! I knew there was a little something off given the way she was calculating the maintenance/repair costs and supposed tax benefits…
Good video! The mortgage interest deduction is a bit more complex, since it goes on itemized deductions and you can instead use the standard deduction. For many, the standard deduction may be higher than itemized, rendering the mortgage interest deduction worthless. Even if you itemize, you can really only count the amount of deductions over the standard when computing the savings.
Good point! I thought it odd she didn’t mention that renters get a standard deduction. She also missed that renters could invest savings from not owning into the stock market and come out ahead of owners.
I've both rented and owned numerous homes/apartments/condos. In the end, renting is always cheaper. It allows one to be fluid to changing circumstances, forces one to focus on other aspects of life besides the endless "projects" that seems to always come up, and keeps money liquid versus buried in a contract. Remember, mortgage comes from the latin "mortir". Like mortuary. It's a death note.
If you are moving often, I agree in most cases. If you stay put, owning is cheaper. I bought my house 23 years ago and I pay half of what the current rent rate is.
@@johnyracercat 23 yrs ago wow, the housing definitely changed drastically from then to know. I feel owning is not the same as it was. Still great to do as I was a previous home owner, but don’t think it’s for me
Of course a "owner" of condos/apartments would entice people with how cheap renting is 😆😆😆 it's in your nature to say that because that's your cash flow. Would you have continued to rent if you didn't own those said properties? I didn't think so. It's great that renting worked for you but not everyone owns condos/apartments like you.
But how much do you get back for renting?
Great analysis! Did the same analysis for a condo in New Jersey (close to NYC) and turns out renting is much cheaper over the long run when buying in this area. Absolutely insane housing prices.
Not sure what numbers you are running, but if you run the same numbers in this video for the Northern NJ region it still comes out on top to buy a condo vs renting if you live there for about 13ish years. I live in Bergen County btw and im currently searching for a 2 bedroom condo in Sussex County. It also depends on the house price...im curious, what price range are you looking at? im looking at around 180K
@@PrimitiveAK I am looking at the Newport Jersey City area and the price of a 2-bed 2-bath here is around 1.4 Million dollars. With property taxes and HOA fees the monthly costs comes to around 13K. Whereas you can rent here for around 6K the same size apartment. So with these numbers it does not make sense to buy even if you plan to stay in the home for the next 30 years.
@@helloram300 hmm…I don’t know if you can with your current situation but if you can buy the ideal option is to just get out of Bergen county period. Bergen is one of the highest COL areas in the country. Once you go to like Sussex county/Passaic, or even as far as Rockland county NY, the prices are a night and day difference. Best of luck!
I would expect house price appreciation to be minimal for a while since appreciation went up so drastically in the last few years. Both buying and renting has advantages and disadvantages. Buy when you’re ready and it makes sense for you.
Wrong. Once interest rates are cut, housing will explode 2-3x within a couple of years. The bottom line is government policies have reduced construction drastically and lead to a dramatic shortage of houses compared to those looking to buy. The result is more qualified buyers for fewer homes leading to bidding wars for even the crappiest houses. It’s going to take new laws and 20 years to solve this crisis.
What may not be thought of in this is with renting it's not secure!The owner may at some point want to sell the house you're renting!
Whereas owning a home you stay for as long as you want & leave when YOU decide!
Great video. I decided to stop getting stressed looking for a house to purchase in today's market. An apartment will give me much needed peace at this time
I chose to rent because I could get a decent 3 bedroom next to the river, with a shared pool for less then $2000. Houses next to the river are nowhere near the same monthly mortgage amount. I could buy a 2 bed/1 bath house way out side of the city for the same monthly cost, but my quality of life would be less. I spend so much time walking, running and biking along the river that its greatly improved my health, instead of driving everywhere.
I don't really like including the equity of a house in my assets either, because the only way to realize is to sell, but then you have to buy another house anyway. When I'm dead my kids can include it in their inheritance.
