I choose homelessness. I saved a lot of money being homeless for 3 months. I worked for uber and Lyft to stock up cash on a car is over priced and saved enough to buy a company truck for my business and RV to live in.
Yeah, I think they may have seen those click-bait Craigslist ads that look like they're for a whole house but are actually seeking roommates for a house. Zumper says the average, as of August 2021, is $4,750, which is a decrease of 5% from last year.
I think their calculation is still valid, but there are probably no $600,000 single family houses in SF. That would be more like a tiny studio probably haha. They should have said "home" (regardless of studio/apt./townhome/house) instead of house.
And from a financial stand point it makes no sense. Why would someone who bought the house for 600,000, rent for only 1000 a month? The property taxes alone are going to be crazy high and might even be more then the rent. Plus don't even get me started on the home insurance and if they still have a mortgage on the place.
@@piepiepie57 I agree that they could have cited sources for this and explained it better but the PRI they discuss is real and it usually accounts for the complete cost if home ownership including taxes and HOA. It compares that to the price of renting a similar property. So in cities like SF it would be cheaper to rent than buy. From what I've read, a higher PRI would be beneficial for real estate investors since there would be higher demand for renting in that area. But the higher the PRI, the harder it would be to realistically profit from said investment. But it would be interesting to understand what the average landlord looks like. It depends whether they operate independently or are a larger operation which is what you see with a lot of those new apartment complexes 🤔 Also, real estate is an investment and I assume the goal is for rent prices to increase as the value of property in the area increases. It's not uncommon for your rent to go up by $100 or so every year.
I've been telling friends this for years.. My parents rented for 15 years. The property owners covered the water bills, maintenance, etc. When they bought a house they paid with cash and during the recession, which was probably the best time to do so! Since I went house hunting with them, we learned that many people lost their homes or were so tight on money they were willing to sell everything they had. Invest wisely and always be prepared for those future maintenance costs!!!
Maintenance costs are worse than people will admit. Sure, we can do a lot of the work ourselves, but when the furnace needs replaced, you end up spending thousands more than you expected.
The problem is that the same applies the other way around. If you're renting in a district that experiences an economic boom (people moving in, public investment or new jobs), the cost of living when renting increases much quicker when renting (after your contract ends it can be even +50% for the new one in extreme cases), while if you own your property, what increases quickly is the value of your property.
Oh yeah pipe bursting are the worse things if u don’t know how to fix a leak. I know people who didn’t and to fix a pipe bursting in the front yard was 8,000 dollars vs 200 to fix it yourself granted u know what ur doing. Then there’s renovating the space to fit your needs and decor and decoration.
Back in the day, when I purchased my first home to live-in; that was Miami in the early 1990s, first mortgages with rates of 8 to 9% and 9% to 10% were typical. People will have to accept the possibility that we won't ever return to 3%. If sellers must sell, home prices will have to decline, and lower evaluations will follow. Pretty sure I'm not alone in my chain of thoughts.
If anything, it'll get worse. Very soon, affordable housing will no longer be affordable. So anything anyone want to do, I will advise they do it now because the prices today will look like dips tomorrow. Until the Fed clamps down even further, I think we're going to see hysteria due to rampant inflation. You can't halfway rip the band-aid off.
Home prices will come down eventually, but for now; get your money (as much as you can) out of the housing market and get into the financial markets or gold. The new mortgage rates are crazy, add to that the recession and the fact that mortgage guidelines are getting more difficult. Home prices will need to fall by a minimum of 40% (more like 50%) before the market normalizes. If you are in cross roads or need sincere advise on the best moves to take now its best you seek an independent advisor who knows about the financial markets.
"Rebecca Noblett Roberts is the licensed fiduciary I use. Just research the name. You’d find necessary details to work with a correspondence to set up an appointment.
I just googled her and I'm really impressed with her credentials; I reached out to her since I need all the assistance I can get. I just scheduled a meeting.
I'm renting a two-bedroom apartment with two other roommates. My total monthly payment for living is about $350. I'm using all that money i'm saving to pay off student loans, and save for a down payment on an eventual house.
Being debt free is so worth it! Keep up the good work. My wife and I have been debt free for a few years now and it's so great not to have to worry about money. We didn't even flinch during Covid. We didn't even have to touch our emergency fund but it was there if we needed it. Peace of mind is worth a lot to me.
In many places you can only dream of paying 30% on rent. I live in Edinburgh and rent prices are so inflated you have to pay over 60% of your income just to live in a room in a shared flat.
@Life With Astrid Sometimes the issue isn't that, it's the regulations allowing where to build (many european cities have that problem, i don't about Edinburgh though). In most cities in my country we have serious overflated rent prices for a multitude of reasons, the 3 main reasons are: 1) That damn Airbnb 2) The "housing aid" given by the goverment (the average housing aid check is 100 euros, the month after the implementation rents went up by 100 euros average).
Life With Astrid it’s the same thing in London. Prices are ridiculous. You move out of London the houses are cheaper (they are rising) but then the train fares kill you along with the journey time.
At least Airbnb got a hit with 'rona right now, at least in some cities, some Airbnb landlords have put their properties on the regular rental market again.
Also, for a 1-bedroom that would be a million to buy would be more like 3k per month here in SF, so the actual ratio is more like 30-to-1. I'm not sure what bozo claimed it is 50-to-1, but they shouldn't trust that data source again.
I came here to laugh at this. Also, show me anything for rent for $1000/month in SF. You'd be lucky to find someone willing to let you sleep in their hall closet like Bender from Futurama for that price. I wouldn't expect to find *anything* to myself for less than $1500/month anywhere in the bay area, let alone SF. You're forced to have multiple roommates for that kind of budget.
I've been a homeowner for five years now. I kinda miss being a renter. One thing this ratio doesn't take into account is time and money to keep up your house. Especially time. When I was a renter, I didn't have to do yard work. Now, my free time gets wasted mowing the lawn and pulling weeds. I used to not like winter, now I love it because it gives me a break from yard work.
@MaGicTOWer Yes, everything you wrote is true! Winter can have its downsides. Actually, when I was a renter, my pipes did freeze in my townhouse once. But luckily, my landlord came to the rescue and was able to heat up the pipes before they burst. That's not a problem in my current house, because I have no pipes up against an outside wall. But anyway, I originally made that post last year. A lot has changed since then, like my property taxes took a huge jump, and are now equal to nearly two months of my net salary. It's like I'm going to work just to pay for property taxes. I plan to sell my house this year, and go back to renting. I'm thinking I'll look for a condo that someone wants to rent out. Because at least the snow and yardwork will get taken care of.
@MaGicTOWer Yeah, it sucks that I'll need to sell my home. I blame the voters, who voted in favor of a huge school levy. My state, Ohio, unfortunately doesn't have caps on the percentage your property taxes can go up in a single year. But the good news is that houses in my area have really shot up in price recently, so I'm gonna make a big profit. I've only lived where I'm at for six years, so I have no emotional attachment. Anyway, I want to go back to renting, so I'm not living in fear every time a new school levy gets put before the voters. As for getting a bunker....That's hard to find around here, and would be expensive to build. But hey, I'll just find a place with a basement! Close enough!
@ghost mall So....My comment was made a year ago. My attitude has since changed. I still don't like mowing the lawn. But nowadays, we're seeing inflation because of the government printing money like crazy over the past year. This becomes very obvious when we look at gas prices. Now I don't mind being a homeowner, because a substantial amount of my money is tied up in a hard asset. In fact, I'd be rather nervous now about selling the house and renting. All that cash sitting in my bank account from the home sale would become worth less and less. The government can't print more land, so real estate seems like a good bet against inflation.
@@xornxenophon3652 There's a problem with your comment, at least where I live. First, I live in a suburb. Code enforcement will send you a friendly letter if the grass is taller than 11 inches. If you ignore the letter, the city will come out and mow the lawn for you, and charge you $500. But even if there were no code enforcement, I would have to mow the grass anyway. The reason is because ticks hide out in tall grass. So, mowing protects you from getting Lyme disease. Even out in the country, people mow around their house, due to the threat of ticks. I live in Ohio, by the way. If someone lives out in the desert, like in Arizona, then they can get away with not doing any yardwork.
When “The Economist” made the rent vs buy video saying rent is sometimes a good idea and it worked out in some countries, some commenters complained along the line of “The Economist is a shill magazine for millionaires/landlords”
I think the point is that when property ownership is only accessible to the top 1%, it maintains systemic inequality and class divisions that are incredibly difficult to break out of. This is bad. That doesn't mean it isn't in an _individual's_ best interest to rent, but even so that is contributing to the brokenness of our current system. This will continue until we as a society come up with a way to eliminate inherited wealth and family legacies.
@@hackel137 Rich people don't negatively affect your living, just because Beverly Hills exists doesn't mean that you're negatively affected from Nebraska. So it's nonsense to be upset about other people's success, at least it shows that it's something to strive towards. And this is important, because property ownership used to only be for the 1% in the 20s and 30s. Then it quickly grew to 10% as the middle class became wealthier, until the point where baby boomers had home ownership rates upwards of 80%. Preventing rich people from doing something just makes it so that you'll never be able to rise up, because you have nothing to rise up to. And if you're living in an era where you can't afford a house, then you'll just never be able to afford one, your production just doesn't qualify you to own one, no amount of redistribution of wealth will solve the problem if supply just does not meet demand. Unfortunately millennials have regressed massively from the boomer era but that's because they choose to live in expensive cities, which should theoretically be fine since construction workers will just build more apartments to accommodate just as they did from the 20s to the 40s, but most cities in the 21st century have passed so much regulation and laws that it's prohibitively expensive or simply illegal to build anything new, so massive demand from 3 million graduates per year is running up a restricted supply and rent/ownership becomes grossly unaffordable. The rest of the United States remains just as livable as it was in the 1950s though.
Rent is a fee you pay for the convenience of mobility. Owning a home means being tied down to that location. Unless you're rich enough to just up and move to somewhere else whenever you want and deal with selling your house whenever, you'll have to either wait or forgo moving, or spend a lot of time, money, and effort to sell your house and likely end up incurring double rent/mortgage payments for a while until you can close on the sale of the house while living in the new location.
Or rent it out and become the landlord?..... if you eliminate this as an option you're not good with money. Buying a house isn't forcing you to live in it yourself. Millenials are being taught this all wrong. The choice is not mobile vs stuck. It is less mobile vs mobile.
@@beddythecorgi4269 Yeah but now you're signing up for the burden of being a landlord. Many people are terrible landlords. Also, after all expenses are paid, you're making around 5-6% returns per year on average, IF you find a reliable tenant that sticks around. Plus all rent proceeds are all taxed as ordinary income. Investing in the S&P 500 gets you around a 7% return after inflation. Any gains are taxed at the lower capital gains rate. Not to mention you do ZERO work to earn that return, and you can sell the asset with little to no exit fees. (Try that with a house!) You just have to have the stomach to weather any market downturns and have the discipline to see the asset grow. If you MUST get in on the real estate action, investing in REITs are a good possible option without any landlord headaches.
