Вставка
- Опубліковано 17 чер 2021
- Welcome back to another episode of the sensible money show. The focus this week is the age-old question of housing; whether to buy or to rent. After our preliminary remarks, book review, and a new TV recommendation, we get down to brass tacks on the important things to look at when assessing your living situation. There are some commonly held views on the expenses and sacrifices associated with real estate, and we do our best to share some of the facts as they stand. We get into some meaningful ways to truly compare the costs of each option, looking at the financial aspects, risk, quality of life, and related psychological elements to the debate. The truth is that there will be costs associated with each, but that they may not always lie where you think they do! For instance, it is commonly believed that it is less risky to own than to rent, however, the evidence suggests otherwise. Similarly, many of us assume that the costs of owning a property are greatly diminished once it is paid off, again, this is not necessarily true. Our main argument here is to base your choices on factors more closely related to your physical and mental health, things like stress and relaxation due to noise and travel times.
Books From Today’s Episode:
Noise - amzn.to/3yYf32T
The Checklist Manifesto - amzn.to/3zI7YUG 1
The Wealthy Renter - amzn.to/3muUkNZ 1
The Happiness Hypothesis - amzn.to/2PLng8X
Positive Psychology - amzn.to/3gtEJgK
Links From Today’s Episode:
Rational Reminder on iTunes - itunes.apple.com/ca/podcast/t....
Rational Reminder Website - rationalreminder.ca/
Follow us on Twitter - / rationalremind
Follow us on Instagram - @rationalreminder
Benjamin on Twitter - / benjaminwfelix
Cameron on Twitter - / cameronpassmore
Mare of Easttown - Mare of Easttown - Rotten Tomatoes 1
The Misguided Faith in the Fiduciary Standard - www.advisorperspectives.com/a...
‘Rate of Return on Everything’ - Rate of Return on Everything, 1870-2015* | The Quarterly Journal of Economics | Oxford Academic
more/ - Навчання та стиль
24:42 Start of Rent vs Buy
please maybe add time stamps
Awesome episode, but can we get some timestamps up in here? It would save me a couple minutes every time I watch if I could get a timestamp when the title topic starts being discussed. This is easy to add to the youtube video, or at least the description, or at least insert a clip at the beginning saying when it will start!
Thanks guys!
This is one of the best channels on UA-cam. You guys are keeping us grounded. Can you put up slides as you speak? This is gonna help us memorize your facts ! Thanks a lot. Keep up the good work!
Great episode guys!
Ben, can you please make the excel file you refer to in the discussion available publicly so we can use with our own numbers when comparing rental to mortgage.
There is also a big difference country to country. Prices in Europe have skyrocket as well.
In some countries you get a pretty decent tax benefit by owning instead of renting, for an example.
Let's say you make $10.000 per month and pay 40% in tax, which then gives you $6.000 to pay mortgage, buy food etc.
If you then have bought a $300.000 house at an interest rate on the mortgage at 4%, meaning you pay $12.000 per year in interest, you actually get a tax benefit on $1.000 per month.
So now you still make $10.000 per month and pay 40% in tax, but you can from the beginning withdraw $1.000 from the $10.000, so that you only pay 40% tax on the remaining $9.000.
Which comes down to you now getting $7.000 in your pocket per month because of owning the house, instead of $6.000 renting it.
Regarding the statements at the end about teenagers, I can say what happened to me: I started putting my own (earned) money in the stock market at 17, and I spent a lot of time playing with the stocks, technical analysis and all of that garbage. Figured pretty quickly it's really a losing game, like a casino. Scared me of investing in stocks for 10 years. Only after studying a lot and amid grad school that I had the maturity to understand the research in indexing. I lost 10 years of compounding, literally between 2009 and 2019, one of the best decades of the stock market. So, I agree, exposing teens to stocks without supervision worries me too, because even the potentially smart investors might get scared away from investing.
I’m an accountant and a lot of my clients stupidly did single stock investing when they were younger and now have only been willing to invest in property. They see no distinction between the gambling they were doing and buying mutual and index funds. It’s horrible and is setting them back decades
i too fear christ.
Very interesting topic!
Great episode guys! I'm happy you got a home Ben! You guys should try doing a live stream podcast one day so we can ask questions in the chat.
Here in NL renting a house of similar size is factor 2 more expensive than my mortgage payments. At what point is renting financially no longer the smarter choice?
Fantastic episode - especially compelling because I just bought a house.
