Why Buying A House Makes Zero Financial Sense
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- Опубліковано 31 тра 2024
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Episode 559: Sam Parr ( / thesamparr ) talks to Ramit Sethi ( / ramit ) about why buying a house makes zero financial sense.
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Show Notes:
(0:00) Intro
(3:30) Set your rich life intention
(7:30) Don't confuse luck with skill
(9:00) Sam's journey from owner to renter
(12:30) Do the math: Real cost of ownership
(16:30) Buy for desire
(18:30) Pay in cash for large purchases
(20:00) The 10 year rule
(25:30) Ramit's list of must-haves
(30:00) Sam's dream house
(33:00) Sam's war on stuff
(40:00) When to overspend
(44:00) Millionaires who rent
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Links:
• Ramit on Twitter - / ramit
• Ramit on UA-cam - tinyurl.com/m2s8cuyp
• I Will Teach You To Be Rich - www.iwillteachyoutoberich.com/
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Check Out Shaan's Stuff:
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Check Out Sam's Stuff:
• Hampton - www.joinhampton.com/
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My First Million is a HubSpot Original Podcast // Brought to you by The HubSpot Podcast Network // Production by Arie Desormeaux // Editing by Ezra Bakker Trupiano
“Why You Should Rent If You’re A Millionaire” fixed it for you
That's pretty much the exact title on Spotify.. They have 'Why you should rent even if you're a millionaire'..
@@AlastairSmithI took out the “even”. Renting only makes sense if you’re a millionaire. If you’re not a millionaire, you can’t afford not to own your home
Yeah "I'll take the 6k a month and invest it." Well that means you could' afford to buy it and you also have an extra $6k a month.
I bought a house for 800k, sold it 10 years later for 1.3m and used the equity (around 600k) to buy a smaller house outright. No more rents or mortgage
100%. The idea of living rent and mortgage free the rest of your life is huge. The money you will save and still have equity is a big deal.
@@ckp4394the easiest is to calculate the interest you would pay for your mortgage plus 1% maintenance and compare this to rents.
Was that 800k including interest?
@@amando96 no, this was the price I paid. The mortgage deal I got was 1.5%, so the actual interest I’d pay per month was around 600-700. Now the interest is over 5.5% (London, England, UK) so it would have been £2k, which is still lower than renting such a house (3500pcm) but I decided to scale down and be mortgage free.
Casual take but respect the peace of mind and congrats on the win brother! But if you’re curious research asset inflation and cost of capital and you’ll understand you could’ve made more
This advice seems to mainly apply to living in a big city where property prices & maintenance & HOA are ridiculous. If you are living in a suburban area with a family, the math may work out VERY differently (e.g. in this discussion, they mention HOA of "thousands" per month (even up to $5k) -- my HOA in a suburb is $75/mo). My all-in mortgage payment is $1,600/mo and rent for my same model house right now is about $2,500/mo.
I bought my current house over 10yrs ago, it was a foreclosure. It's now worth over 5x what I paid. Best purchase I've ever made! Plus the mortgage interest was only 2.75%! Already had many large updates done, no HOA, low property taxes in Ohio too
What city are you in?
@@kurtl6126getting lucky is a lovely experience, happy for you
Financial planning is like navigation. If you know where you are and where you want to go, navigation isn't such a great problem. It's when you don't know the two points that it's difficult❤
People dont understand that the prices of things are never going back down. This inflation is deeper than we think. Those buying groceries are well aware that the real inflation is much over 10%. The increments dont match our income, yet certain investors still earn over $365,000 in stocks and assets. Wish I could accomplish that.
Very possible! especially at this moment. Profits can be made in many different ways, but such intricate transactions should only be handled by seasoned market professionals.
Having an investment advisor is the best way to go about the stock market right now. I was going solo, but it wasn't working. I've been in touch with an advisor for a while now, and just last year, I made over 80% capital growth minus dividends.
Brian demonstrates an excellent understanding of market trends, making well informed decisions that leads to consistent profit
I'm surprised that you just mentioned and recommend Mr Brian Nelson. I met him at a conference in 2018 and we have been working together ever since.
My grandfather always used to tell me if you’re going to make a large purchase (car, house, etc) you have to keep it for a long time for it to be worth it.
He purchased his second house around 30 and he died in that house.
He had it paid off before he retired at 54.
Modest man who had a ton of money but never had the nicest stuff, he retired at a decent age and spent his time and money on experiences and he did it on a decent salary.