The P.R. Ratio is a great way to look at things! My partner and I love you both so much: the visuals, advice, and easy-to-understand yet VERY important money saving topics y'all discuss are really appreciated! 💖💖
I've tried owning, and I've tried renting, both houses and apartments. I'm done with home ownership for a long while. Home ownership is just important to our culture, and there are costs and responsibilities people won't talk about because it blemishes that image of being a home owner, so I was unaware that it would initially be much more expensive and it made my life worse as I was in college. Also, the process of buying and selling is miserable. I'm saving money by renting a nice apartment, putting more into retirement, and I have the freedom to move as often as I want.
The process of buying and selling is miserable, as opposed to the fun and easy process of finding a rental place (which you might have to repeat a number of times, if the landlord decides not to renew your lease or raise your rent to a point you cannot afford), as well as having to deal with a series of landlords, some of which might not be great?
no. “Putting more into retirement”. Right. When you retire, are you still going to rent? If you buy a home, do you have any idea how much a home will cost by then?
@@mariak143 I stick to apartments now. I never have issues. Like buying a house, you should know what you're getting into. But my lifestyle requires more travel, and no settling.
@@ErrorPagenotFound-ig1cy I like to move. Buying and selling would be idiotic when I move every couple years. Let's not assume everyone else we meet is ignorant, okay? Don't be that guy.
Hi! I live in Barcelona, Spain and I'm sharing a flat with a friend. The P.R ratio in my city is around 26, so now I know my decision to rent was a sound one. Thanks for your two cents!
I am in Houston, Texas and found our PR to be 14.67. I currently rent with a budget of 25% of my income and I still struggle to find a suitable house in the city. I've done my calculations that I am easily saving $500/month by renting. The biggest kicker here is our property taxes are very high. Plus, remember if your A/C or another appliance breaks, your landlord is required to fix it. If you buy that bill is all on you.
I live in Houston, too! *high fives*! I moved from Austin to Houston, and oddly enough kept my rental costs low by finding a cheap-ish apartment close to work. The commutes here in Texas are nightmarish if you buy a house - so glad I didn't, with all this urban sprawl!
@@SamianHQuazi hope you are enjoying Houston. And I agree with the commutes, I would rather rent longer in the city then have to commute from the suburbs.
I hear Texas people talking like that all the time. They say, "Texas is great! There's no income tax!" So I say, "What's your property tax like? How much does it cost to register your car?" They don't say much about that.
Haha within the first week of buying our house the water heater broke. That was a pretty big slap of reality. But usually people buy home insurance for the first few years just in case something breaks
You can always find cheap places to live in Houston but the commute will finish the job in terms of killing your soul. If you are a homeowner then you will pay a lot in property taxes. My buddy was just telling me that his property was 18k for his house in the Woodlands. I was like, “ I guess Texas isn’t the free state you thought it was. He moved from California and pays more in property tax than he did in income and property tax in California. Tough break. To be fair he lives in a newer part of the woodlands. He has to pay for that infrastructure
In Austin, you have to make about $200,000/yr and have $60,000 in cash to be able to responsibly buy a $300,000 house, which is on the low end of the spectrum.
I build houses for a living and honestly I see it all the time people buy houses that shouldn't. Or get convinced to buy a house that looks nice but is going to have major issues in the future it's not as simple as it should be. I'd recommend finding someone who knows what they are looking at if you don't before you make a purchase.
This video should have included a discussion of the benefits of buying a house and having tenants live with you. A fellow student of mine convinced her parents give her the downpayment for a house, then filled it with 5 of her friends. The rent from 4 paid the mortgage and the 5th paid for upkeep. Because she had access to capital she was able to live rent free. Also, since it was her primary residence she got a substantial tax break on her rental income.
This is so true my dad lectured me for an hour about this the other day and let me tell you, he was pressed. I always thought i was throwing away my money by renting but it makes so much more sense for me after watching this
Honestly if I were able to afford a place, I would most definitely rent. I don't need a house/that much space to live in. I'm a single childless person. People fill houses up with useless junk. I've always said people are fooling themselves to think they actually own the house and that's the end of the costs of having one. Property taxes, repairs, appliances, furniture, paying for years on the house itself, utilities, etc.
I've never felt like I got my money's worth when I was renting. When stuff broke, it never got fixed. They didn't do pest control like they were supposed to. Rent got raised every year, until it became unsustainable to remain living there. And those experiences were common to every place I've ever rented.
@@longbottle IMO you are throwing money away and building equity for another person. In my case, rent was 1200-2000 and similar house payments are 600-1000/ mo. Two scenarios: #1: I rent for two years, was out $1200x24 plus some utilities and lost deposits. Leave lease with nothing. #2: I buy with 0-3.5% down, build equity, sell at above market value two years later with 60k in profits... I did both of these scenarios at the same time....in my early 20s, no support, no degree, hourly wages. There are no excuses really. BUILD YOUR WEALTH!!!
I think there is also a rule of thumb that when you factor in maintenance and closing costs and potential recession, if you aren't planning on owning your home/property for more than 7 years it is unwise to buy as you probably won't break even. This to me is probably the strongest argument for renting short term.
It varies from to person to person, but as long as it WORKS for you then keep doing it!! If it doesn't, you can always take those experiences and make it a factor to your futures decisions!
The decision to rent or buy becomes more complicated once you have kids. School districts are tied to specific zip codes. Unless one can sign up for a 12 year lease, I am not sure how one can ensure continuous attendance in the same school district for their kids if a couple chose to rent. Good content as always.
According to the US Census Bureau, the median home price in SF for owner occupied housing units is $1,009,500 in 2018. That puts rent at around $1666 a month. Any room renting for this much in SF will likely get you the best closet money can buy.
My wife and I are selling home and moving to a rental. We were not ready when we bought 10 Years ago and from a cash flow perspective we are going to be able To free up a lot of cash for investing
Yes, yes, yes!!! When the reality of costs for all the things that can (and will) go wrong in a house hits, it's just too late. I say rent until your housing costs including utilities are no more than about 20% of your income.
I wish that proponents of home ownership weren't in denial about the cost. I'm saving a lot of money renting even when my rent is more than my old mortgage.
no. Exactly people own a home for a few decades and make a bit of money and that becomes the narrative. The reality is what was the opportunity cost of that money and what has that home actually cost them over all those years. It’s like a person going into a Casino spending a grand winning 500 bucks and telling everybody how great they did lol
Dude, buying homes these days is for stupid ass bitches. You pay expensive prices on a beat down home, spend more money to renovate it, have to pay property tax on it, and then when it’s time to move, a hurricane blows it down, the city alters water source and you get lead in the water, or a ghetto ass neighbor moves in and the property value goes to shit. Sell and lose money and have to pay service fees to the realtor and lose even more. Summary: You lose Home-boy 😂!!! Rent and dip when the contract is over end of discussion, you’re out nothing more.
If you want to invest, invest in a business. That’s your farm example. the farms fruits pays out. A house you live in is a liability. If you’re going to flip houses, that’s a different story.
Thank you so much for covering this subject! I have been researching this on and off for a while now and this is this first time I've heard of the PR ratio!
I was literally planning to buy and i have even setup everything to do that even though it will be huge Barden on my income, but after i saw the video and did the calculations it will be way much better for me to rent where i work and save money to buy on my home town. I really appreciate your videos keep it up 👏🏽
@@TwoCentsPBS So I found Houston listed on a web site with a PR ratio of 14.67, but given the diversity and vastness of "Houston" I am going to have to further my research.
You guys thanks so much for this! THIS IS LITERALLY MY DILEMA IN SAN DIEGO !! LOVE YOU ALL SO MUCH!! -oh by the way can you put links to the senior living shared in the description?
full time regular work is usually ~250 times a year. So its 500 miles a year (for 1 mile each way per day). Typical car operation cost is 55 cents a mile (can be much more for expensive cars or huge truck) (its not just gas). So that's $275 right there. Time value of your money (realized in the form of lost wages, or simply things you could do at home but hire out for instead, like take-out vs cook, maid vs DIY, lawn care vs DIY, missing out on a possible side hustle). IF you value your time in that way at say $20/hr and typical average combined rush hour driving speed of 30mph, that's 17 hours a years * $20 = $345. Grand total $620.
@@Mark-xj8bu So then take out the lost wages and then consider all vehicle costs - wear and tear like the video stated. You might have higher car insurance the further to work you have to drive. I have lived in three cities in two different states and all three times one of the first questions they ask is about your commute distance to work. Maybe you drive a corvette with low profile expensive road gripping tires - that will run up the wear and tear costs. Or maybe you own an old beater, much lower wear and tear costs. But, simple math - using the ~ 250 times per year, or 1 mile to work would be 2 miles round trip or 500 miles. Just gas cost alone (yes it varies wildly) I am going with $3.25 per gallon to be somewhere in the middle of the range on prices. We have 500 miles per year per mile distance in a trip to work at 21 miles per gallon = $77.40 per year per mile....assuming you get 21 mpg and since some people are sitting in bumper to bumper traffic....21mpg is way more than fair. I always lived close to work and about 4 miles on average. That is 4 * 2 * 250 = 2,000 miles / 21mpg (more than I averaged by 20%) = 92.2 gallons * $3.25 = $309.4 just in fuel....for me....in a car that gets better mileage than I actually did get. What if someone is driving only 10 miles to work, which is very close to work for so many people? That $309.4 moves up to about $775 per year on fuel alone....and an extra oil change. If you have any number of typical cars in the last 15 years you might need synthetic oil when you get changes. Your longer commute of only 10 miles adds an extra $85 oil change per year. Tires - again if you have any kind of low profile performance tire you will be losing a lot of their life just doing the boring drive to work and home. God forbid you commute 15, 20, 25 miles or more. It might cost you $1,200 for rubber on all four corners or more and you are going to get their much faster with 10,000 miles per year being wasted on that work commute. Tires could add $400 per year to that extra oil change and fuel for that 10 mile drive each direction. Now you are $1,260 per year and we still aren't counting possible insurance costs changes, other wear and tear (suspension, windshield being replaced from rock chips, etc). In other words, your argument that 3of11 was wrong based on his one assumption is weak. Considering he was actually pretty generous. If you actually pen it out, commuting is terribly costly and even my conservative 10 miles is generous. I bet the average is 15 miles each way. Then there is this, "The average cost of an American commute is $2,600, according to the Citi ThankYou Premier Commuter Index. " (smartasset.com/personal-finance/the-average-cost-of-an-american-commute). I have no idea what is being account for in that commuting cost as my searches kept running into articles that reference it rather than the hard data itself.
