Renting vs Buying a Home: The Lie You’ve Been Told
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- Опубликовано: 5 июн 2024
- Should you rent or buy your home? I’ll show you how to decide in 4 steps, with real numbers - and I’ll give you a clear rule to follow to make sure you make the right decision.
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Ramit Sethi is the host of Netflix’s “How To Get Rich” and New York Times bestselling author of “I Will Teach You To Be Rich”
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Without a doubt, this year will be worse than the last. I lost a lot of money last year as a result of bad investment choices that I would not have made if I hadn't been so worried about my portfolio. I kept investing, but I couldn't determine whether to start paying for a house. In the end, I sold my positions, and the house needed more work than I had planned. I'm not sure how long I can keep going like this
We've all made mistakes at some point. You should consider financial planning
True. My portfolio was diversified across several markets with the help of a financial planner, and were able to achieve over a million in net profit among high dividend yield equities, ETFs, and bonds. It is vital that you have a variety of exposure, including in firms that are currently generating cash flows.
Do you mind sharing your financial planner ?
Leah Foster Alderman
You are most likely to find more info when you look her up
My 91 year old grandma wants to go rent an apartment. She can't keep up with the house and do the stairs. Renting with home care is cheaper than assisted living. Its opened my eyes to that as an option later in life, too.
She could sell the home and pull out the equity and buy a 1 bedroom condo.
Assisted living is ridiculously expensive!
Bottom line: do what works for you. Owning a home isn’t the be all end all. But if buying is a goal you’ve had and you can afford it, then by all means do so!
Exactly. Being rich doesn't make you happy. Having enough money for your hobbies and nice things is enough. Creating memories and not worry about owning a house is something you can't put a price on. I feel the richer you are the more worries you get. Im 22 years old so yes i could change my mind next week but still its nice to just talk shit on the Internet and one thing i say might be right lol that's the thing i just like to talk in the youtube comments more than getting everything right.
The problem is in the confusion with the term "buy."
You don't "own" a home if you have a mortgage, people. The bank 🏦 does. 😳
Since you say I don't own my rental property because it has a mortgage, the rental income should go to the bank then. But why is it I get to keep my rental income. I'm confused
I guess their point is if you can’t find a tenant to pay the rent and you also can’t make the payments on the rental the bank can take it ?
No, the bank owns the debt and the house is the collateral. It's a very important difference.
@@natashawilliams1694 You're assuming a landlord can't afford a mortgage without a tenant which is silly
@javier123454321 this exactly! This guy doesn't know
People think I am poor because I am living in an apartment. I don't care what other people think about me. I save so much money because I am renting an apartment. I am responsible for my life, so I don't listen to those who are trying to persuade me to buy a house.
Renting is Great for me... I'm glad people think I'm poor ..l don't have to loan money to them😂
In modern world we living nobody care if we are rich or poor even your neighbors don't know you but you are right that's how ppl think renting is poor
@davidbrooks8809
Lol
But you do care what they think because you are bringing it up.
Dont listen to these people. You ain't Warren Buffet
I bought my house about 10 years ago right out of college, the mortgage is way cheaper than most rentals in my area. Also it’s quadrupled in value since then. You have to be logical in what you can afford. Not every situation is the same and different cities aren’t as affordable but if I could do it over again I would always choose to own where I live homeownership.
The Amortization calculator is the best thing to judge the real value. What you also have to take into account is inflation. So obviously, if your house has increased, so has inflation.
Yes but how will you use that 4x in value? How is it helping you?
Similar situation. You just have to run the numbers. My home has been a major contributor to my net worth.
@@kvgolfa when she moves, she has money waiting for her for whatever she wants. Renting and owning are fine but buying my home in 2019 was the best decision I’ve ever made.
How much will you have paid in interest, maintenance and all the phantom costs at the end of 30 years?
First thing they said when I joined a brokerage firm, “rule #1: your not a financial advisor, you’re a salesperson”
Yikes-I mean, it’s true, but... yikes.
You joined a "brokerage firm" but you don't know the difference between your and you're?
the word fiduciary comes to mind lol
People are now saying you can get a house without a down payment now I see that as a red flag!
Sweet baby jesus! We don't need another 2008
My daddy, who had a sixth grade education, warned me about 'the no down payment'. In TX builders actually have been doing this since 2002 and are still doing this. Apparently, the mortgage companies learned nothing about 'the crash' in 2008.
It's concerning because they are putting up new builds everywhere. You can't tell me the economy is bad, I don't believe it because ppl are buying in areas that some would consider prospect in Houston and the houses are starting in the 'low 200k' per the builders sign. Yes TX is cheaper, but for real ya'll it ain't that cheap. I've lived here 25 yrs, it ain't that cheap and I make more than a decent salary. Good luck to those who want to buy a house. Getting a house is easy, if your ducks are in a row, but keeping it is more than a notion, if you are not grounded and focused with your money and have something saved for the incidentals.
@@jodylang8781 was gonna say... "hey wait I've seen this before"
@@kirbiejohnson4475 One of the major banks, WF or Chase, can't remember which, was running what was close to a NINJA loan scheme a few years ago. It was branded as 'increasing home ownership among inner-city minorities, no down payment', which sounds nice but...