I lived in a house with a mortgage for 17 years. I thought I was happy. In 2020, I moved into apartment and I truly enjoy not having to make repairs.
lol I bet you’re the type who called someone to make repairs. A TOTAL man finds satisfaction in repairing his home
yard??
I agree with whats being said here and im not a millionaire.
I bought my home for $525K and put 20% down (105K) in Jan 2017.
Closing costs were almost 15K. I have a 30 year mortgage at 3.75%. So all in up front I was at 120K. When I moved in I didnt even have cash left for a bed and spent the next 2 weeks on the floor until I got a paycheck to buy some furniture. Ramit is right, dont forget about furniture!
I lived in it for 2 years before moving to Europe and renting it out. Because of HOA and rising property taxes in the bay area, I charge 3200 for rent and lose a couple hundred each month.
It has appreciated to a little over 600K, but I believe if I had taken that 120K and put it in the stock market 8 years ago it would be worth more now than what my home has appreciated.
What Ramit said is what I beleive: Unless you plan to live in your house at least 10 years, buying is not worth it!
Buy a house, rent out a few rooms. Solved.
I definitely agree ! I tell this to all my friends. I NEVER want a house. Too much headaches. I sell roofs for a living and every time I go into a big house Malibu, palos altos, and Beverley hills and all I hear is the owners complaining about their house. No. Not for me haha #GenZHere
If sam sees a point about to be made he interrupts with the most random question to knock ramith off.
And these new hubspot ads are so fuckn annoying. Jeez
Because being eccentric is a mark of a genius at least he thinks
Liked for the Hubspot part... Fine with an ad, but it's crazy long
@@jackboyes6635 the old ad was quick and fun
you know you can double tap to skip ahead? people will complain about anything smh
No one who watches these podcasts are interested in hubspot services, that's why everyone complains. They should use their own services to recognize a failing ad
Not sure much of this applies outside of the US, or atleast not in the UK. The mortgage payments are cheaper than equivalent houses for rent usually, and that money is, atleast partly, paying off that house. So the 'basic math' doesn't apply in the UK (or atleast in the southeast outside of London)
I think renting for your primary residence is smart while also owning a home that someone else rents. You get depreciation, income, and equity.
They aren’t talking about real estate as a revenue generating asset
Agreed. I’m looking to buy an investment property where I can charge rent higher than a mortgage payment on my primary residence so my mortgage is paid for plus I’d have profit leftover. Tax benefits, plus appreciation on both properties seems like a smarter way to approach the topic they’re talking about which is one or the other
The quality of landlord/property management is a huge factor in renting and very difficult to assess accurately before moving in... so this is complicated. That being said, i ran the numbers on my house of 18 years and, including expenses, it "appreciated" pretty much at the same rate as inflation (and this was not linear. I only got that premium because I sold in 2021 after housing prices suddenly jumped).
My next move I planned on just renting. Every time I buy a house I need a new roof within ten years, a new septic system, etc. forget it. Over it.
One of the most important statements you made is about luck. My wife and I moved across the country to a very desirable and expensive city in the west. Houses were crazy expensive, so we sat on our cash (in the market) and rented, and mostly loved it. In 2012 we finally thought it was time to buy, and were glad to have had years to really learn the areas we liked best. Our home has now almost 3X in value (the luck part), and now have a sub 3% mortgage which we are happily not going to give up. Someone moving to our city today should probably rent, as it did for us many years ago. With a little thought and planning you can sometimes make your own "luck." P.S. Just found your channel- love it!
Loved this episode, great info and viewpoint. HOWEVER, I would invite you, Sam, to think through your strategy of buying things at Target as being more environmentally friendly than Amazon. Why? 1) How did you get to Target? I assume you drove your 1 person vehicle (bet it’s a SUV or full size sedan due to 4 month old) to pick maybe 1-3 items. That Amazon/UPS/Fedex truck likely had 60-100 professionally optimized stops in close proximity taking into account only making right hand turns, traffic, etc. You probably did not do that and maybe even made a trip just for that usb thing. 2) The usb thing did not magically appear at Target. It was likely made in the same factory in China, was transported on the same ship in an adjacent container and only when it hit Target did its route become MORE environmentally unfriendly than the usb that was delivered within an optimized system.
Spoken with love from a fan who also happens to own a logistics business. Love the pod and loved this episode. Please consider this, maybe you can do an episode on it. Maybe you’ll prove me wrong.