@@3of11 "time value of money" is a bit of a fiction for most people. Don't get me wrong, there is value to your time, but it's usually not monetary. My time is NOT worth my hourly wage when I'm not at work, my time is only worth what someone is willing to pay for it. My employer isn't willing to pay for it after hours, so I don't have the option of making money that way. Similarly, the hiring out thing isn't generally done by most people even if they do have the longer commute as they simply can't afford it (a maid? who can afford that?). Side hustles are great, but the majority of people aren't making any money that way either. TLDR: If you don't have the option of working an extra hour at your job, or a similarly paid side-hustle instead of the extra hour of commute, your time isn't actually worth your hourly wage.
That price-to-rent ratio is very enlightening! According to that, it's only sensible for me - only need 1 or 2br living space - to buy an apartment rather than a house, considering prices in my country. I was already leaning towards that, though now I have a sensible formula to work with to weigh my options :) thank you!
I am sharing this video with all of my friends. Love to finally have a clear explanation on why renting may be a good option for some people. The P/R ratio in Lima (Peru) is around 20. Looks like it makes a lot of sense to rent!
Been thinking about looking to buy a house "someday." TIL that the P/R ratio in my town is 27.27. Yikes. I'll stick with renting where rent/utilities/internet is 26% of my monthly inccome, commute is under 10 minutes, I have disposable income for a housekeeper, and I can invest 55% of my income.
Boston is like this. You basically have to go through a broker to rent at all and you generally pay 1 month rent as a brokerage fee. I had to pay over 5k just to get the keys to a 350sqft studio - first months rent, security deposit, and brokerage fee. It was such a relief to move back to the Midwest after grad school lol
Nothing in San Francisco costs $1000. A studio costs around $2500/month. This video over simplified this topic. No talk of equity and the possibility of selling a house. This was all about short term costs.
All that matters is what you have at the end of the day. In my area the average home price is around 400K. In 25 years historically speaking this will be worth about 900K. So in situation 1 I put 100K down on this home and pay around over 2K a month including property tax, insurance, utilities, home repairs, utilities, maintenance etc etc. So for that 100K in 25 years I will have an asset worth about 900K. If I instead put that 100K into an index fund that tracks the entire market (10% a year average growth for the last 100 years), and rent for 1000 a month, I can put that extra 1000 into the same index fund every month. Ion 25 years my investments will be worth about 2.2 Million. Way better to rent in this situation. It all depends on running the numbers.
@@ErrorPagenotFound-ig1cy Many places where I live. But like I said, it all depends on running the numbers. If you have a family and your rent is 2000 and all expenses in on your mortgage are 2300, you might as well buy a home. This is going to be different for everyone. There is a huge difference between a single person who can rent a studio for 900 and a 4 person family. The point I was trying to make is run the numbers. The numbers don't lie. A lot of people talk like housing is the best and only choice, yet they can't even run a FV calculation. That is just ignorance.
Assuming, your costs remain around 2K per month (I'm pretty confident they would increase over time), you would have input 700K over the 25 years, not just the initial 100K.
Value Venture Investing doesnt matter. The goal of home ownership is to pay it off as soon as possible. Let’s say I pay off my house and also invest $1000 (same as you) into my retirement for 20 years, we will end up the same amount of money in our IRA’s, but you are a renter, I have a free and clear home. Who messed up in that scenario? I have no mortgage and that IRA will not go towards rent.
@@ErrorPagenotFound-ig1cy I think you are confused. These are two separate possibilities. Either you buy a house or you rent. In both cases you are considering the opportunity cost of capital. If you have 3K to play with in one scenario (2K for montage and all cost associated and the extra 1K you speak of) you have 3K to play with in the other one as well. If you have the salary to pay your mortgage and invest 1000 a month, that's over 2000 a month that you could have invested with renting. Thats 3.4 million in 25 years then. Your home value and your 1000/month in your investments will not be worth that. Its the same scenario, you are just saying you have a higher income.
We took the third option, a Tiny House. This is especially good for those that (like you said) aren't quite sure where they want to settle down yet. You pay it off with that same four years of rent while you figure out what you want to do. Then if you decide to go the traditional route, you've got a paid for, AirB&B rental that will generate you $35k-65k annually depending on where you park it. It's basically a combination of ownership, flexibility and future ROI.
@@Juiposa The rest of the United States has a career too, it's pretty easy to both not have a college degree and still afford a down payment on a house in a rural county.
...like explained in the video, as long as we are investigating money during the time we're renting we'll eventually have a nice sized down payment for a home.
i honestly don't understand the realtor bit, if they're tied to the property wouldn't each property be tied to a different realtor? Or you can just contact a rando realtor and they'll help you without fees?......can someone explain?
only diff is all the bylaws and monthly condo fees which can increase every year. you also pay for any major repairs and then are given a large bill but u can add those special assessments to your insurance policy. Insurance is cheaper for condo vs house and of course it costs a lot less. good starter home that you can turn into rental property after.
That is great information! The one other thing I would suggest, for when renting is better than owning a house financially, is to set aside some money each month just in case the property owner decides to sell and you're out of a home and need to make sure you have some funds for a backup plan until you find your next place to rent.
Thank you for this video guys. Its helpful to know, especially how I ALWAYS see rent as "throwing money away". Even with reasonably cheap rent. Did not know about the PR ratio number.
As a military member I've been renting for over 20 years (with a short ownership period of 20 months in '04-'05). I didn't know it at the time but this was probably the single greatest reason I was able to grow our family wealth significantly through those years. All the costs which came with home ownership weren't ours to bare and I was able to take that money and invest in moderately aggressive mutual funds. Through those years, when I compare my peers who have bought/sold, bought/sold, again and again, we came out significantly better. There are some downsides, however, but overall, renting each time we moved worked for us. Now that we are retiring we have a significant amount in savings and those investments are literally paying dividends equal to if not greater than anyone I know who is renting out there homes.
I rented during the slow housing market and had a profit plan with my company for over 18 years. Right before the market went back up I bought a house. Five years in the house and I left my job and cashed out my profit plan. I used the money to pay my house off at age 39. The house appreciated about $90,000 over 5 years based on zillow. If you plan on buying a house do it when the housing market is down not up like it is right now.
This is why tiny homes should be legal everywhere. I also appreciate that you mentioned renters insurance. I was a property manager for 10 years, and there are way too many renters who think the landlord's insurance on the structure of the rental also covers the tenants' stuff.
All your videos are gold! The PR Ratio for my area is 19.2 ($300,000 for a house, and $1,300 for an upstairs apartment). There are cheaper houses and apartments, but they tend be in rough shape below those price points. Guess I'll keep renting for now!
@@cupbowlspoonforkknif putting money into something that are just going into the bin... not so priceless is it? If you buy a house you don't necessarily have to live in it, you can rent it out and move out yourself
Having to pony up the money for repairs and general upkeep yourself puts you in the place of your own landlord. It has its own stress problems. And as someone said, if you live in an HOA, it's often as good (or bad) as having a landlord who will control every decision concerning your house... With condos, your property might decrease in value because your other owners can't afford the upkeep and the building is getting dilapedated. In so much cases, you depend on others just as much as a home owner as when you're renting.
Something I see left out of the rent vs buy discussion a lot is the most important part: do you want to own a home? A lot of people will say "oh it's an investment!" but ignore that some people will never find the time and energy it takes to maintain property worth it. You should only spend money if it gets you something you want!
READ YOUR LEASES!!! I had a nightmare landlord who would enter the house unannounced on a regular basis, fill up our trash cans with trash from his other house, even leave furniture he was throwing out in our front yard and driveway!!! When I started to read the lease terms he quickly pulled it away from me and continued on the tour of the place saying that "it was all standard boring normal stuff" - I totally fell for it because it was my first time moving out from my parent's house! Seriously! Read your lease terms!
I agree. It depends, if you are going to be there for multiple years, around 6 to 10 years, then it's worth buying. If under 5 years, for example, for a contract job, schooling, etc,. Then it might be more worth it to rent instead. Since there is multiple factors that impact cost, capital gain tax, sales tax, agent fees, etc, that cuts out percentage instead of a fixed amount so basically you have to wait for your home to raise a lot more in value first to even get back the money that you put in.
I take issue with comparing the down payment of a home against the return the person could have if they it invested in an index fund and rented instead. In Finance, a fundamental principle is a separation of financing costs and investment returns. Your mortgage payments/rental payment is guaranteed while your index fund returns are not. As such, you should be comparing against a risk free rate, not the index rate. I know you didn’t say that explicitly or even ran the numbers but this sort of logic can justify outrageous things like taking credit card debt to buy bitcoin because you expect your BTC returns to be higher than your credit card cost. To be honest, it’s a common mistake. Even our public pensions are discounted using an expected market return of 6-7%, even though these returns aren’t guaranteed while the payments are. They should really be discounted at a much more conservative rate but then our pensions would be tremendously underfunded.... Great video nevertheless! Always love your content.
This is Barris! I get the logic of this, and the potential pitfalls that not following this logic could lead to. But from a practical sense, when I’m weighing financial options, I like to look at what I could expect to receive from the market based on historical data and my previous history. Since I know that all of my extra money goes towards my IRA, it would be silly for me to compare something like the down payment to something secure when I know exactly where my money will be going and what I could expect over a long period of time based on data. I do use conservative estimates though.
It really depends on the city. I don't see it only as financial but if I can buy I will because I don't want to worry about eviction. When the owner will decide to put the place up for sale etc. That's a part of the lifestyle choice
@@-Anunnaki- I’ve changed my mind in the last 9 months. With all these covid “rules”, I’m moving onto my twin’s property and probably going to buy a camper for now.
Good thing u bought a house, at least one day u can say i owned one whatever happens in the future. Owning a house is not for everybody i noticed that.
Oh yeah, SO MUCH this. I never really felt like I was going to be in anyplace for the long haul, and I kept things for "the next move" that I now am comfortable parting with.
Amen for renters insurance. My place got broken into. The company said a comparable tv was worth 600 bucks, the the tv was old and didn’t have WiFi or anything. I spent 450 on a tv and used the rest towards debt payments
My advice (from Finland, may work in the US depending on where you live): buy as long as interest rates are low. I recently signed a 35Y mortgage at Euribor +0,35% (euribor is currently negative but I have a floor at 0% so effective interest rate is 0,35% revised annually). With these interest rates you barely pay any interest so every month you’re building a lot of equity. If this was 2007 and rates were super high I’d suggest to keep renting..
but the price of the house in U.S. is so high now... I would rather buy lower priced house with higher interest. Because I have about 50-60% down payment.. Plus, if you get interest rate, the lowest of the low, then there is no chance to refinance in the future.