Maybe when I'm older I'll look for a cheaper house to buy with all the money I'm saving, but for now I like where I'm at.
This is exactly the breakdown I needed explained to me. I’m renting now. Where I live inventory is down 20 % from last year. Houses are still overpriced and a lender said my loan would be at 7.1%! What you explained makes perfect sense. I want to wait a bit though. Hoping to get that interest rate down a bit. Credit score above 740 would help with that. Im pretty close little more work to do. Thanks for sharing.
I feel most of the high cost comes from over price home..since seller wants to make a profit..but the video does have benefit..houses value goes up
I want go with a third option. Buy a property and live in it for a couple years before moving on to buy a second property, turning the first one into a rental. Maybe hire a property manager if I don't want to deal with tenants and toilets.
BEWARE. Depending on property agents is a bad plan. Their contract gives them a bonus (paid by you) when they fill a vacancy. As such, there is no incentive on their part to screen out crappy, fly-by-night, deadbeat tenants who may trash your property. Of course, for an additional fee, they will coordinate repairs (probably by their cousin). The vacancy-fill bonus actually incentivizes agents to turn over tenants as often as possible. I ran rentals for 30 years. REIT’s did not exist then. Put your money into a REIT, there are several types available, from timber to billboards to housing. The sizable housing ones have enough units that one person moving doesn’t make their vacancy rate change much. If you own one rental and your tenant moves, your vacancy rate is 100%. The big REIT’s have regular maintenance staff on site, and do a good job of screening tenants for you (unlike agents) REIT’s want good tenants who will stay put. Turnover is expensive. Buy a REIT with your investment, put it in your Roth IRA (because the dividends will not be taxed, unlike non-IRA held. Then you can forget plugged up toilets in the middle of the night. Start with Realty Income (O) “The Monthly Dividend Company”. Put $100.00 a month into it for a year, let me know if you’re happy. Good luck.
@@harleyb.birdwhisperer I appreciate the insight. O Realty has been on my radar for a while. Maybe I'll do that. 🙂
@@dakotabearjojo Better plan. O is a dividend aristocrat, they’ve raised their dividend every year for over 25 years. Don’t skip the IRA part. REIT dividends outside an IRA are taxed as ordinary income, which eats into your return.
as a 21 year old that wants to get into real estate
But at the split between rentals or dividend stocks like O
iv came to the conclusion its gonna be a bitch in real estate, the market currently aside tenants etc can mess you up
But thats the cost of having a higher appreciation rate no? Both capital apprecitation over time on the property and loan paydown by another person
You just gotta be skilled in not being scammed by contractors and property managers while saving reserves
so basically as far as im aware
@@harleyb.birdwhisperer
Very comprehensive analysis. Delighted to hear from you after a long time. Very helpful in making a big decision. Thanks.
Always appreciate your comments Raju, thank you :)
The most irritating thing about these videos is that they are made for people or couples making nearly $200,000 a year or more. Most people in this country are nowhere near that rate of income. Most of us can not afford $1,200+ mortgage payments on top of everything else we need in the modern era.
This was such a thorough breakdown and I really appreciated it!
This should be the kind of class that should be happening in high school for real!!. I am holding back on home purchase until I understand what the impact of this current news sweeping YT on de-dollarisation by BRICS and the potential outcome if it does go through over the next 2-3 years.
Nice price for your example. Where I live , the price is around triple of that, which makes a huge difference. But your approach is 100% correct.
Its wrong to assume we renters will always choose to rent somewhere more expensive over time. Landloards still have to compete for our business. Ive rented for 14 years and my rent only went up about 2% and my place is nicer.
Couple of considerations to add - the renters tend to move more often, so you gotta calculate the cost of moving at least twice in the 13 years over the home owner. Also, historically, nationwide, home appreciation averages at 4%, not 2%. Great comparison though, very thorough.