Did they make you regret the purchase? The one problem with RR podcast is that it makes rethink all previous investments decisions with extreme skepticism
@Ben Nieuwland No, they didn't. I did do the rough calculations w/ the 5% rule and discovered that at the price points we were looking at, the rent vs. buy options were roughly equal. Rent may have been slightly cheaper. However, since we'll still be on track with our savings goals with either option, I don't think it matters too much in our case. I'm funding the down payment with the sale of AAPL shares that I acquired in 2017. So the lower future return on the cash is likely to balance out to around market-returns in the long-run.
My wife and I also plan to expand our family in the near future, and wanted a residence that had good space, a nice yard, and good walking paths in the area. We also really value having autonomy over our residence. So, even if a mortgage was the financially "worse" decision, we probably would have gone with it anyway.
I've been thinking about buying a house for about two years now, so this decision did include a lot of the consideration that is mentioned in the video. Each person is different. For my situation, buying worked out.
I like housing investments, I may be wrong, but this is my reasoning:
I feel the task of recognizing good oportunities as something more achievable than stocks.
Stocks usually already have their future growth included in their price so trying to outsmart that is not an easy task. However with housing seems more plausible to see potential growth in advance before the price of the properties reflect that growth, because buyers usually want to start living there immediately, so there is a premium for being willing to wait for the neighbourhood to improve.
...also, businesses can go well or wrong depending on lots of factors out of control, and most businesses eventually go wrong. However with housing, as long as the property is standing up, is always possible to rent it and the choice to repair it or not is under control. I know there are non-controllable things like natural catastrophes or crime rate, but most of the time things go relatively well (and there are insurances as well).
"Ok, but what about index funds instead of stock picking?" you may be thinking. I agree that index funds probably are safer as a long term investment, however I think there are 2 main advantages of owning a house as investment:
1. Diversification. I think having both index funds and real estate offers diversification benefits. Of course a house is a lot of concentrated risk, but they are different kinds of assets.
2. Stability. I think it's reasonable for a retiree to live of housing rentals or to live of a reverse mortgage; however stocks are too volatile. Many people recommend retirees to hold 60% of bond or more, but the yield is so low that they don't even keep up with inflation.
Just here to ask about two things:
1) In certain papers Avantis ETFs have been recommended. I like the valuations, the expense ratios are modest if not index fund low, but I noticed that they are actively managed. How is this reconciled with what is known about active management versus passive management?
2) There is a lot of talk about large cap versus small cap stocks but what about mid cap stocks? What is their role in one's portfolio?
They’re actively managed to the extent that they choose to tilt towards various factors. They set systematic rules pertaining to various metrics (book/market, gross profitability, etc) and stick to those. They’re “active” because they do something other than follow the fund’s benchmark.
As for mid caps, I don’t know why they’re not talked about as much. Perhaps it’s because they’re neutral in terms of the size factor (i.e. size factor is SmB, so midcaps are neither large nor small, therefore not in the discussion). I’m unsure.
@@dfgsdfhgdhggdffgfhds Thank you for the response. That seems to explain why Avantis has relatively lower expense ratios than typical actively managed funds.
As for mid caps it would be nice to have a CSI video explaining them even if the answer is in fact boring.
so why are you both in homes right now? if it's such a bad investment? and why did you renovate the kitchen?
Following the 2% rule, the goal for monthly rental income for a $700,000 townhome would be $14,000 a month.
All of the normal caveats about rules of thumb, and that the 2% rule may not apply in cities with high prices.
But even so, that is an insane gap between a $700,000 property value and a $2,000 rental income.
2% rule? Are you seriously suggesting there is a rule indicating you should rent a property for 2% of its value per month? That has never been a thing. Anywhere
@@DavidRamseyIII You could have Googled "2 percent rule renting" and looked at the results in less time than it took to write this comment.
Regardless, I am not advocating for the rule. I was just using it for reference.
I believe the % rules are referenced as annual values. At least the 5% rule is.
How does the risk Concentration of owning a home in Ottawa compare to Holding ETFs through a specific financial company which could also misbehave or go bankrupt?
An ETF issuer going bust does not affect the value of the ETF assets. Issuers do not hold the assets.
You guys need to start adding timestamps by topic or Google is going to do it for you...
Aren’t the overall stock market returns and overall housing market values correlated? Which means if the stock market is on a tear then a landlord’s home would also increase in value which would justify a up in rent? Even as the home depreciated you have increased your income accordingly. Seems like a landlord has more flexibility and sits in a better position then the renter. Especially in North America.