@@GoGo-tk8ui the housing price is high in some parts/cities of the US, but not in all. Nevertheless, if you get a super low interest rate now, why refinance it in the future? And if you do because you need extra money, you would’ve benefited of having a low interest rate for many years
nolo king exactly I love the security of home ownership for my kids stability it’s so important before we had kids we moved every year because of the landlord selling the home, rent increasing, bad neighborhoods it is worth every penny to own a home in a good neighborhood it give me peace of mind
Plus in some states (like Texas) your primary residence cannot be lost in a law suit. So if you have a lot of your net worth tied into your home you can't lose it. But for a renter who invests in the stock market (except for a retirement account) can lose almost all of their net worth. So in Texas if you own a sole proprietorship or do risky things that might end with a law suit (like being a doctor or scamming people) It might be smart to buy a home.
@@hellzshotgun I've lived in several states and Texas has had by far the highest property taxes. Yes, there isn't an income tax but the taxman just gets their money another way.
It's extremely rare in Boston for the owner to pay the realtor fee, on occasion they'll pay for half, but vast majority the renter pays the entire fee of a month's worth of rent.
I appreciate the PR ratio. I know its not the only thing to look at but helps know if your math on everything else is right. I'm renting for many reasons and currently my PR ratio is 21(California 50 miles from the city).
As for renter's insurance, it can save you money even if you never make a claim. That's because insurance companies will often give you a discount for having multiple policies. Suppose your auto insurance is $250 a month, renter's insurance is $17 a month and you get a discount of $25 a month for having two policies with the same insurance company. You're saving $8 a month by having renter's insurance vs. auto insurance only.
I’m grateful for having siblings that help me with rent. In Seattle I only pay for $320 rent. Then I invest + save the rest. At the end of the day, it’s how much you keep and invest so there’s more of your hard earned money. Grant Cardone recommended renting too, you’re paying for service like what you do in a hospital, school, gym. So renting is not necessarily throwing away money.
It is the number of years it would take to pay that house with that fee, without counting interest. That's why you don't want a debt that would be paid in 15 years at best...
I am a software developer just turn 30, never able to save much, but really thankful for this valuable information. I must say, it is same for every salaried person around the world who is struggling to buy his first home and get our of rent. god bless.
Guys I know I've said this before about one of your videos and no doubt I will say it again about a future video (because you two have such great videos) BUT... This is your greatest video; thank you. I love it because you do the math in front of us and keep it simple so we can see the evidence behind your advice. Plus it's ALWAYS realistic/practical advice, you guys never advice us about offshore accounts or what to do with our million dollar trust funds.
Nice pragmatic approach! Watching this in Germany, it's hard to believe there are places in the US where the multiples are below 10 - is there something wrong with those?
@@Mark-xj8bu I don't doubt you can get good value and quality in less expensive places - but that should keep the rents down as well... so the buy/rent ratio wouldn't be that low either. When I see a ratio this low I suspect a place has a declining population and/or eroding household incomes which might still make renting a smarter decision if you don't want to stay forever.
I love your pragmatic view towards renting. Me and my husband have considered buying multiple times but financially it would only make sense for us if we knew we'd be living here 5 years from now, and we don't know that soooo.
Damn, the prices of houses and rentals in my area must be really unusual. I'm looking at buying a similar house to the one I'm renting now, the PR ratio is 4.0
In Paris the ratio is about 25. It could have been cheaper to rent, but we are leasing our parking space and this made it cheaper for us to buy. We save around 10% a month form the eventual rent of a same appartement (all taxes considered).
Im not sure how "lost wages" are calculated, but I drive 22 miles to work (44 total), and Im certain that living 22 miles closer wouldn't increase my salary by $15k/year.
And they're not even considering the cost/stress ration. I would HATE living in a city with noisy neighbors and people stealing all of my stuff. No amount of savings would cancel that out.
@Mike Li That was the $170/year per mile on car expenses. For, that would be around $3,740, which sounds about right since I spend around $120/month on fuel, which comes out to around $1400 and $2300 for insurance/depreciation and repairs seems about right. I only pay $85/month for insurance and that's for 2 cars. $625 in lost wages per mile. That would be equal to $1145 per month in lost wages for the distance i drive. It makes no sense.
@@sminthian Well, if you dont buy much stuff, they got nothing to steal 😉. But yeah, I understand the part about noisy neighbors though. Renter's insurance covers theft though, so that's something to consider.
What an amazing video and you guys really did a great job at explaining each. Helps put my mind at ease switching from home owner to renter. Love you two, keep being amazing.
In south-central Idaho it is 35.41, I did however find a good deal on my apartment. $340,000/($800*12) There is a major housing shortage for one of the highest-growing states in the US. A more likely ratio in our area would be 28.
Got out of my condo and now I'm a renter and it was the smartest move I ever made. I actually have money in the bank abs retirement. Besides I hate having to do maintenance of any kind!
I hope you guys do a video about index funds to better understand it...thank you for everything I learned and made a better life decisions because of you guys
3:36 I call BS that a 10-mile commute loses $8k/yr. No idea how "lost wages" is applicable here. My fuel and maintenance calculation comes to about 1k/yr.
@@brandondegraaf Fair enough. Let's assume they're not rocking a brand new vehicle and their car depreciates $1k/yr which is normal after about five years. Work-related miles would be responsible for over 1/3 of that so about $400/yr. This opportunity cost is a bit of a stretch for me. When I work a shift, I'm not losing any would-be money by traveling 20 minutes to work. But just for the fun of it, that totals about $3k in "lost" wages for a new grand total of $4.4k/yr.
Also buying has a lot of upfront cost, and it takes 5 years on average until the lower monthly cost evens it out. So only buy if you know you will keep it at least 5 years, but preferably much more.
True! I bought my house in Jan 2021 and my interest rate was 2.5%. Record breaking rates. Now it's back up to 7% and my home increased by 60k in equity and I'm a first time home owner. Imagine if I listened to this video. lmao
If I try to run my own numbers, especially to see how much of our wages we're spending on housing, I always run into the problem that I am not sure what to include. We bought our apartment, so the mortgage and homeowners association fees are clearly part of that, but do I also include property taxes, energy bills, what we're saving for maintenance..? That makes quite a big difference to how the picture turns out.
Well my options are renting vs homelessness so I'd say renting is a good move for me lol
Imagine being paid enough to have extra money to save. must be a boomer thing
I was going to laugh but then I related way too hard.
Ben Riseman lol
I choose homelessness. I saved a lot of money being homeless for 3 months. I worked for uber and Lyft to stock up cash on a car is over priced and saved enough to buy a company truck for my business and RV to live in.
Cheap rent is a form of slavery. Because they WILL add more work and if you don't do they will kick you out.
$1000 to rent a house in San Francisco is the best joke I've heard all year. 😂
Yeah, I think they may have seen those click-bait Craigslist ads that look like they're for a whole house but are actually seeking roommates for a house. Zumper says the average, as of August 2021, is $4,750, which is a decrease of 5% from last year.
I think their calculation is still valid, but there are probably no $600,000 single family houses in SF. That would be more like a tiny studio probably haha. They should have said "home" (regardless of studio/apt./townhome/house) instead of house.
@@maria-wu7us I think they should probably do a better job of citing their sources. Love the channel, though!
And from a financial stand point it makes no sense. Why would someone who bought the house for 600,000, rent for only 1000 a month? The property taxes alone are going to be crazy high and might even be more then the rent. Plus don't even get me started on the home insurance and if they still have a mortgage on the place.
@@piepiepie57 I agree that they could have cited sources for this and explained it better but the PRI they discuss is real and it usually accounts for the complete cost if home ownership including taxes and HOA. It compares that to the price of renting a similar property. So in cities like SF it would be cheaper to rent than buy. From what I've read, a higher PRI would be beneficial for real estate investors since there would be higher demand for renting in that area. But the higher the PRI, the harder it would be to realistically profit from said investment. But it would be interesting to understand what the average landlord looks like. It depends whether they operate independently or are a larger operation which is what you see with a lot of those new apartment complexes 🤔 Also, real estate is an investment and I assume the goal is for rent prices to increase as the value of property in the area increases. It's not uncommon for your rent to go up by $100 or so every year.
I've been telling friends this for years.. My parents rented for 15 years. The property owners covered the water bills, maintenance, etc. When they bought a house they paid with cash and during the recession, which was probably the best time to do so! Since I went house hunting with them, we learned that many people lost their homes or were so tight on money they were willing to sell everything they had. Invest wisely and always be prepared for those future maintenance costs!!!
Maintenance costs are worse than people will admit.
Sure, we can do a lot of the work ourselves, but when the furnace needs replaced, you end up spending thousands more than you expected.
The problem is that the same applies the other way around. If you're renting in a district that experiences an economic boom (people moving in, public investment or new jobs), the cost of living when renting increases much quicker when renting (after your contract ends it can be even +50% for the new one in extreme cases), while if you own your property, what increases quickly is the value of your property.
Oh yeah pipe bursting are the worse things if u don’t know how to fix a leak. I know people who didn’t and to fix a pipe bursting in the front yard was 8,000 dollars vs 200 to fix it yourself granted u know what ur doing. Then there’s renovating the space to fit your needs and decor and decoration.
no. I whine about them alllll the time. You’re never writing a check for some small amount. It’s always a zillion dollars 🙄
Nice! Good timing on their part. You just have to do it with strategy!
Back in the day, when I purchased my first home to live-in; that was Miami in the early 1990s, first mortgages with rates of 8 to 9% and 9% to 10% were typical. People will have to accept the possibility that we won't ever return to 3%. If sellers must sell, home prices will have to decline, and lower evaluations will follow. Pretty sure I'm not alone in my chain of thoughts.
If anything, it'll get worse. Very soon, affordable housing will no longer be affordable. So anything anyone want to do, I will advise they do it now because the prices today will look like dips tomorrow. Until the Fed clamps down even further, I think we're going to see hysteria due to rampant inflation. You can't halfway rip the band-aid off.
Home prices will come down eventually, but for now; get your money (as much as you can) out of the housing market and get into the financial markets or gold. The new mortgage rates are crazy, add to that the recession and the fact that mortgage guidelines are getting more difficult. Home prices will need to fall by a minimum of 40% (more like 50%) before the market normalizes. If you are in cross roads or need sincere advise on the best moves to take now its best you seek an independent advisor who knows about the financial markets.
Do you mind if I ask you to recommend this particular coach you using their service?
"Rebecca Noblett Roberts is the licensed fiduciary I use. Just research the name. You’d find necessary details to work with a correspondence to set up an appointment.
I just googled her and I'm really impressed with her credentials; I reached out to her since I need all the assistance I can get. I just scheduled a meeting.
I'm renting a two-bedroom apartment with two other roommates. My total monthly payment for living is about $350. I'm using all that money i'm saving to pay off student loans, and save for a down payment on an eventual house.
Ahh the sweet sweet student loans.
Buy a house and have two roommates alot of people do it and probably 5-10 years in their part of the rent would probably cover the mortage
How is the bedroom situation with 2 other roomies? One of you in the living room?