Timing is everything. If you buy now, you are paying an inflated cost and high rate. If you buy and housing prices continue to drop, eroding your equity below 20% you may not be able to refinance to a lower rate as the bank won't do it, or you'll have to have PMI. Prices on homes need to decrease more in order to achieve affordability with today's higher rates as everyone buys and qualifies on monthly payments. RIGHT now, is not a good time, but as prices continue drop and inventory increases, which they will into 2023 there will be opportunities. Timing the absolute bottom is fools' game, but we are nowhere close that right now. Patience......
@@MicheleNichols2 That's true and you never really have to worry about what housing prices do as long as you can always afford the payment. But, with pricing fluctuating wildly and the fed forcing a recession to tamp down inflation job losses could ensue, meaning people are going to lose their homes again. It's unfortunate that the fed allowed this bubble to form with terrible monetary policy. On the other hand, no one forced people to buy at these inflated prices. People throwing money hand over fist at homes, waving inspections, appraisals, writing love letters to seller, etc. etc. - all the signs were there this was a crazy bubble.
The problem I always see with these comparisons is when you rent depending on your situation you don't rent a house you usualy rent a smaller apartment so the costs are much cheaper. Most single people or even couples without children tend to rent smaller 2 bedroom apartments instead of renting out houses. When you rent an apartment in a mutli family apartment building the rent is much cheaper than buying a home. Plus utilities in a smaller apartment are also much cheaper than in a home so that tends to also not get factored in. If I were to buy a home in my area I would be spending 1000 dollars more a month than I am now. I invest my savings and I also have a decent sum of money in a high yield savings account that currently gives me 5.04 percent interest. So on top of my savings I'm getting an extra 1200 or so passive income on my interest and investments. Plus I'm liquid and my money isn't tied up in to something that takes 6 months or so to sell. Then when and if you sell your home most of the money would go towards finding another place to live unless you decide to downsize and start renting. Although its not as much with rent you can still claim the rent you spend on your state taxes here in Massachusetts so you do get a small tax break as well. The thing is people dont usually rent the same type of house or property that they would consider buying. It's just not an accurate comparison.
Great to have you back!
Thank you :)
Buying a home is a risk, not buying a home is a risk. Great analysis though. Really appreciate the time taken to present this 😊.
Whew…I’m geeking out over the math you did. Such a great video. Thanks for putting in the effort to record this. Well done 👏
I rent and usually move every 3-5 years. I always rent a brand new 1 bedroom apartment. For me renting is better because I’m always in a new apartment and plus it’s nice living in a brand new unit. I plan to purchase a condo in a building in my retirement years which is about 15 years away.
This was a wonderful and thorough breakdown. Thank you so much for posting this
Great video! Thanks for breaking it down for us. Glad to have you back - Keep it up! 🔥🚀
Thank you so much!
It’s a perfect time for this video! I will be relocating in the near future and I will watch this several times. This will be helpful.
Thank you so much. And, glad to see another video from you. You do such a great job.
Thank you!
@@KarsonGaule I am worried about buying a house now, as real estate prices appear to begin falling.... and at these higher interest rates. I could refinance when rates come down, but the value of a house might fall as well, thus preventing a mortgage company from doing a refinance.
I‘d love to see the statistics on what percentage of the U.S. population obtains a Conventional Loan without PMI (requires 20% minimum down payment) versus those putting down less than 20% or obtaining Non-Conventional Government backed loans such as FHA that requires 3.5% down and VA loans with no money down; and I think that both includes private mortgage insurance (PMI) due to having less than the 20% down payment. 🤔💭📊
50% of homes have no mortgage
@@MicheleNichols2 fees horrible, conventional only
Amazing video for comparing rent vs buy. Thanks for the great work!
Thanks!
buying vs renting the same home comparison is easily buying the home. But if you can rent for much cheaper as a single person renting is often better if it allows you to save even more money so that you can either invest or put a great downpayment on a home later. While buying a home is often the better choice, People are making the mistake of buying too much home too quickly.