I bought my duplex for 245k in 2017 and it's worth about 400k now. The best investment I've made. Plus no worries about landlords kicking you out or dropping by unexpectedly, you can customize how you want, etc.
Maybe this applies in San Francisco, New York, etc but not to people in the middle of Nebraska.
My financial discipline is also garbage like most people. So if i wasnt putting it toward my mortgage id just be wasting it on garbage, not buying more stonks
You took a concentrated financial risk that happened to drastically outperform historical averages. That doesn’t mean it’s the expected outcome, you got lucky.
In CA, FL and TX the property tax and insurance on a house is almost as much as rent. Then you still have the mortgage and all the other ownership costs.
I agree to an extent.. To be a homeowner is a young man's dream, and primarily a learning experience he is unprepared for. On the other hand, where you buy your first home makes a big difference if you want to get into real estate.
Definitely having that same feeling of wanting to go back to renting with all the house maintenance and upkeep.
Still kinda crazy that Sam still wants to be in a 5000 sqft house. Why not just airbnb a place when the inlaws are over?
agree. I've never owned a house 35 and grateful for it. Thanks Ramit helped me get out of 40k in debt when I was 27 in 3 months as I was in his beta group for 10 yr anniversay book. Thanks Ramit
I bought in 2017 when value was down and rates were extremely low. Ran the numbers and we actually paid less than what people were paying on rent. Now my mortgage payment is half of rents and a third of mortgage payments now. So many nuggets of truth in here. The declutter and organize creates success and less stress. Found people who struggle with money tend to hoard. Love this episode. I’m in and working on my first million for my business
The 30 year fixed mortgage is the greatest gift given to Americans. It’s a one way contract as well. Many other countries do not have a full amortizing fixed mortgage. The beauty is you can break it to get a lower rate if it is available however the bank can’t break it if rates go up. With the continued debasement of fiat money it is the easiest way that an employee, a family etc. can build wealth while living in a place where they call the shots.
Nothing over 20, but I agree with fixed.
Yep, in Aus and we signed our mortgage at around 2.5% 5 years ago.. Our fixed term just ended so we're currently at 6%
In Canada we only get mortgages for max 5 years. You have to keep renewing every 3-5 years at whatever the rate is at that time. American homeowners have it made!
Loved this episode and Ramit's Netflix show!
I agree especially with how things are and where we live. We live in Bay Area, CA, and are renters. At times we do wish we had a home, but then remember how nice it is not to have to repair anything and just call our landlord. One downside to that is I'd love to be able to "fix up" the house more, but we aren't able to do too many mini renovations since it's not our home and renter-friendly items also only get you so far. Our rent is significantly less than what a mortgage would be so with what we save in not owning a home, we're able to max out our 401(k) and other investment accounts, go on more vacations, and make our own 'rich life.'
Thankful for your perspective.❤🙏🏽
Great point at 32:00. What’s actually important to you? Ignore what’s fancy and cool, focus on the lifestyle that’s important to YOU
Okay this might be the case where you are, I live in Australia, got a loan for 460k it’s fully variable as almost all home loans are here. Currently at a peak interest rate of 5.99% I pay weekly to bring down the forecast term. Minimum repayments are $670 per week I pay $700. Yes I’m paying a bucket load in interest, but if I were to rent in the area I’d pay a minimum of $600 per week. Yes I would save on taxes but really if I’m only saving $70 per week there’s no way it’s working out better for me to rent.
Talk about rents increase places like Melbourne rents gone very high.. some places over 15%
My three favorite channels: My First Million, Stock Brotha, & How Money Works. Make my week complete! 🔥 🔥 🔥
Okay Stock brotha😂
We live in a high cost of living city. To stay in our neighborhood (desired) and to not downsize (desired) we’d end up paying nearly double in mortgage payments than we do currently on rent. Looking at housing as an investment, those dollars have a higher chance of growing in a fund following the S&P. There are still intangibles that pull our heart strings toward wanting to buy, the financials of it are pretty clear.