@@benwilliams2713 Two in one bedroom
Being debt free is so worth it! Keep up the good work. My wife and I have been debt free for a few years now and it's so great not to have to worry about money. We didn't even flinch during Covid. We didn't even have to touch our emergency fund but it was there if we needed it. Peace of mind is worth a lot to me.
One of the best financial youtube channels!
I agree
👍
@@THEMATT222 👌
Yeah, they're good, but annoying at the same time. Can't watch them for too long.
In many places you can only dream of paying 30% on rent. I live in Edinburgh and rent prices are so inflated you have to pay over 60% of your income just to live in a room in a shared flat.
@Life With Astrid Sometimes the issue isn't that, it's the regulations allowing where to build (many european cities have that problem, i don't about Edinburgh though).
In most cities in my country we have serious overflated rent prices for a multitude of reasons, the 3 main reasons are:
1) That damn Airbnb
2) The "housing aid" given by the goverment (the average housing aid check is 100 euros, the month after the implementation rents went up by 100 euros average).
Life With Astrid it’s the same thing in London. Prices are ridiculous. You move out of London the houses are cheaper (they are rising) but then the train fares kill you along with the journey time.
I would need to move to a flat twice as expensive to get up to 30% !
(Unfortunately you can really see the affordable price)
At least Airbnb got a hit with 'rona right now, at least in some cities, some Airbnb landlords have put their properties on the regular rental market again.
Sheesh....... In India it's less than 15
600k House in San Francisco... good one, lol
Ya try $1.5 mill lol
Also, for a 1-bedroom that would be a million to buy would be more like 3k per month here in SF, so the actual ratio is more like 30-to-1. I'm not sure what bozo claimed it is 50-to-1, but they shouldn't trust that data source again.
I came here to laugh at this. Also, show me anything for rent for $1000/month in SF. You'd be lucky to find someone willing to let you sleep in their hall closet like Bender from Futurama for that price. I wouldn't expect to find *anything* to myself for less than $1500/month anywhere in the bay area, let alone SF. You're forced to have multiple roommates for that kind of budget.
Completely of topic here, but it's the TARDIS!!
Lmao i was thinkin the same thing 😂
I've been a homeowner for five years now. I kinda miss being a renter. One thing this ratio doesn't take into account is time and money to keep up your house. Especially time. When I was a renter, I didn't have to do yard work. Now, my free time gets wasted mowing the lawn and pulling weeds. I used to not like winter, now I love it because it gives me a break from yard work.
@MaGicTOWer Yes, everything you wrote is true! Winter can have its downsides. Actually, when I was a renter, my pipes did freeze in my townhouse once. But luckily, my landlord came to the rescue and was able to heat up the pipes before they burst. That's not a problem in my current house, because I have no pipes up against an outside wall. But anyway, I originally made that post last year. A lot has changed since then, like my property taxes took a huge jump, and are now equal to nearly two months of my net salary. It's like I'm going to work just to pay for property taxes. I plan to sell my house this year, and go back to renting. I'm thinking I'll look for a condo that someone wants to rent out. Because at least the snow and yardwork will get taken care of.
@MaGicTOWer Yeah, it sucks that I'll need to sell my home. I blame the voters, who voted in favor of a huge school levy. My state, Ohio, unfortunately doesn't have caps on the percentage your property taxes can go up in a single year. But the good news is that houses in my area have really shot up in price recently, so I'm gonna make a big profit. I've only lived where I'm at for six years, so I have no emotional attachment. Anyway, I want to go back to renting, so I'm not living in fear every time a new school levy gets put before the voters. As for getting a bunker....That's hard to find around here, and would be expensive to build. But hey, I'll just find a place with a basement! Close enough!
@ghost mall So....My comment was made a year ago. My attitude has since changed. I still don't like mowing the lawn. But nowadays, we're seeing inflation because of the government printing money like crazy over the past year. This becomes very obvious when we look at gas prices. Now I don't mind being a homeowner, because a substantial amount of my money is tied up in a hard asset. In fact, I'd be rather nervous now about selling the house and renting. All that cash sitting in my bank account from the home sale would become worth less and less. The government can't print more land, so real estate seems like a good bet against inflation.
I got an advice for you: Do not do any yardwork; there is no need for a lawn. Nature will take care of it...
@@xornxenophon3652 There's a problem with your comment, at least where I live. First, I live in a suburb. Code enforcement will send you a friendly letter if the grass is taller than 11 inches. If you ignore the letter, the city will come out and mow the lawn for you, and charge you $500. But even if there were no code enforcement, I would have to mow the grass anyway. The reason is because ticks hide out in tall grass. So, mowing protects you from getting Lyme disease. Even out in the country, people mow around their house, due to the threat of ticks. I live in Ohio, by the way. If someone lives out in the desert, like in Arizona, then they can get away with not doing any yardwork.
When “The Economist” made the rent vs buy video saying rent is sometimes a good idea and it worked out in some countries, some commenters complained along the line of “The Economist is a shill magazine for millionaires/landlords”
LOL! Well, I guess we're in good company. We get the "PBS propaganda machine", on the regular. Always gonna be critics, I guess!
I think the point is that when property ownership is only accessible to the top 1%, it maintains systemic inequality and class divisions that are incredibly difficult to break out of. This is bad.
That doesn't mean it isn't in an _individual's_ best interest to rent, but even so that is contributing to the brokenness of our current system. This will continue until we as a society come up with a way to eliminate inherited wealth and family legacies.
@@hackel137 Rich people don't negatively affect your living, just because Beverly Hills exists doesn't mean that you're negatively affected from Nebraska. So it's nonsense to be upset about other people's success, at least it shows that it's something to strive towards. And this is important, because property ownership used to only be for the 1% in the 20s and 30s. Then it quickly grew to 10% as the middle class became wealthier, until the point where baby boomers had home ownership rates upwards of 80%. Preventing rich people from doing something just makes it so that you'll never be able to rise up, because you have nothing to rise up to. And if you're living in an era where you can't afford a house, then you'll just never be able to afford one, your production just doesn't qualify you to own one, no amount of redistribution of wealth will solve the problem if supply just does not meet demand. Unfortunately millennials have regressed massively from the boomer era but that's because they choose to live in expensive cities, which should theoretically be fine since construction workers will just build more apartments to accommodate just as they did from the 20s to the 40s, but most cities in the 21st century have passed so much regulation and laws that it's prohibitively expensive or simply illegal to build anything new, so massive demand from 3 million graduates per year is running up a restricted supply and rent/ownership becomes grossly unaffordable. The rest of the United States remains just as livable as it was in the 1950s though.
I did not get what you were trying to tell..🙄🙄
@@hackel137 You don't have to be in the top 1% to own property...
Rent is a fee you pay for the convenience of mobility. Owning a home means being tied down to that location. Unless you're rich enough to just up and move to somewhere else whenever you want and deal with selling your house whenever, you'll have to either wait or forgo moving, or spend a lot of time, money, and effort to sell your house and likely end up incurring double rent/mortgage payments for a while until you can close on the sale of the house while living in the new location.
Or rent it out and become the landlord?..... if you eliminate this as an option you're not good with money. Buying a house isn't forcing you to live in it yourself. Millenials are being taught this all wrong. The choice is not mobile vs stuck. It is less mobile vs mobile.
@@beddythecorgi4269 now if you sell that house your subject to capital gains tax .
@@beddythecorgi4269 Yeah but now you're signing up for the burden of being a landlord. Many people are terrible landlords.
Also, after all expenses are paid, you're making around 5-6% returns per year on average, IF you find a reliable tenant that sticks around. Plus all rent proceeds are all taxed as ordinary income.
Investing in the S&P 500 gets you around a 7% return after inflation. Any gains are taxed at the lower capital gains rate. Not to mention you do ZERO work to earn that return, and you can sell the asset with little to no exit fees. (Try that with a house!)
You just have to have the stomach to weather any market downturns and have the discipline to see the asset grow.
If you MUST get in on the real estate action, investing in REITs are a good possible option without any landlord headaches.
@@beddythecorgi4269 Or just invest in REITS and pay 95% less on maintenance and legal fees?
Or dont move out of your house until youve closed?
The P.R. Ratio is a great way to look at things! My partner and I love you both so much: the visuals, advice, and easy-to-understand yet VERY important money saving topics y'all discuss are really appreciated! 💖💖
Awww thanks Ariana! That means a lot to us!
I've tried owning, and I've tried renting, both houses and apartments.
I'm done with home ownership for a long while. Home ownership is just important to our culture, and there are costs and responsibilities people won't talk about because it blemishes that image of being a home owner, so I was unaware that it would initially be much more expensive and it made my life worse as I was in college.
Also, the process of buying and selling is miserable. I'm saving money by renting a nice apartment, putting more into retirement, and I have the freedom to move as often as I want.
The process of buying and selling is miserable, as opposed to the fun and easy process of finding a rental place (which you might have to repeat a number of times, if the landlord decides not to renew your lease or raise your rent to a point you cannot afford), as well as having to deal with a series of landlords, some of which might not be great?
@@mariak143 Well put owning gives you stability. No one will kick you out, and no one can raise your payment.
no. “Putting more into retirement”. Right. When you retire, are you still going to rent? If you buy a home, do you have any idea how much a home will cost by then?
@@mariak143 I stick to apartments now.
I never have issues.
Like buying a house, you should know what you're getting into.
But my lifestyle requires more travel, and no settling.
@@ErrorPagenotFound-ig1cy I like to move. Buying and selling would be idiotic when I move every couple years.
Let's not assume everyone else we meet is ignorant, okay? Don't be that guy.
Hi! I live in Barcelona, Spain and I'm sharing a flat with a friend. The P.R ratio in my city is around 26, so now I know my decision to rent was a sound one. Thanks for your two cents!
I am in Houston, Texas and found our PR to be 14.67. I currently rent with a budget of 25% of my income and I still struggle to find a suitable house in the city. I've done my calculations that I am easily saving $500/month by renting. The biggest kicker here is our property taxes are very high. Plus, remember if your A/C or another appliance breaks, your landlord is required to fix it. If you buy that bill is all on you.
I live in Houston, too! *high fives*! I moved from Austin to Houston, and oddly enough kept my rental costs low by finding a cheap-ish apartment close to work. The commutes here in Texas are nightmarish if you buy a house - so glad I didn't, with all this urban sprawl!
@@SamianHQuazi hope you are enjoying Houston. And I agree with the commutes, I would rather rent longer in the city then have to commute from the suburbs.
I hear Texas people talking like that all the time. They say, "Texas is great! There's no income tax!" So I say, "What's your property tax like? How much does it cost to register your car?" They don't say much about that.