Yes, I think buying generally makes more sense for families who need the space and plan to live there many years, but not for single people.
Which leaves you with a HIGHER NET WORTH? Not which one gives you a lower monthly payment.
Bought my house in 2009 and I think I will die here. The average car payment is more that my payment with taxes and insurance
Hey Karson you could actually make a series of videos doing this for different regions of the US, considering the numbers vary so wildly from place to place. For whatever reason it's just fun watching you break it down like this, so I think a lot of people would be interested, and you'd capture more specific audiences based on the regions you'd cover. You could do different states, different housing types, rural/urban/suburban, etc. I have a feeling in some of the HCOL areas you might eventually find a place where renting is actually better, even accounting for appreciation.
This has been extremely helpful, thank you! btw...what brand jellyfish tank is that?! LOVE it!
I really enjoyed the video, but whenever I see this debate about homes appreciating and making a profit when you sell, I always have to wonder, are people always assuming that they are then going to find a much less expensive place?
Because if their house has appreciated in value, so has everyone else's, and whatever profit benefits they would have made all hinges on whether they can find a less expensive living arrangement.
Not to mention the moving costs. I have known several people who did sell their house for a profit, but by the time they paid for a new place to live and all the moving costs, they barely broke even or it actually cost them more to sell and move.
This really vary from person to person. During covid, my dad sold his houses and tooked out a mortgage with an really low interest rate at company he worked at for his new house. Conveniently, this was around the time he wanted to change job, and it is common in his field of work for the companies to cover the moving cost, so everything works out.
Homes always appreciate in value over time, seems historicall true, not because my mom always say "by the time you are out of collage your ass won't be able to afford a toilet, much less a house."
Agent fees for selling your house is usually 6% plus closing costs so yes moving is usually a loss. So its better to stay the 13 years or more that Carson uses as an example. For me I bought a bigger house in the same neighborhood and rented out the cheaper house. After a few years both houses appreciated more than enough to cover all the costs and agent fees.
you given good example and covered all possible factors! Good Job Karson!
the way you explain.... (chef's kiss) thank you
I was wondering when the next video was going to come out. Love the contents and research.
Thank you!
i wish you calculated the extremes on both end, like, the point at which it becomes more/less viable than the other option.
For example, What if your rent was really really cheap? Or what if property prices and interest rates for mortgages were really high?
The property in my area (Seattle) is INSANELY expensive, and i happen to have a really good deal on rent at the moment. Unless my rent skyrockets, i think i actually save WAY more money buy not buying.
Such a high quality video and great analysis!
I take comfort in hearing your calm and rational self!
Agreed
I watched this video and the one from a year or so ago. Don't think you made the observation but the $300000 house was in Texas and the average taxes over a 13 year period would be $610 per month But in this video the $370,000 house near Mesa Arizona the taxes only average $265 per month. Point is the variable of where you live makes a difference, $345 per month more for taxes if in Texas.
I think it’s kind of stupid to compare “apples to apples.” Because at least for me, what I look for when I’m buying and renting are totally different. I would NOT buy what I rent or rent what I would buy. Also around where I live, the houses are ridiculously expensive and there aren’t many houses for rent.
The best thing about renting is everything is taken care of and I can move any time.
Other things to take into consideration: Would you rather be rich when you’re old or be able to spend money on experiences when you’re still young? What if you die young?
Do you want to be stuck in the same neighborhood and school districts?
My husband is self-employed, and the less time has to spend worrying about taking care of stuff like mowing the lawn, he’s makes more money.
Studies show that people are overall happier when someone else takes care of mundane stuff and chores than doing them themselves.
Do you want to spend all your money on experiences when you are young and healthy and otherwise able to work, and then be the person in a walker greeting people at Walmart because you have nothing saved and are struggling to pay your rent when you are old and feeble? Every young person in the history of Earth that thought that they would be young forever got old. And very few died young following a short, glamorous life.
Good points!