I live in London and bought a flat 3 years ago. I’m currently fundraising for my startup and have an overwhelming feeling that once it closes and I go full time, I want to clear my life balance sheet to have laser focus and no distractions. The biggest line item? The mortgage. I want rid of the flat, I don’t want the debt hanging over my head. Heres the plainest way to show why. On my mortgage for every £2.12 I pay, I pay off £1 of the mortgage🤯
I completely understand this. I live in a very popular and expensive area in Miami which is already an expensive city itself. I rent and there’s no way I could purchase somewhere this nice in this area. I have people tell me I should buy instead of rent but most of them are older and have families or I’ll see comments from people that live in small towns saying to buy not rent. For my lifestyle and what I enjoy doing where I live is perfect even though I’m renting.
same; i pay 3.5k/mo for a new apartment with max amenities and walkability… Mortgage payment + HOA / insurance for the same quality would be closer to 10-12k/mo - renting is a no brainer
@@Khanfuzed1 bingo. Exact same scenario I’m in. If I was married and had kids and planned on settling down in the same spot for the next 20 years then ya I’d have different living arrangements
I like Shaan’s new podcast background
Do I agree? Kind of, in a "he has no kids, already has plenty of money (i.e. choices), speaking from a US perspective on a global internet platform (i.e. different taxes, market returns, costs, landlord powers and culture influence choices), heavy focus on money over emotions and community" kind of way. He's not wrong - do the numbers before making the choice. But it's always going to be more than that.
Buying a home to live in (in most cases) should not be looked at as an investment but rather as a luxury purchase. No one needs to buy a home. There may be some personal preferences that persuade a wealthy person to do this but for those who are looking to build wealth real estate is not a good option. In most cases in the US you will be better off renting and putting any excess savings into the market. The opportunity over the next decade is much better in stocks so even in cases where renting is slightly more expensive (basically no major US city) it may be better to go the renting route.
The thing that people tend to leave out of the calculation is how rents go up over time, but your mortgage will stay fixed. Obviously if your moving all the time, the closing costs cancel out this benefit but most people don’t move that much.
I have shared ownership on apartment in London. 2010 bought 40% of £200k flat. My mortgage was always slighlty above £400 per month (locked in Sept 2022 @ 4% till 2027). Rent (deal was that rent on remaining 60% wasnt market price): started at £400 per month. Now, 2024 £600. Where market prices went 100% up, mortgages went 100%. 2 rooms and living room, 80sqm. 2 kids. They share room, one will go to the uni in 3 years. Flat is worth 400k now. My share £160k. In the meantime I took mortgage in CHF in Poland. Because CHF morgages turned out to be toxic, I took bank to court and after 6 years got the deal. Result. Bank lent me £100k in 2008, got all back (my tenants paid it off) but not even 1 penny in interst. This house in worth £200k now. So there are different ways that described in this video😊😊
Yeah and if you invested in bit/coin you'd be worth around $100M so what's your point
@@bitcoinisfreedommoney.fckt2663 just wanted some random guy to post comment
I've been thinking about this math a lot over the last 6 months, and I've been splitting it up between Equity Expenses and Non-Equity Expenses. I took a property i found on zillow in Chelsea in NYC that was 470k (very low for manhattan), and found that rough monthly expenses would be $5,500 (mortgage, HOA, insurances, etc.) Over 30 years, the equity expenses would be the 470k, and non-equity expenses end up around 1.5m.
so you've paid essentially 2m over 30 years, and your 470k of equity has grown at 3% (avg annual property appreciation in nyc) over 30 years to reach about 1.14m.
you've lost about 860k over 30 years, which sounds bad, but compared to renting + investing with the same $5,500 monthly budget, it's not that bad...
If you were to rent for 30 years and invest the remainder of the budget, it might look something like this:
starting rent = $3,000/mo (kinda low for manhattan. nothing fancy)
- rent increases can be anywhere from 5-10% each year in manhattan. even rent stabilized apartments are legally allowed to go up by 3%. So over 30 years, the total amount paid in rent even at the ideal 3% would be about 1.7m. this is a non-equity expense
- equity expenses would be what is leftover of the $5,500 monthly budget. because this is a fixed budget, as we're comparing to fixed payments with a mortgage, the amount leftover and available to invest will go down each year as the rent price goes up. it would take 21 years of rent increases to break the $5,500 budget, therefore, leaving no money left to invest. in those 21 years, the total amount of cash put away would be about $354,000. Those contributions would grow, lets say at 8% (s&p avg growth) over those 21 years, and then there would be no more leftover cash contribute, so that amount would grow on its own, resulting in a total value of about $964,000
SO. by renting for 30 years, you have paid 1.7m in non-equity expenses + 354k in equity expenses (total 2.05m) to leave with ownership of investments worth 964k. meaning you have lost about 1.1m by renting for 30 years.