Haha within the first week of buying our house the water heater broke. That was a pretty big slap of reality. But usually people buy home insurance for the first few years just in case something breaks
You can always find cheap places to live in Houston but the commute will finish the job in terms of killing your soul. If you are a homeowner then you will pay a lot in property taxes. My buddy was just telling me that his property was 18k for his house in the Woodlands. I was like, “ I guess Texas isn’t the free state you thought it was. He moved from California and pays more in property tax than he did in income and property tax in California. Tough break. To be fair he lives in a newer part of the woodlands. He has to pay for that infrastructure
Y’all are in Austin?? I go to school there at the University of Texas. More college students here could use these tips to help them out
Yup, we're both Longhorns ourselves, Marco! Met at UT, actually.
Sam Houston grad here. I've toured the UT campus and it's pretty cool!
@@TwoCentsPBS do you answer these posts yourselves? You're kidding me!
@@gustavoonthetelephone2103 Yep! It's one of the perks of the job... love interacting with our viewers!
In Austin, you have to make about $200,000/yr and have $60,000 in cash to be able to responsibly buy a $300,000 house, which is on the low end of the spectrum.
Totally agree! If you don’t know how to buy a house don’t! Educate yourselves and learn how to make money from a house, then buy!
So tru! Im saving up for a house hack right now!
@@liskh5 Dang man good for you!
I build houses for a living and honestly I see it all the time people buy houses that shouldn't. Or get convinced to buy a house that looks nice but is going to have major issues in the future it's not as simple as it should be. I'd recommend finding someone who knows what they are looking at if you don't before you make a purchase.
To bad school didnt teach us that....soo glad I learn photosynthesis...
John Smith 😂
I'll be honest - I expected something like this :D
Julia: "I'll say something controversial - renting isn't bad"
Philip: *high pitched scream*
lol
This video should have included a discussion of the benefits of buying a house and having tenants live with you. A fellow student of mine convinced her parents give her the downpayment for a house, then filled it with 5 of her friends. The rent from 4 paid the mortgage and the 5th paid for upkeep. Because she had access to capital she was able to live rent free. Also, since it was her primary residence she got a substantial tax break on her rental income.
This is so true my dad lectured me for an hour about this the other day and let me tell you, he was pressed. I always thought i was throwing away my money by renting but it makes so much more sense for me after watching this
Your dad is right. Your landlord appreciates your poor decision.
Eddie Wow it’s a poor decision if the tenants planning to stay there forever, making money for the landlord instead
Raffles these idiots are just gathering up trying to convince each other that renting is better than owning in the long run..
@@ErrorPagenotFound-ig1cy so please, run your numbers and show us that you are right :)
Honestly if I were able to afford a place, I would most definitely rent. I don't need a house/that much space to live in. I'm a single childless person. People fill houses up with useless junk. I've always said people are fooling themselves to think they actually own the house and that's the end of the costs of having one. Property taxes, repairs, appliances, furniture, paying for years on the house itself, utilities, etc.
People never believe me when I say renting can be a good option! Thanks Two Cents!!
Me too. People seem to be obsessed with buying.
I'm currently spending 10% of my income on rent which leaves lot's of wiggle room.
You bet! ; )
I've never felt like I got my money's worth when I was renting. When stuff broke, it never got fixed. They didn't do pest control like they were supposed to. Rent got raised every year, until it became unsustainable to remain living there. And those experiences were common to every place I've ever rented.
@@longbottle IMO you are throwing money away and building equity for another person. In my case, rent was 1200-2000 and similar house payments are 600-1000/ mo.
Two scenarios:
#1: I rent for two years, was out $1200x24 plus some utilities and lost deposits. Leave lease with nothing.
#2: I buy with 0-3.5% down, build equity, sell at above market value two years later with 60k in profits...
I did both of these scenarios at the same time....in my early 20s, no support, no degree, hourly wages. There are no excuses really. BUILD YOUR WEALTH!!!
At 22 years old, I’m just now getting my foot wet, I don’t think buying a home will be in my best interest.
I think there is also a rule of thumb that when you factor in maintenance and closing costs and potential recession, if you aren't planning on owning your home/property for more than 7 years it is unwise to buy as you probably won't break even. This to me is probably the strongest argument for renting short term.
Against your advice I have made double my yearly income by selling short terms (unintentionally). The market is hot now, but who knows for how long.
I rely on you guys so much and I don't even live in the US!
It varies from to person to person, but as long as it WORKS for you then keep doing it!! If it doesn't, you can always take those experiences and make it a factor to your futures decisions!
As long as it works does not mean its the best option.
Love your channel 💕 too .
@@ZacklFair agreed
Way to say nothing
The decision to rent or buy becomes more complicated once you have kids. School districts are tied to specific zip codes. Unless one can sign up for a 12 year lease, I am not sure how one can ensure continuous attendance in the same school district for their kids if a couple chose to rent. Good content as always.
A lot of places have enough places for rent so you can move within the same zip code if you have to.
According to the US Census Bureau, the median home price in SF for owner occupied housing units is $1,009,500 in 2018. That puts rent at around $1666 a month. Any room renting for this much in SF will likely get you the best closet money can buy.
My wife and I are selling home and moving to a rental. We were not ready when we bought 10
Years ago and from a cash flow perspective we are going to be able
To free up a lot of cash for investing
Yes, yes, yes!!! When the reality of costs for all the things that can (and will) go wrong in a house hits, it's just too late. I say rent until your housing costs including utilities are no more than about 20% of your income.
I wish that proponents of home ownership weren't in denial about the cost. I'm saving a lot of money renting even when my rent is more than my old mortgage.
no. The reality is so much different than the fantasy people sell.
no. Exactly people own a home for a few decades and make a bit of money and that becomes the narrative. The reality is what was the opportunity cost of that money and what has that home actually cost them over all those years. It’s like a person going into a Casino spending a grand winning 500 bucks and telling everybody how great they did lol
My rent is incredibly cheap. I have almost 300,000 saved up. Maybe one day I'll pay cash for a house, but I doubt it. I prefer renting
Renting rather than buying is throwing away money just like buying groceries rather than buying a farm is throwing away money.
Well you need to do work to grow the crops if you buy a farm so that example doesn't make sense
Dude, buying homes these days is for stupid ass bitches. You pay expensive prices on a beat down home, spend more money to renovate it, have to pay property tax on it, and then when it’s time to move, a hurricane blows it down, the city alters water source and you get lead in the water, or a ghetto ass neighbor moves in and the property value goes to shit. Sell and lose money and have to pay service fees to the realtor and lose even more. Summary: You lose Home-boy 😂!!! Rent and dip when the contract is over end of discussion, you’re out nothing more.
If you want to invest, invest in a business. That’s your farm example. the farms fruits pays out. A house you live in is a liability. If you’re going to flip houses, that’s a different story.
don't look up feudalism, it will spoil your day
Never knew about the PR ratio. That is extremely useful, thank you.
PS: the PR ratio in my area is around 20.
Pretty nifty little calculation, right? Where do you live??
@@TwoCentsPBS absolutely it is. I live in Toronto, which is said to be in a form of Real estate bubble.
Thank you so much for covering this subject! I have been researching this on and off for a while now and this is this first time I've heard of the PR ratio!
Awesome! Glad to bring in a new concept!
I was literally planning to buy and i have even setup everything to do that even though it will be huge Barden on my income, but after i saw the video and did the calculations it will be way much better for me to rent where i work and save money to buy on my home town. I really appreciate your videos keep it up 👏🏽
The P/R ratio of my small town is 41.7 because UK home prices are insane
My Wife and I are seriously looking at this decision right now. Thanks, I love yall's show!
You bet!
@@TwoCentsPBS So I found Houston listed on a web site with a PR ratio of 14.67, but given the diversity and vastness of "Houston" I am going to have to further my research.
@the bakermaker In your case the best decision you could make is to divorce.
This was upload in Feb, 2020, right before the pandemic hit. For those who work from home, it changes the location consideration markedly.
You guys thanks so much for this! THIS IS LITERALLY MY DILEMA IN SAN DIEGO !! LOVE YOU ALL SO MUCH!! -oh by the way can you put links to the senior living shared in the description?
by the way pr ratio in san diego is like 35 or so maybe higher in other parts!
Broomfield, Co.
Average home - $600,000
Rent - $1,100 x 12 = 13,200
PR Ratio = 45.45
PR ratio in my city is 25 :O
Way tooo high to buy in Vancouver, Canada.
Sigh, Vancouver too expensive
Marc477 I live in Toronto #6ix😩😩
$625 a year in lost wages, per mile... I'd like to see the study and how it concluded that.
full time regular work is usually ~250 times a year. So its 500 miles a year (for 1 mile each way per day). Typical car operation cost is 55 cents a mile (can be much more for expensive cars or huge truck) (its not just gas). So that's $275 right there. Time value of your money (realized in the form of lost wages, or simply things you could do at home but hire out for instead, like take-out vs cook, maid vs DIY, lawn care vs DIY, missing out on a possible side hustle). IF you value your time in that way at say $20/hr and typical average combined rush hour driving speed of 30mph, that's 17 hours a years * $20 = $345.
Grand total $620.
@@Mark-xj8bu
So then take out the lost wages and then consider all vehicle costs - wear and tear like the video stated. You might have higher car insurance the further to work you have to drive. I have lived in three cities in two different states and all three times one of the first questions they ask is about your commute distance to work.
Maybe you drive a corvette with low profile expensive road gripping tires - that will run up the wear and tear costs.
Or maybe you own an old beater, much lower wear and tear costs.
But, simple math - using the ~ 250 times per year, or 1 mile to work would be 2 miles round trip or 500 miles. Just gas cost alone (yes it varies wildly) I am going with $3.25 per gallon to be somewhere in the middle of the range on prices. We have 500 miles per year per mile distance in a trip to work at 21 miles per gallon = $77.40 per year per mile....assuming you get 21 mpg and since some people are sitting in bumper to bumper traffic....21mpg is way more than fair.
I always lived close to work and about 4 miles on average. That is 4 * 2 * 250 = 2,000 miles / 21mpg (more than I averaged by 20%) = 92.2 gallons * $3.25 = $309.4 just in fuel....for me....in a car that gets better mileage than I actually did get.
What if someone is driving only 10 miles to work, which is very close to work for so many people? That $309.4 moves up to about $775 per year on fuel alone....and an extra oil change. If you have any number of typical cars in the last 15 years you might need synthetic oil when you get changes. Your longer commute of only 10 miles adds an extra $85 oil change per year. Tires - again if you have any kind of low profile performance tire you will be losing a lot of their life just doing the boring drive to work and home. God forbid you commute 15, 20, 25 miles or more. It might cost you $1,200 for rubber on all four corners or more and you are going to get their much faster with 10,000 miles per year being wasted on that work commute. Tires could add $400 per year to that extra oil change and fuel for that 10 mile drive each direction. Now you are $1,260 per year and we still aren't counting possible insurance costs changes, other wear and tear (suspension, windshield being replaced from rock chips, etc).