Renters can protect themselves with longer leases and they can do due diligence on the landlord to reduce the chances of being booted.
Will your kids change schools because of moving tho? There’s also studies that changing schools might negatively affect mental health
Only one of my kids had been in school, but we have been home schooling since March 2020, so I'm not worried about that transition. All of the other kids will start school in the new location.
Did you Smith maneuver your mortgage?
Not for now.
Once the homeowner pays off the home and reaches age 62 they will have the option to reverse mortgage the home for tax free income in retirement.
Currently in the United States you can receive approximately 3% of your home value. A 700k home will payout approximately 21k of tax free money for life . This is an option not available to renters.
In not sure how you will factor this into the rent vs buy equation but I do know that it's a factor not to ignore.
That's a good point, and a good option assuming you want to remain in the same place. Since I prefer to live seasonally in retirement, I plan to sell my place and invest the money. Even with a reverse mortgage a house isn't a liquid asset.
urg, I commute 1.5hrs each way 3 days a week.
I'd give you an up-thumb since your comment is so relevant, but that really sucks.
Re: Commuting You speak of it and it's stressors as if it affects an entire household. The situation you described with someone moving out of a city, further from work, for a bigger house is usually not a household of one person. It is usually a family, and the majority of the household might experience a genuine improvement in well-being in a quieter neighborhood, with more space, closer to nature, etc. Yes, one member might have a crappy commute, but the majority of the people in the household experience gains.
Also, it's silly to talk about your personal example, Ben, without mentioning the particulars of your household. You're part of a young family with four children. What are any good rental situations in Ottawa for a family of that size, esp as the kids grow? I speak as a parent in a similar household. Owning a home makes a lot more sense on a number of levels for that circumstance. You are not the young new graduate who arrived in Ottawa a decade ago.
Many households have more than one spouse working. For us, my wife is at home but a commute would significantly reduce the time I have with my family. That would affect all of us. I have been living in a rented 4 bedroom home with a back yard on the edge of Little Italy for more than two years. There are good rental options for families.
@@BenFelixCSI I'm glad you had good house-renting experiences. I know other families that most definitely did not--though not in Ottawa, so maybe it's just a nicer place to live in general. 😉
@@a.j.4644 Agreed all of this varies by market. If I had not been able to find a suitable home to rent, we likely would have bought sooner.
you have to factor in the home owner renting out their basement and money that comes from that when comparing Home owner vs. renter
If a renter is living in a smaller space (because they don't need an extra room to rent out) their housing costs will still be comparable.
@@BenFelixCSI I'm curious about this too. How would the rent vs buy calculation change if the property bought is a duplex, and the buyer rents one unit out?
Interesting, in Milan the proportion rent to house price is the same as Ottawa
Ben you better listen to this podcast and get your house you bought back on the market! Lol……….. is this a do as I say not as I do deal?
According to WEF you will own nothing and be happy
Cameron:
Ben: there´s a paper about that
There is a caveat Mr. Michael Scofield.
Own the home - make a rental income suite in the basement.
Micheal Scofield lol
Rent a smaller dwelling and your housing costs can still be comparable. Say the rental apartment is 1/5 of a $500,000 home and rents are 5% of home values. Total unrecoverable housing costs are $25,000 per year, but $5,000 is coming back as rental income for a net cost of $20,000. Option number 2 is to rent a home for $20,000 per year. Gets you to the same place.
Not sure about the bad advice of the week, giving teenagers access to Fidelity investing. Teenagers are going to be exposed to all sorts of bad ideas about intimacy, greed, and substance abuse regardless of the futile efforts of a parent to shelter them from these influences. Personally, I’d rather introduce my teenager to investing with hands on experience including the bad products rather than have some deceitful social media influencer introduce them to investing and exploit their ignorance and greed.
I often wonder if US drinking culture would be better if we allowed teenagers to drink when they still lived at home --> learn drinking habits from fully sociallized adults rather than some frat boy 2 years older than them. They're going to be exposed bad stuff anyways. It is better they do so in a relatively stable environment with a relatively responsible adult figure as a reference point.
Same is likely true of investing.
Is the capital growth in a main residence in Canada tax exempt? Also this particular podcast was verging into hard to listen to territory. Too much overthinking
This is poor analysis. Not having to deal with a landlord and high cash flow are huge factors.