Sounded like a great way to lure families in with a big dream, then leave them eyeballs deep in debt and depression.
How dangerous. That's a huge warning sign of people running out of money.
To me, buying a house is to make sure my rent doesn’t increase when I’m retired. I live California and when I bought my house in 2018 my rent for the 1 bedroom apartment was $1800, my mortgage, property tax, insurance, and HOA was $3200 on the 3 bedroom house. Just before I turned in my notice, I received a renewal notice and the new rent was $2500. I just looked the other day to see how much it cost now to rent the same apartment and it’s $4000 a month. On the other hand my now mortgage, property tax, insurance, and HOA is now $2600 a month after the refi in 2022. Plus when I decide to move I get to sell my house and get all of my money back vs just moving with nothing.
Selling is not that easy and it's expensive. Also, if you are striving for higher pay or better job opportunities, you severely handicap yourself by buying a home. You can't just pick up and leave for the better job if you find it in a different location.
@MT-yx5cu Yes, you can. You can rent out your place.
@@MT-yx5cu selling is not that hard, I sold a couple homes before and it took maybe 2 months. Both times I just moved out and signed a year lease with an apartment while I’m waiting. If you know how to budget and have an emergency fund, you should be fine.
Exactly. Owning your home is buying rent control. God help you if you're still renting on the private market in retirement on fixed income.
@@Music-yq8qc I've done it before. Its not easy, not cheap, and can be headache dealing with tenants. No thank you.
So I get the math behind this. I do this personally too (I live in Taipei where rents are WAAAY cheaper than buying in the city). However, let's be real: 80%+ of people do not have the discipline to invest the difference they save on rent.
Buying a house works because people are EMOTIONALLY motivated to pay their mortgage. As long as they follow your guidelines (20% down, no more than 1/3-ish of their take-home pay), over 20+ years, it's not a choice between buying vs renting and investing, it's a choice between buying vs doing absolutely nothing.
Lifelong renter here and I agree. At least in my case “doing nothing” equaled parking money in basic savings accounts as opposed to spending it all…but once I got serious about investing that’s when it really clicked. As the saying goes: The best time to start is 20 years ago…the second best time is now…
@@LBellatrix👌🏽
@@LBellatrix at least you saved something! What I usually see happen is people "invest the difference" on a new car or just normal life style creep
Ironically, having a mortgage obligation helped us develop the discipline to live below our means.
By the time we paid off our mortgage, we realized that we had all we need. Instead of upgrading to a more expensive home, we live mortgage free and invest the difference.
Life is good.
OK but what good is equity that you sit on? "Buying" a home is just wasting money - you won't be using that equity on anything. The best you can do is borrow money on it and that defeats the whole purpose. Don't buy if you can rent.
I never owned a home because i couldn't see myself having to deal with house things. So glad the landlord has to do all of that crap. I diligently invested sooo much money instead!
The landlord is rich and you are not.
Actually...I just retired early cuz I diligently invested since my 20s...now can go wherever I want
@@dietzyfly 🧢🧢🧢🧢🧢
@@kahledalbert1210 that's gone...believe what you want 57 year old woman currently living my best life on the road
@@kahledalbert1210 it's cool...believe what you want. 57 year old woman living my best life on the road.
We need to make that a saying on the RUclips finance section “Rent is the maximum you’ll pay, a Mortgage is the minimum you’ll pay” as a former homeowner it’s the absolute truth. Just because your rent is as much as a mortgage doesn’t mean you can afford the house and all its associated costs. Just watch the movie The Money Pit with Tom Hanks and you’ll understand…
rent is the maximum you will pay for 1 year. that could fluctuate higher at a much faster rate than taxes/insurance on housing. Also I have seen many cases first hand with friends where a rental property or apartment was sold, and my friends were forced to find a new place withing 1-2 months. Not sure if they could have fought that legally though.
@@jerrybarry3148 In general, leases run with the property, not with the owner. That means that if you have a lease for a fixed term (like a year) and the landlord sells the property in the middle of that term, the new landlord has to honor the lease at least for the rest of the year.
On the other hand, if you have a month-to-month tenancy, the new landlord can kick you out with 1-2 months notice - but the old landlord could have done the same thing.
Again, this is just speaking generally. Landlord-tenant laws vary a lot from state to state and sometimes even from city to city. So it's always worth reading up on what the laws are like where you are.
@@jerrybarry3148 Exactly. I'm so tired of hearing that BS line about "Rent is the maximum you'll pay..." Everyone seems to think houses are money pits. They're not.
While that is true, it neglects that mortgage is a fixed cost whereas rent fluctuates with the market, and in many parts of the country that means rising significantly every year.
For example, the rental value of my house hit double my mortgage after only about 5 years.
@@jon9103Everyone knows rents tend to increase over the years. What NOBODY talks about is all the maintenance and other addon costs that come with home ownership.