In other words, your argument that 3of11 was wrong based on his one assumption is weak. Considering he was actually pretty generous. If you actually pen it out, commuting is terribly costly and even my conservative 10 miles is generous. I bet the average is 15 miles each way.
Then there is this, "The average cost of an American commute is $2,600, according to the Citi ThankYou Premier Commuter Index. " (smartasset.com/personal-finance/the-average-cost-of-an-american-commute).
I have no idea what is being account for in that commuting cost as my searches kept running into articles that reference it rather than the hard data itself.
@@mjs28s yeah i commute because 35k - 2grand is better then $00.00
@@3of11 "time value of money" is a bit of a fiction for most people. Don't get me wrong, there is value to your time, but it's usually not monetary. My time is NOT worth my hourly wage when I'm not at work, my time is only worth what someone is willing to pay for it. My employer isn't willing to pay for it after hours, so I don't have the option of making money that way. Similarly, the hiring out thing isn't generally done by most people even if they do have the longer commute as they simply can't afford it (a maid? who can afford that?). Side hustles are great, but the majority of people aren't making any money that way either.
TLDR: If you don't have the option of working an extra hour at your job, or a similarly paid side-hustle instead of the extra hour of commute, your time isn't actually worth your hourly wage.
That price-to-rent ratio is very enlightening! According to that, it's only sensible for me - only need 1 or 2br living space - to buy an apartment rather than a house, considering prices in my country. I was already leaning towards that, though now I have a sensible formula to work with to weigh my options :) thank you!
I am sharing this video with all of my friends. Love to finally have a clear explanation on why renting may be a good option for some people. The P/R ratio in Lima (Peru) is around 20. Looks like it makes a lot of sense to rent!
Been thinking about looking to buy a house "someday."
TIL that the P/R ratio in my town is 27.27. Yikes.
I'll stick with renting where rent/utilities/internet is 26% of my monthly inccome, commute is under 10 minutes, I have disposable income for a housekeeper, and I can invest 55% of my income.
Ugh, in certain areas, the commission is paid by the lessee.
Weird. I've always been able to use free apartment hunters. Maybe that's just a TX thing?
I'd prefer to pay directly to the realtor. Otherwise they have an incentive to keep prices high or don't show you cheaper rentals
Boston is like this. You basically have to go through a broker to rent at all and you generally pay 1 month rent as a brokerage fee. I had to pay over 5k just to get the keys to a 350sqft studio - first months rent, security deposit, and brokerage fee. It was such a relief to move back to the Midwest after grad school lol
That's right. I'm in NYC and we paid 15% of an entire year's worth of rent.
And the cost will be hidden if it isn't explicit. The rent will be inflated if you aren't paying directly. Had this happen to us in Boston.
Nothing in San Francisco costs $1000. A studio costs around $2500/month.
This video over simplified this topic. No talk of equity and the possibility of selling a house. This was all about short term costs.
That is exactly what I was thinking. Also you can't buy a cardboard in the tenderloin for $600,000.
It's $1000 per $600,000. If you can do the math an average house in SF costs around $2.5 million so $1,000 x 4.16 = $4,160.
@@brucewayne3141 Average one bedroom apartment is about 3500 right now. I live in SF.
All that matters is what you have at the end of the day. In my area the average home price is around 400K. In 25 years historically speaking this will be worth about 900K. So in situation 1 I put 100K down on this home and pay around over 2K a month including property tax, insurance, utilities, home repairs, utilities, maintenance etc etc. So for that 100K in 25 years I will have an asset worth about 900K.
If I instead put that 100K into an index fund that tracks the entire market (10% a year average growth for the last 100 years), and rent for 1000 a month, I can put that extra 1000 into the same index fund every month. Ion 25 years my investments will be worth about 2.2 Million. Way better to rent in this situation. It all depends on running the numbers.
Tell me, where can you find a place for rent for $1000?
@@ErrorPagenotFound-ig1cy Many places where I live. But like I said, it all depends on running the numbers. If you have a family and your rent is 2000 and all expenses in on your mortgage are 2300, you might as well buy a home. This is going to be different for everyone. There is a huge difference between a single person who can rent a studio for 900 and a 4 person family. The point I was trying to make is run the numbers. The numbers don't lie. A lot of people talk like housing is the best and only choice, yet they can't even run a FV calculation. That is just ignorance.
Assuming, your costs remain around 2K per month (I'm pretty confident they would increase over time), you would have input 700K over the 25 years, not just the initial 100K.
Value Venture Investing doesnt matter. The goal of home ownership is to pay it off as soon as possible. Let’s say I pay off my house and also invest $1000 (same as you) into my retirement for 20 years, we will end up the same amount of money in our IRA’s, but you are a renter, I have a free and clear home. Who messed up in that scenario? I have no mortgage and that IRA will not go towards rent.
@@ErrorPagenotFound-ig1cy I think you are confused. These are two separate possibilities. Either you buy a house or you rent. In both cases you are considering the opportunity cost of capital. If you have 3K to play with in one scenario (2K for montage and all cost associated and the extra 1K you speak of) you have 3K to play with in the other one as well. If you have the salary to pay your mortgage and invest 1000 a month, that's over 2000 a month that you could have invested with renting. Thats 3.4 million in 25 years then. Your home value and your 1000/month in your investments will not be worth that. Its the same scenario, you are just saying you have a higher income.
We took the third option, a Tiny House. This is especially good for those that (like you said) aren't quite sure where they want to settle down yet. You pay it off with that same four years of rent while you figure out what you want to do. Then if you decide to go the traditional route, you've got a paid for, AirB&B rental that will generate you $35k-65k annually depending on where you park it. It's basically a combination of ownership, flexibility and future ROI.
I’ve been thinking of taking this option, myself. I love small, cozy spaces and I don’t own too much. How are you liking your Tiny House?
Renting vs Owning is a pretty simple decision for me: I'll never be able to afford the down payment on a home where I live.
@CJ Spencer My career is here. The places where it elsewhere exists are ever worse in terms of housing costs.
@@Juiposa May you income increase enough to make modest dreams come true.
Same.
@@Juiposa The rest of the United States has a career too, it's pretty easy to both not have a college degree and still afford a down payment on a house in a rural county.
...like explained in the video, as long as we are investigating money during the time we're renting we'll eventually have a nice sized down payment for a home.
"Realtor is paid by property owner, not you" - sounds legit but I am the one paying the property owner...
i honestly don't understand the realtor bit, if they're tied to the property wouldn't each property be tied to a different realtor? Or you can just contact a rando realtor and they'll help you without fees?......can someone explain?
@@samaraisnt yup any rando realtor can help you for free and the sellers pay the commission!
You two are the best! One of the few channels I watch as soon as they upload!
Omg can y’all make a video about buying a condo over a house over renting? I keep reading mixed reviews about condos.
only diff is all the bylaws and monthly condo fees which can increase every year. you also pay for any major repairs and then are given a large bill but u can add those special assessments to your insurance policy. Insurance is cheaper for condo vs house and of course it costs a lot less. good starter home that you can turn into rental property after.
That is great information! The one other thing I would suggest, for when renting is better than owning a house financially, is to set aside some money each month just in case the property owner decides to sell and you're out of a home and need to make sure you have some funds for a backup plan until you find your next place to rent.
I love you Two Cents!
Thank you for this video guys. Its helpful to know, especially how I ALWAYS see rent as "throwing money away". Even with reasonably cheap rent. Did not know about the PR ratio number.
As a military member I've been renting for over 20 years (with a short ownership period of 20 months in '04-'05). I didn't know it at the time but this was probably the single greatest reason I was able to grow our family wealth significantly through those years. All the costs which came with home ownership weren't ours to bare and I was able to take that money and invest in moderately aggressive mutual funds. Through those years, when I compare my peers who have bought/sold, bought/sold, again and again, we came out significantly better. There are some downsides, however, but overall, renting each time we moved worked for us. Now that we are retiring we have a significant amount in savings and those investments are literally paying dividends equal to if not greater than anyone I know who is renting out there homes.
I need some of your advice asap!
I rented during the slow housing market and had a profit plan with my company for over 18 years. Right before the market went back up I bought a house. Five years in the house and I left my job and cashed out my profit plan. I used the money to pay my house off at age 39. The house appreciated about $90,000 over 5 years based on zillow. If you plan on buying a house do it when the housing market is down not up like it is right now.
This is why tiny homes should be legal everywhere. I also appreciate that you mentioned renters insurance. I was a property manager for 10 years, and there are way too many renters who think the landlord's insurance on the structure of the rental also covers the tenants' stuff.
All your videos are gold! The PR Ratio for my area is 19.2 ($300,000 for a house, and $1,300 for an upstairs apartment). There are cheaper houses and apartments, but they tend be in rough shape below those price points. Guess I'll keep renting for now!
Not having to deal with landlords and owning a house: PRICELESS.
Knowing I can move at the drop of a hat if the new neighbor moving in next door is a psycho: priceless!
Unless you move into a HOA 😱
Some landlords are ok, depends a lot on your communication skills and that you get to an agreement
@@cupbowlspoonforkknif putting money into something that are just going into the bin... not so priceless is it? If you buy a house you don't necessarily have to live in it, you can rent it out and move out yourself
Having to pony up the money for repairs and general upkeep yourself puts you in the place of your own landlord. It has its own stress problems. And as someone said, if you live in an HOA, it's often as good (or bad) as having a landlord who will control every decision concerning your house... With condos, your property might decrease in value because your other owners can't afford the upkeep and the building is getting dilapedated. In so much cases, you depend on others just as much as a home owner as when you're renting.
This is the best use of 6 minutes ive had in recent memory, so much useful information! Thank you so much!
When you realize
You're watching this in a Rented House
You Just realized you’re renting?
"And the video was coming from.... INSIDE THE HOUSE!!!"
dittoooooo
Something I see left out of the rent vs buy discussion a lot is the most important part: do you want to own a home? A lot of people will say "oh it's an investment!" but ignore that some people will never find the time and energy it takes to maintain property worth it. You should only spend money if it gets you something you want!
READ YOUR LEASES!!! I had a nightmare landlord who would enter the house unannounced on a regular basis, fill up our trash cans with trash from his other house, even leave furniture he was throwing out in our front yard and driveway!!! When I started to read the lease terms he quickly pulled it away from me and continued on the tour of the place saying that "it was all standard boring normal stuff" - I totally fell for it because it was my first time moving out from my parent's house! Seriously! Read your lease terms!
I agree. It depends, if you are going to be there for multiple years, around 6 to 10 years, then it's worth buying. If under 5 years, for example, for a contract job, schooling, etc,. Then it might be more worth it to rent instead. Since there is multiple factors that impact cost, capital gain tax, sales tax, agent fees, etc, that cuts out percentage instead of a fixed amount so basically you have to wait for your home to raise a lot more in value first to even get back the money that you put in.
I take issue with comparing the down payment of a home against the return the person could have if they it invested in an index fund and rented instead. In Finance, a fundamental principle is a separation of financing costs and investment returns.