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So buying the place in the traditional path of getting a mortgage etc. is kind of the better path because you lost 860k over 30 years rather than 1.1m.
(definitely let me know if ive left anything out)
I think in a high-cost city like NYC, the only way for it to make sense to buy a place, and the only way to not lose money from needing a place to live is to buy a place upfront in cash in order to cut down on the largest non-equity expense of interest on your mortgage. This is a luxury, however, that most people don't have. So from what i can see, it's a bit of a "pick your poison"
Would love to hear other perspectives or if there's a flaw in any of my reasoning!
@myfirstmillion
Condo I'm looking at is ~650, but I can rent it (unfurnished) for 3k. How do I run the numbers to figure out what the better price is?
Look up a buy vs rent calculator 👍
We are selling our house (or about to put it on the market this month). We expect to make several hundred thousand dollars in profit from this sale. At this point we are planning to rent after we sell. We will probably buy again at some point. But we've owned a few homes. We move every 3-4 years. We don't plan to but it turns out this is how we live life. It makes more sense to rent if we are going to move every 2-4 years. When we buy our next home I want to build our dream house that we will stay in for at least 10 years.
Also with all the cash from the sale of our home it gives us more options. We plan to use some of the money to buy a business to give us more income and freedom. I work corporate and my wife already owns her own business. Not owning actually gives us more options to build our life.
Like most financial decisions, buying a house is very individually specific. Do what's right for you.
I agree with Sam and Ramit… BTW, I’m missing Shaan not being here and all his wittiness 😢
The biggest benefit I feel about not owning a home is the time that you get back, don’t need to worry about your lawn, additional service charges, cleaning the big house. The time you gain back can be put towards something else that makes your life better.
Pros about owning a home is the space you get, you can be in your backyard and take walks when the weather is not suitable.
For those with kids, it makes total sense to have/own a home since they need space for the kids.
Some people who rent houses are still responsible for the lawn and cleaning …
Validation of my life choices from people whom I respect is great when all my friends keep telling me I'm wrong :)
Woosh. First off, this is my favorite podcast and I never miss an episode. But dam... yes, this probably makes sense if you are already wealthy and live in San fran or New York. But not for 85% of other areas in the US. Yes it is a longer term game, but it's one of the best ways for nearly anyone to grow their net worth. I bought my house in Nashville in 2018 for $280,000 and it's worth $500k now. I've used the equity to buy an investment property, have another $150k in equity there and about to buy a third. I will continue to build it from there. I think this episode is for a small percentage of people. There were not any convincing points to me in this episode. If your income is 2 million+ than sure, rent if you dont like calling someone to change your lightbulb. lol But even still, I'd probably buy because I like the game of real estate. And yes I understand that the past 3-4 years we saw a rapid growth in home values and it wont always be that dramatic of an increase but still. But I've been wrong before. Much love!
Living in SF totally agree, buying a place for 4x the mortgage rather than rent makes no sense
Testing out the different titles I see, hope you’re finding stuff that’s working!
I agree, but most of my friends don't (mid 20's). They all already talk about the big houses they want - and I think you hit it spot on when Ramit said that it might be the enchantment of it talking. I did the math (Denmark, btw), and boy I'm glad that renting is the thing enchanting me ;-) Great episode, and I like your jacket Sam!
I agree, I live in ATX but grew up in california and lived in apartments my whole life.
Once I got older and started making money, everyone would say buy a house but when I did the numbers it always made more sense to rent.
Today I still rent and don’t see myself buying (I invest the delta or today i’m looking at buying a business), I think people just associate security with buying than renting.
Bingo. There is actually very little analysis that goes into buying a house. Most people spend more time planning a vacation than running a basic set of numbers around something that will cost them literally hundreds of thousands of dollars (or more)!
Yeah, it's not always about the financial decision but just having a static cozy safe place somewhere where all your things stay and you can move, live, travel, and come back whenever you want.
Sam cuts ramit off too often. Man...let the dude speak..
White priviledge dies hard 😂
He’s not cutting him off, it’s called a conversation. If you want to hear only Ramit speak, go to his channel
Its not a conversation when you constantly cut someone off and disrupt the flow of thoughts. He asks him a question and then while he is answering he asks another question. Its too
irritating. I like MFM, and this is a constructive feedback. You don't need to act like Sam's army. He knows how to handle feedback well.
I didn't think so at ALL
Not Sam’s army, I just have a different opinion. The flow of conversation didn’t bother me at all, but everyone has their preferences. Cheers!