First homeowner in my family since my great great grandfather. I'm trying hard to shift my family and friends' perspective on renting and this is a perfect breakdown of the debate. Thank you so much!
You’re welcome, thanks for the comment!
Dear @KarsonGaule, I am surprised by how many of the commenters complain about the NUMBERS you use (and identify as assumptions that vary by person) rather than thanking you for identifying all the expense CATEGORIES. I live in the North East. If I buy, my purchase price would probably be around $500k. Am I going to complain about your use of $350k? No. Your analysis is pristine. Thanks so much
Thanks Jim!
I don't understand the house appreciation, it doesn't really help you pay off the monthly costs and you are more likely to pay more property tax. The house appreciation doesn't really help you make payments. The true cost if you are not selling your house for a higher price would be 1480+950 = $ 2430. As a single person household , I am never going to rent a huge house, but would go for a smaller cheaper apartment
Then you compare owning a small condo to renting that cheap apartment.
Very informative video!! Thanks!!!!!
While it is ok to use inflation to calculate cost of living expenses, I do not think it is accurate to use it to calculate rent or even property prices. Why? Because rent is increased on a periodic basis allowable by the law. So if for example rent can be increase at a rate of 10-20% every year then you should use that instead on inflation. The difference will absolutely be significant and I think the result will be more accurate
Wonderful detailed breakdown! It’s impossible to capture a scenario that applies to everyone but I think you hit majority of the key factors. Differences that I would have to adjust for; much higher taxes in my area even though houses are around $375K, rents are closer to $3100 for a $375k house.
Rent a house at 2175 a month! In Toronto I RENT a 2 bdrm APT. For 2600 a month!
Omg you're literally my role model! Thank you for existing, great work xo
Thank you so much Angel :)
I like this rationale better than Dave Ramsey. It’s more realistic and actually gets down to the numbers. Yes, maintenance is hardly ever factored in a rent vs buy decision but as someone that has done both, the only high dollar maintenance items is roof every 10-20 years and new $5,000 AC every 10-20 years.
Are you sure that’s it? My landlord stay doing repairs on the house .
@@JohnDoe-fs6lz That’s the high dollar items. There are thousands of small fixes. The apartment complex I moved into has a team of 6 or so maintenance guys that stay busy all day. They don’t even do lawn maintenance, since it’s contracted out to another service.
You are paying less in rent each month, and you would invest those savings into stocks. S&P 500 return is around 10% in normal terms.
Don’t forget to add the cost of selling the home
Where is the scenario where the renter puts any monthly savings in the S&P. That scenario shows the renter coming out ahead of the homeowner. Owning is forced savings at a suboptimal rate of return. It is true that many renters won’t invest their savings from renting rather than buying.
Great video! Welcome back.
Thank you :)
Your landlord isn't going to take a loss every month. Whatever it costs them to own the property, it costs you more to rent it.
Absolutely true. There may be short periods where renting is cheaper than buying, but if that lasts too long the landlord will sell your place out from under you.
This is pretty good. I'll be recommending this one.
So impressed! Great breakdown!
Good analyses. Am i the only one shocked by the 7% S&P? I mean if it was that easy man we would be millionnaire.
Excellent. Very helpful and you saves a lottt of time
Edit: So I found a rental house, 2acres, 2010sqft, 4br, tons of parking and every feature I love. So basically I should lock in a deal for a longer lease since rent is only $1900😂 Just fell in love with this new rent house. Id totally buy it if I could. In a university town so I figure I could rent out rooms if needed.
Hi, good overview. One thing I noticed is that most renters do not have savings. Most have nothing and on average are lucky to have $10k. Again, a lot of renters live month to month and reality do not have any savings at all.
My relatives who rent drive nice cars or max out their cards. I did the same thing when I rented.
My bubby is in the same boat. He has very little money his rent is one thousand three hundred bucks a month and it does not cover utilities.
If you bought a house with interest rate 7% this year, and next year the average interest rate goes down because of supply/demand, do you still pay 7% interest rate on your specific deal that you made?