Your mortgage payments/rental payment is guaranteed while your index fund returns are not. As such, you should be comparing against a risk free rate, not the index rate.
I know you didn’t say that explicitly or even ran the numbers but this sort of logic can justify outrageous things like taking credit card debt to buy bitcoin because you expect your BTC returns to be higher than your credit card cost.
To be honest, it’s a common mistake. Even our public pensions are discounted using an expected market return of 6-7%, even though these returns aren’t guaranteed while the payments are. They should really be discounted at a much more conservative rate but then our pensions would be tremendously underfunded....
Great video nevertheless! Always love your content.
This is Barris! I get the logic of this, and the potential pitfalls that not following this logic could lead to. But from a practical sense, when I’m weighing financial options, I like to look at what I could expect to receive from the market based on historical data and my previous history. Since I know that all of my extra money goes towards my IRA, it would be silly for me to compare something like the down payment to something secure when I know exactly where my money will be going and what I could expect over a long period of time based on data. I do use conservative estimates though.
It really depends on the city. I don't see it only as financial but if I can buy I will because I don't want to worry about eviction. When the owner will decide to put the place up for sale etc. That's a part of the lifestyle choice
I have enough money for a down payment but I don’t know where I want to live long term SO renting it is. Great video!
Same here, moved 16 times in my life so far and still counting, always chasing a damn job somewhere.
@@-Anunnaki- I’ve changed my mind in the last 9 months. With all these covid “rules”, I’m moving onto my twin’s property and probably going to buy a camper for now.
Toronto here: PR ratio of 22.1 for a condo and PR ratio of 28.5 for a house...
We just bought our first house after being married for over 20 years. Tired of landlord’s and not feeling settled.
Michael Petroshus damn that’s a decision 20 years too late
Eddie Wow no, it was when the timing for us was right.
There are definitely non-financial perks to consider as well! : )
Good thing u bought a house, at least one day u can say i owned one whatever happens in the future.
Owning a house is not for everybody i noticed that.
Oh yeah, SO MUCH this. I never really felt like I was going to be in anyplace for the long haul, and I kept things for "the next move" that I now am comfortable parting with.
Amen for renters insurance. My place got broken into. The company said a comparable tv was worth 600 bucks, the the tv was old and didn’t have WiFi or anything. I spent 450 on a tv and used the rest towards debt payments
Best case scenario: Rent-To-Own (from your parents) @ a 20% expense to income ratio. Very beneficial to both parties.
Totally agree, renting is much better than many think. I analysed the numbers in detail.
My advice (from Finland, may work in the US depending on where you live): buy as long as interest rates are low. I recently signed a 35Y mortgage at Euribor +0,35% (euribor is currently negative but I have a floor at 0% so effective interest rate is 0,35% revised annually). With these interest rates you barely pay any interest so every month you’re building a lot of equity.
If this was 2007 and rates were super high I’d suggest to keep renting..
but the price of the house in U.S. is so high now... I would rather buy lower priced house with higher interest. Because I have about 50-60% down payment.. Plus, if you get interest rate, the lowest of the low, then there is no chance to refinance in the future.
@@GoGo-tk8ui the housing price is high in some parts/cities of the US, but not in all. Nevertheless, if you get a super low interest rate now, why refinance it in the future? And if you do because you need extra money, you would’ve benefited of having a low interest rate for many years
Hell, some of the best vids I've watched in a while are from you guys.
Thanks!
For the average person, home ownership is beneficial to their children.
nolo king exactly I love the security of home ownership for my kids stability it’s so important before we had kids we moved every year because of the landlord selling the home, rent increasing, bad neighborhoods it is worth every penny to own a home in a good neighborhood it give me peace of mind
Yes and do a google search for "net worth of homeowners vs renters".
Lee Klinglesmith what’s the difference
Plus in some states (like Texas) your primary residence cannot be lost in a law suit. So if you have a lot of your net worth tied into your home you can't lose it. But for a renter who invests in the stock market (except for a retirement account) can lose almost all of their net worth. So in Texas if you own a sole proprietorship or do risky things that might end with a law suit (like being a doctor or scamming people) It might be smart to buy a home.
@@hellzshotgun I've lived in several states and Texas has had by far the highest property taxes. Yes, there isn't an income tax but the taxman just gets their money another way.
It's extremely rare in Boston for the owner to pay the realtor fee, on occasion they'll pay for half, but vast majority the renter pays the entire fee of a month's worth of rent.
I appreciate the PR ratio. I know its not the only thing to look at but helps know if your math on everything else is right. I'm renting for many reasons and currently my PR ratio is 21(California 50 miles from the city).
As for renter's insurance, it can save you money even if you never make a claim. That's because insurance companies will often give you a discount for having multiple policies. Suppose your auto insurance is $250 a month, renter's insurance is $17 a month and you get a discount of $25 a month for having two policies with the same insurance company. You're saving $8 a month by having renter's insurance vs. auto insurance only.
I’m grateful for having siblings that help me with rent. In Seattle I only pay for $320 rent. Then I invest + save the rest. At the end of the day, it’s how much you keep and invest so there’s more of your hard earned money. Grant Cardone recommended renting too, you’re paying for service like what you do in a hospital, school, gym. So renting is not necessarily throwing away money.
Here where I live (big town in Germany) the PR is aprox. 50 (depends on size of the home etc.) it's not possible to think about buying something here.
Im confused... That ratio thing went over my head
It is the number of years it would take to pay that house with that fee, without counting interest.
That's why you don't want a debt that would be paid in 15 years at best...
Over 15 better to rent under 15 better to buy
I am a software developer just turn 30, never able to save much, but really thankful for this valuable information. I must say, it is same for every salaried person around the world who is struggling to buy his first home and get our of rent. god bless.
1:40 You misspelled "Cincinnati"- it's supposed to be 'Medium Place', or if you're bougie, 'Queen City of the West'.
I saw this too. Spelling errors pop out at me.
Guys I know I've said this before about one of your videos and no doubt I will say it again about a future video (because you two have such great videos) BUT... This is your greatest video; thank you. I love it because you do the math in front of us and keep it simple so we can see the evidence behind your advice. Plus it's ALWAYS realistic/practical advice, you guys never advice us about offshore accounts or what to do with our million dollar trust funds.
It's an honor, thank you Gabriel!
Nice pragmatic approach!
Watching this in Germany, it's hard to believe there are places in the US where the multiples are below 10 - is there something wrong with those?
@@Mark-xj8bu I don't doubt you can get good value and quality in less expensive places - but that should keep the rents down as well... so the buy/rent ratio wouldn't be that low either.
When I see a ratio this low I suspect a place has a declining population and/or eroding household incomes which might still make renting a smarter decision if you don't want to stay forever.
No, Just something wrong with America.
I love your pragmatic view towards renting.
Me and my husband have considered buying multiple times but financially it would only make sense for us if we knew we'd be living here 5 years from now, and we don't know that soooo.
Damn, the prices of houses and rentals in my area must be really unusual. I'm looking at buying a similar house to the one I'm renting now, the PR ratio is 4.0
In Paris the ratio is about 25. It could have been cheaper to rent, but we are leasing our parking space and this made it cheaper for us to buy. We save around 10% a month form the eventual rent of a same appartement (all taxes considered).
Im not sure how "lost wages" are calculated, but I drive 22 miles to work (44 total), and Im certain that living 22 miles closer wouldn't increase my salary by $15k/year.
joemann right ? I found the commute cost calculation incomprehensible.
And they're not even considering the cost/stress ration. I would HATE living in a city with noisy neighbors and people stealing all of my stuff. No amount of savings would cancel that out.
@Mike Li That was the $170/year per mile on car expenses. For, that would be around $3,740, which sounds about right since I spend around $120/month on fuel, which comes out to around $1400 and $2300 for insurance/depreciation and repairs seems about right. I only pay $85/month for insurance and that's for 2 cars.
$625 in lost wages per mile. That would be equal to $1145 per month in lost wages for the distance i drive. It makes no sense.
@Mike Li I put $15k but according to their number of $625/mile, that's $13.75k per year. Not sure how living closer to your work makes you more money.
@@sminthian Well, if you dont buy much stuff, they got nothing to steal 😉. But yeah, I understand the part about noisy neighbors though. Renter's insurance covers theft though, so that's something to consider.
What an amazing video and you guys really did a great job at explaining each. Helps put my mind at ease switching from home owner to renter. Love you two, keep being amazing.
Perfect timing. Love this!
In south-central Idaho it is 35.41, I did however find a good deal on my apartment. $340,000/($800*12) There is a major housing shortage for one of the highest-growing states in the US. A more likely ratio in our area would be 28.
I tried the roommate thing , I was literally better off not having a roommate. Lesson learned .
Agreed. Also, Imagine when your roommate brought a visitor (his/her partner) that suddenly became a roommate.
Got out of my condo and now I'm a renter and it was the smartest move I ever made. I actually have money in the bank abs retirement. Besides I hate having to do maintenance of any kind!
Yay :D A new Two Cents video!
I hope you guys do a video about index funds to better understand it...thank you for everything I learned and made a better life decisions because of you guys
3:36 I call BS that a 10-mile commute loses $8k/yr. No idea how "lost wages" is applicable here. My fuel and maintenance calculation comes to about 1k/yr.
Opportunity cost of time spent commuting, plus vehicle depreciation.
@@brandondegraaf Fair enough. Let's assume they're not rocking a brand new vehicle and their car depreciates $1k/yr which is normal after about five years. Work-related miles would be responsible for over 1/3 of that so about $400/yr. This opportunity cost is a bit of a stretch for me. When I work a shift, I'm not losing any would-be money by traveling 20 minutes to work. But just for the fun of it, that totals about $3k in "lost" wages for a new grand total of $4.4k/yr.
Also buying has a lot of upfront cost, and it takes 5 years on average until the lower monthly cost evens it out.
So only buy if you know you will keep it at least 5 years, but preferably much more.
Lmao where these numbers coming from, rent and mortgages are 1600 to 2200 in NY
Hidden costs in homeownership is often overlooked. New washer, new roof, busted pipes, property taxes
big rip to whoever took the rental advice of this video in 2020
Maybe, maybe not. That's just a gross generalization.
True! I bought my house in Jan 2021 and my interest rate was 2.5%. Record breaking rates. Now it's back up to 7% and my home increased by 60k in equity and I'm a first time home owner. Imagine if I listened to this video. lmao
@@agreedydragon Again, that's just an anecdote. Sometimes it works out, sometimes it doesn't.
If I try to run my own numbers, especially to see how much of our wages we're spending on housing, I always run into the problem that I am not sure what to include. We bought our apartment, so the mortgage and homeowners association fees are clearly part of that, but do I also include property taxes, energy bills, what we're saving for maintenance..? That makes quite a big difference to how the picture turns out.