Are there any online calculators that make clear the rent vs buy decision. I live in Manhattan, and I considered purchasing a place in 2021, when prices were relatively low in Manhattan and interest rates were historically low. Even then, it was a really fuzzy calculation on rent vs. buy. I'm curious how you guys are able to so definitively decide renting is better from a purely financial perspective.
Great episode.
Question though: could you guys (or anybody reading this) point to a tool, like a spreadsheet or "calculator" that could help somebody crunch the numbers and objectively show cost of renting vs buying etc?
A tool that would work for as many people as possible. Different cities, countries, rates etc
Great episode, thanks!
I bought my first house 15 years ago for $144k. Flipped it bought and flipped 3 more. Now live on half an acre worth almost $1 million and pay less for my mortgage than I would to rent a 2 bedroom apartment down the street.
One thing to consider is there are always exceptions.
For example,
1. I'm in Puerto Rico under act 60 and it's a requirement. Buying a house (personally, not through a business) here allowed me to qualify for act 60 and drop my tax bracket from like 45% to 4% (it's more like 8% after fees) but the more I make the more I save.
2. I've also made at least 50k (after expenses) on any property I have lived in and sold. Those profits were a factor in being able to pay cash for my current house.
3. House hacking: I have not done this but buying a duplex, triplex or quad can effectively have others pay your mortgage for you (or even rent out rooms).
I love the channel. Keep up the great work.
You more than likely aren’t calculating the opportunity cost of the money you invested
. Once you start renting real estate, even if you live in it, it becomes an asset class. House hacking is not what they are talking about
In the county I live in Scotland, around 100k population there are 5 houses available to rent right now that are the size I’d need and the rents are at least double my mortgage - some much more. There are 170 houses for sale. There just isn’t the supply of nice rental properties in a lot of areas
Agreed, beautifully done
Agree on the assumption around current mortgage rates (especially opportunity cost of investing), disagree with the cohort of people sub 3.5% fixed. I live in a HCOL area in the Bay Area and math checked out for me. Mortgage interest deduction up to 750k is also compelling to offset tax liability (I didn’t pay off more than 750k for the same opportunity cost argument). Will also live here for a long time and the area we live in is great.
You made a great argument and is relevant for many people. Decluttering and high quality low quantity stuff was spot on.
Way cheaper to buy here in alabama as housing prices are still very low
I respect what Ramit says and I agree 100%. No1 thing you need to do first is understand what he is saying is relevant to your country, home and essentially your case. In Cyprus, we don't have a HoA, we don't have all these property taxes but apartment and house cost are respectively higher to the salaries so again, buying too big of a house can be a financial burden or disaster in some cases. Always do your homework and if math ain't mathing... simply don't do it. :)
I’m 65 and selling my condo to rent. I’m tired of repairs and increasing HOA. My mortgage and HOA combined is just over $3000. I can rent a nice 2 bedroom for $1900-2000. I look forward to having an extra thousand a month.
Agree. Still in the process of making Career jumps and I don’t want to risk being upside down in a house to prevent me from taking the next career opportunity.
I bought a house a 18 months ago, shortly after buying I read Ramits book and have been second-guessing my purchase ever since. He has a lot of great points. People get into a home without knowing the hidden costs and go underwater. Im all for buying a home but we need people like Ramit to let people know what they are getting into rather than just buying a house because thats what their parents and grandparents did.
Liked the episode and connected with a lot of your points. Not sure I understand how renting beats owning though. The landlord needs to cover all the expenses you mentioned, as well as LT maintenance and a bit for vacancy, so the only gain may be the opportunity cost of the down pymt, which would seem to be offset by appreciation.
Ramit here on an 8 day👀👀 I’ve bought his book it definitely helped me on my path to wealth
Big question, what weighted vest did you buy for life?
Owning a home in places like Singapore can be a practical choice due to factors such as school districts, pet regulations, and accessibility concerns, which significantly differentiate the experiences of renting versus buying. Individuals at opposite ends of the financial spectrum may find their housing decisions influenced by these factors..
It’s close to impossible to rent place with Pets.. been there lived through.. ended up buying.