Great analysis! Very in depth!
Thank you!
Can you do this again but with 3-5 years in the home?
The only benefit to renting is the ease of mind and finances you aren’t responsible for repairs and the ability to be relatively transient. Otherwise, it’s actually cheaper to own a home than it is to rent overall
You either didn't mention it or forgot to include:
1. Rent price includes cost of utilities (at least in my country), while in your own home you have to pay that yourself - increasing the cost of owning a home.
2. While rent is initially $2275 it gradually rises. Cost of owning $2987 is more fixed. That means if I am about to buy or rent, I have higher of these amounts available. So if I rent for $2275, I have bonus $712 to invest each month.
Agreed. Also those utilities go up higher than the rate of inflation in general. Owning is only better if you are there 15+ years.
In USA, utilities are Not always included in the rental fee, especially when renting a house or duplex.
It will be situational on this detail.
I rent with airbnb longstay and I pay roughly 2000 to 2150 a month zero utilities and free wifi and no renters insurance. So I'm saving another 250.
Also that scenario is not always like that, depending on the city. I live in Auckland, nz. The house we are renting is valued at 1.2 millions. The rent is just under $600 a week. Nzd but the math stands. Interest rates are over 5%, still going up and the reserve Bank just raised the OCR buy 75pc yesterday. I did the math and lo and behold: unrecoverable costs are double what the rent is now, and thats for a 30 year mortgage. Think missed interest on the 200k required for such a mortgage. Then actual interest on the 900k plus mortgage at 6% plus. Council rates. Insurance. And it is not a new build, in fact if I was to buy i would have to fix the deck straight away. And replace the carpet. Maybe a fence since I have kids and we are close to a main road. So in this case and for most houses in this city, I am not saying it is better to rent, though it might be, but those calculations she used will be flipped around.
Landlords can raise rent when utilities go up or when a lot of migrants move into town.
Excellent presentation. Well done.
Thanks :)
Great video! I want to know where you go the jellyfish lamp behind you though 😅
Thanks! And I got it from Amazon
Did she include home maintenance and repairs in that analysis or did I miss it? Also states like Florida have seen rapid and astronomical increases in Home Owners insurance and property taxes that have practically tripled, I’m assuming FL isn’t the only state that is dealing with these increases.
good detailed info. thanks
What about the interest loss on the 44k down payment in 13 years!
Very informative
No way it appreciated from 370,000 to 600,000 in 13 years
I know she's going by averages but a housing crash is a very likely outcome from this scenario, so assuming it goes down and then back up you probably broke even on the house price
Brilliant!
The value of that house is artificially over inflated and that value will drop soon making it unable to be valued at 600k in 13 yrs without additional artificial inflation.
Why would you include tax deduction for interest paid on mortgage when you must do itemized deductions for that?! over 90% of taxpayers use standard deduction that stays the same whether you have mortgage or not.
Your ability to deduct taxes and interest is limited by the SALT tax limit at 10k and if you don’t have enough other deductions, you wo t itemize to get that tax savings for interest either.
We may not see inflation below 4% for at least 5 years unless we have new and better leadership in our Federal government.
record high home costs + ridiculous mortgage rates = bad
2,175.00 x 175 months will buy the house and and change left over but renting is a lot of money thrown away with nothing to show for it who wants to rent a nice house like that for 10 or 15 years or even 20 years and get attached to the house and don’t want to leave do the math and you will own nothing and be happy the longer you rent it
Nice analysis!
I agree with wat you say.... But having the mind set of saving money wen renting is different than buying. For myself if I didn't buy a house I would have not saved renting .
Interesting analysis but has a few flaws. First assuming that appreciation will be 3.8% is unrealistic. In any case you should assume a period of price correction of 155 in total until 2025 and then assum the increase 3.8%. Additionally this analysis is only for a specific conunty in AZ. For instance in Colorado you can rent a house worth $1M for $3,500. So please make a disclaimer that your analysis is only applicable to your county in Phoenix AZ. But for the rest i Like it
Not a bad video, pretty low property taxes though in states without state income tax.
@karsongaule This is great! Could you put the calcs in a Google Sheet for us to copy and play with?
Am I missing something? With a mortgage payoff of 437 on a 324K mortgage you are still left with a 168K mortgage at the end of 30 years, which has to be payed with a new mortgage or the appreciation on your house. That's a 470 dollar hit on those 1480 dollars you mention.
On top of that during the initial years out of pocket expenses for renting are far lower than those for buying, so renters could (and probably should) invest that. I have no idea how to calculate those profits though with the rising rent, could not make that much of a difference I guess. And the same could be said for tax savings in favour of buyers, but the costs for financing and selling (partially) working against them in that regard.
Just spitting some ideas here, I feel like renters have much more room to invest then you outline in this video. But to be frank, I don't know much about it 😅
Even so in a city like Auckland nz. We are renting a house value at 1.2 million. Rates are 6% and rising. Rent is under 30k per year. Do the math. Deposit needed over 200k or 20%. Interest on the borrowed money at 6%.
Rent and invest 30% of your gross or home own and invest 15% of gross pay
You're correct. Real historical home appreciation (after unrecoverable expenses) is about 1% whereas globally diversified stocks/bonds is about 4%. As long as renters invest regularly, they're better diversified than owners.
@@alankoslowski9473 wrong, 12% SPY return, 4% is you just lying
@@joemeyer2726 That's the S&P 500, not global stocks/bonds. Also over the last decade S&P 500 returns have been unusually high. Historically they've been much lower.
This video seems to make some dangerous assumptions.
Namely, banking on a house appreciating in value 3.8% year over year (or $1480/mo on a $2153/mo mortgage) is irresponsible. This is especially true given that we're just post-peak on a housing cycle (the last one peaked at $220,765 in 2005 Phoenix and hit bottom at $80,902 in 2011---in terms of inflation adjusted median price). We could easily see prices falling into 2025 before recovering. As the video points out, the house would have to be worth at least $600k at the end of 13 years for the assumption to bear out. That could happen, but I certainly wouldn't bank on it if deciding whether I should buy a home. Also, as others have pointed out, the not insignificant $437/mo tax deduction would not apply to anyone using a standard deduction.
Similarly on the other hand, the video assumes an average rent/mo at $2,873 even though the actual rent is $600 less at $2,275. It is certainly possible that by 2036 the average rent on the property from now until then will have worked out to $2873, but I certainly wouldn't make a financial decision in 2023 based on that hypothetical. We're currently seeing average rent fall in the Phoenix metro, so using the actual cost of rent would be much more useful than a speculative number based on constant increases.
arizonarealestatenotebook.com/phoenix-real-estate-market-glance-charts/
And it was assumed that your stock investments would increase 7% per year. What if the market fell 30% and it took 10 years to get back to where it was when you first invested the money? This is why she used historical averages.
Great video. Where can you get 7% compound interest? In Robinhood average interest rate of VOO is 7%; is it compound or simple interest?
Good video. How are you getting $265 in property taxes? Phoenix property tax is 1.29%, right? That would imply that the property’s assessed value is only $246.5K, no? Also, general rule of thumb is 1% of our purchase price for monthly repair and maintenance. Why are you estimating so far below that? Not saying you’re wrong, just trying to understand your thinking here.
7% is after inflation. Your house appreciation is before inflation. After inflation, your house appreciated 0.😂
🤔so it cheaper to buy a home 🏡 And also you own it…As opposed to renting where you’ll never own the house 🤔
No, since that calculation includes the selling of the home at the end of the 13 years
its only cheaper if you sell your house and move into a smaller house somewhere else.
Nice video! Thanks
Great info!
20% down? No debt? Then you are not ready to buy
Thank u!!!🥇🎊