Congrats on hitting 420 🎊
I agree in some cases it might be more beneficial to rent. In the case of being a millionaire and just be worried about location, walkability and etc. absolutely. In SF, LA, NY… sure prices are crazy in those cities. But in the case of most middle class, upper middle class people I don’t think renting is better then owning. Yes a lot of money goes into interest. But there is a small amount of equity building versus none. And everyone has to live somewhere anyways. We might as well be building equity. Maintenance costs are not terrible and can be offset with home warranty. It’s not everyone’s rich live to never step into a Home Depot. Monthly rent payments are generally higher then mortgage payments on anything bought before 2022.
Agree that usually renting is the smarter case. Especially when you can build wealth by getting an incredible return from index funds in the stock market.
I bet you could hire a property manager to take care of your primary residence. Then just call them and they will find the vendors to fix whatever is wrong.
The thing about renting that gives me pause is the inability to customize (e.g., distributed audio - speakers in the ceiling, etc, home theater, etc) - how do those renting overcome this - tweaking the rental to suit your needs/likes?
Weve been in the same rental house for several years. If we want to modify something we just ask. Id say 9 times out of 10 they allow whatever we want to do.
Id assume theyd usually let you, since your pouring money and value into something the landlord owns.
I enjoyed the pod, really liked listening. But I don't think you put in a very solid argument. Not necessarily because I disagree but I think you needed slides and some more detailed examples. I live in Australia, and housing has gone absolutely ballistic. When taking into account leverage, a lot of people have become millionaires net of mortgage quickly just from buying a house.
But the biggest factor is opportunity cost on a down payment? For example in The Netherlands there's 0% down payment.
I’d be curious to hear your thoughts on the tax benefits for buying vs renting. What other tax benefits are there that compete with those of real estate?
Being a small business owner has TONS of benefits. One of those best being QSBS, which allows you to earn up to $10m (sometimes more) without paying a dime of tax when selling your business. There are other deductions that rock!
You can buy an investment property to get tax benefits while still renting for your primary residence.
For most people a house is a savings account that they can live in. In reality most people don’t have the skills or discipline to generate a better return by other means.
💯💯💯
The logic of it being a savings account makes sense but his point about just investing in the S&P 500 instead of a mortgage is just as easy, generates better returns, and is more liquid
Can't wait to not own again. Just because I can fix things doesn't mean I should make time to do so. Due to a few reasons it's unlikely I'll go back to renting though, so in the interim I'm working on earning enough to outsource all the maintenance and upgrade stuff I typically do myself.
Brain agrees and heart wants to own home 😂. Ramit earned a subscriber
i like this episode a lot. house buying is a luxury no doubt
How come Shaan is never around when Ramit is on?
I always wonder the same thing……
I own properties but rent for my primary residence 🤷🏽♀️ works for me.
@Sam I share the same view as you with stuff, clutter and impact on the earth with our frivolous spending. I wish more people would adopt this mindset.
Bought my current apartment in 2017 for 850k CHF with 20% down at 1.24% for 5 years and now 0.69% til 2027. So I pay roughly 1/3 vs. rent plus the market value of the apartment is at 1.5M CHF right now 🎉
I understand the points you boys have. I think from the perspective of someone who doesn't have money, buying a house opens up the possibility for me to earning more then I currently am able to earn from what I can invest. Buying a house may get me less returns percentage wise then investing in an index, but I don't have to capital to make use of those returns. 20% return doesn't mean anything If I don't have the capital. Where I might invest 20,000 in a index and get 10-20% a year, or 2,000-4,000, I could invest 20,000 into a deposit for a 200,000 house, and only earn 4%, but get an $8,000 return. That's a quarter of the percent, and double the return. Do you see my logic. Its obviously all circumstancial, and I think a bit part of that circumstance is, do you actually have money to invest.
Must run the #'$.
Bought a home 2018 $305k (20% down) at 5.2% - 7 year ARM. COVID hits, rates drop and value sky rockets. In 2021, refinanced to 15 year fixed at 2.25% while maxing out home "value", reappraised at $450k. Took the $80k and built at $400k rental. Leasing the rental with 16% IRR. Now have ~$100 more month in mortgage but making $1k/mo in rental.
Sure, luck in financing timing, but would have never had the opportunity w/out the house.
There are variables that make sense here financially. But take profits out of the situation and layer standard of living in. What I mean by this. If you want a greenhouse, chickens, cats, dogs or to have a labor of your home. I think that what an owner occupied home is about. Not an investment. If you are buying a home close to a ski resort where family can come and have memories. Again, owner occupied should not be about the investment, but the memories and lifestyle you can live by owning rather than renting.
If I’m buying a house I’ll have it built to my specifications and it’ll be one of those houses that end up being 200 years old with an architect’s name on a plaque and a room with all the elevations, floor plans, working drawings for mechanical, plumbing and electrical framed on a wall. 1/4 acre or 1/2 square lot plopped down in a city or on 150-400 acres in the country.
rent where i live, own where i rent to others…
most can’t imagine why
sam telling all the things he wants in the house, so cute, he sounds like a kid explaining to his parents.
This is such a rich person argument
Yes, "please run the numbers on the biggest purchase of your life" is only for rich guys
@@ramitsethi your examples of all the places where it doesn’t make sense to buy were all expensive cities…
@@bellbellbell00the same logic can be applied anywhere. In my area which is pretty expensive but not too densely populated it makes sense for me to rent vs buy. Buying a home is really only a smart investment if you get lucky timing the market and/or live in it for a long time. Instead of paying a mortgage, you can just invest in the S&P 500, generate way higher returns, and be more liquid. I’m personally buying rental properties so that the real estate I own is cash flowing versus buying a home which is the exact opposite
sam over here saying it worked out but telling everyone else to rent is crazyyyyy
A few thoughts on this.
As Shaan often says, the segment that creates most billionaires with the least astonishing intelligence or creativity, is real estate. Because of that, many keep at real estate. It is easy - compared to the alternatives.
I think that is the source of the illusion that investing in real estate is the best way to become financially independant.
Real estate that cash flows is the key though. Buying a home takes money out of your pocket, while an income property does the opposite.
Ok so can someone explain exactly how it works in America?
I wanna run the numbers.
I live in The Netherlands and I am paying off my house in 30 years on 1.9% fixed interest. In short: House was bought for 370k (4k downpayment) and we pay 1200 a month.
If you are raising a family in a community you selected, owning your home plants roots in a way that renting does not. It impacts how you think about the place and your commitment to it, and that flows into the relationships you build there and your social life. Living somewhere where most people rent feels different - the topics of conversation invariably tilt toward, how long do you have left here and where are you headed next?
Statistically speaking, rent doubles every 10 years and most peoples salary/pay, if lucky, will increase at the rate of inflation. That mortgage might be high now, but your going to be thankful in a decade when rent prices doubled and your locked in at the same rate.
We bought a house. It doubled in value in ~4 years. We rented it out for the first 3 years, and moved in a year ago. Our costs definitely went up moving in, but now, to rent would cost more than our mortgage, which we were able to lock in at 4-years-ago-rates. Our housing monthlies should stay relatively the same for the next ~10 years, while rent will keep climbing.
You rented it out, and made money from that investment. That’s not what they are talking about. Real estate as an asset class is a good investment
great for you but some people want to build a business or be financial and location independent ... for me buying my own house is stupid i am about to buy my second investment property i want to buy more this is a good move ..
Yes, you took a risk and timed the market perfectly during historically low interest rates before massive outperformance versus historically average returns.
That doesn’t extend to making it right decision today, or even that it was a smart gamble at the time.
@@lucaspm98 Correct. It's the same like any investment decision. Look at the market, figure out if it makes sense for you. In my case, I'm happy to have my rent fixed through inflation and tight housing.
We have an offset mortgage, so we let our emergency funds lie in the account and, as result pay nearly no interest. We actually end up making money on it by renting it out while we now travel and rent airbnbs in cheap countries.
I sometimes wonder if the "3.5%" average returns are because in a country the size of America, the percentage return is artificially low due to a LOT of land that is not usable and therefore doesn't really increase in value. I wonder if you changed the criteria to be more realistic it'd be closer to a 5-6% return? For context, in New Zealand, over the last 30+ years (Jan 1992 - Jan 2024) our house prices, excluding Auckland (biggest city), increased 6.2% per year. If you include Auckland, the house prices have increased 7.0% per year over the last 30+ years.
agree - renting is the move!
Totally agree!
@ 16:02 are you comparing Rent vs. a 15yr loan?? You would have to compare this to a 30 year loan to make a fair argument
Worried about monthly interest, has no problem spending $700 on sneakers.
This dude is top tier tool box.
Agree people dont want to admit they are giving up the dream on a house
No talk on deprecation benefits if you rent out your owned properties, tenants paying loans down, helocs, no cost analysis of buying your home cash vs getting a 7% 30 year loan in addition to being able to pay down the interest on a home loan etc. No way paying for a $2 mill house in cash is better than putting 5% down and paying monthly and investing the leftover money in other ways.