Honestly this cannot be overemphasized, helping people mitigate unforseen circumstances and mistakes .It's always good to have a financial plan,
I'll have to be financially stable in every sense before purchasing my first unit. The best thing to do with your money is to invest rightly because money left saving will end up with no returns.
No doubt being financially free and not having to worry much about health care , housing, and other expenses cannot be overemphasized, making smart plans and setting up diversified investment portfolios is quite essential.
yeah that's a good path, focus on a good strategy, relax back and watch it compound within the years. In good time you'll see returns.
the problem is that most don't have the knowledge needed to succeed in a challenging market. Only highly qualified professionals who had to experience the 2008 financial crisis could hope to earn a high in these challenging conditions.
Investors should exercise caution with their exposure and exercise caution when considering new investments, particularly during periods of inflation. It is advisable to seek guidance from a professional in order to navigate this recession and achieve potential high yields and taxation
Thank you for sharing your knowledge and experience Ramit! My wife and I almost bought a house because we keep having friends & coworkers around us buying and it honestly gets to our head sometimes. After running the numbers we decided to stay renting. After seeing your Netflix series it made me feel better about our decision. We’ve been able to save/invest 3000 a month for the last couple years. Our savings and retirement is bigger than it’s ever been and it’s kind of addictive to watch it grow. It motivates me to work harder to be able to invest more! Thank you for all you do!
Glad your savings and investments are doing well. Because you will need it to pay rent for a couple of decades after you retire. Keep your fingers crossed there isn't a crash or bad recession.
I own a duplex, live downstairs and collect rent from the unit above. Old house I renovated with my father. House probably gained over 100 000$ value over the last 4 years since I bought it. The rent covers all my mortgage and then some, all while charging below market rate (he's an old man who's been there 20 years, I intend to keep him as long as he's willing).
I have two whole floors to myself, while paying less month to month than I would with a roommate.
Got lucky, I'm well aware of that, but in any renting market, if landowners start losing money, that's gonna put pressure on price. You can't just assume nobody runs their numbers. Eventually, rent prices are going to catch up.
This is my dream. I probably won't make it so please enjoy it for me
Exactly, Ramit just spews disinformation to make his points seem valid. Its maddening.
Just don't assume real estate will always rise rapidly just because your house did recently.
@@rogergeyer9851 That would only be a problem if I intended to sell, but I've been lucky once, I don't intend to tempt fate. I'm good, I'm set, I'm staying put. People have been talking about a Canadian real estate crash for years now, and honestly I hope it does.
Things have getting pretty crazy.
New stats broke out recently about rent hikes in the province since the pandemic. The big cities have been making headlines for years, but I think the untold story is how it has begun to spill in much smaller cities. 33% rent hikes in 4 years in the capital where I live, but up to 50% in some places. 50 goddamn percent. It's just insane. I really hope, for all our sakes, that it will stop somewhere, sooner than later.
My rent has went up 4 times since c19. However for yrs it never went up so that's odd. Alot of folks moved here from California in 2020 and were well not so rural anymore. This has caused a supply and demand issue here so now here were it used to be cheap to rent its increasing rapidly and I'm a good renter never later and pay in full! I will also say this supply issues have made cheap $150000 homes before c19 sell for $250k or better now. It's not realistic in my opinion. Also blackrock is still buying up homes to only rent from now on. That's the biggest problem I believe with the inflation of homes. Cause they are literally buying entire neighborhoods to reduce the supply and benefit only investors. Blackrock is also in bed 🛏️ with the World Economic Forum!
I can vouch. I’m in this spot now. I ran many numbers. The maintenance cost is wayyy more than I anticipated. I realized that I have not only got a mortgage but I am now a property manager. And I have to always defend against renovation requests from the wifey. When renting, that was never an idea! I would have just stayed in my rental in would be way richer.
No they're not, that's why you made a vague statement with no details. Cause you're lying about costs, or you're greedy and spending money that you don't need to. You use your wife as an excuse. Real stand up guy.
Maybe it depends on the property, after 4 years I have been pleasantly surprised by the low maintenance costs I have faced. Did have to replace the fridge/smoke detectors/some plumbing, but other than that, its hasn't been too bad. comes out to about 0.35% of house cost per year.
@@zackcinq-mars2129yea, it depends. My home is a significant upgrade from my rental so probably not an apples to apples comparison
Tell her to come to you with a budget and written project pitch; material swatches, cost quotes, the works. She's not 5 and begging for an ice cream cone, and should consider it as the serious decision it is.
I'm originally from California and I moved to Missouri several years ago. What I found out was that rentals cost about the same but buying was way cheaper in Missouri. So for me it made more sense to buy a house.
It makes sense to buy 99% of the time. He make so many mistakes in this video it’s crazy. The 2-3 percent maintenance is ridiculous. A 2 million 3 bed 2 bath house has very similar maintenance costs to a 60k 3 bed 2 bath home. Also a condo the maintaine and up keep is much much lower than a sfh. I can go on and on. Ramit is correct on many topics but for this he is wrong 99% of the time and the only way he can make it make sense is to over inflate the numbers.
@@tims9376spot on. I think Ramit just doesn’t want to do maintenance himself 😆. I love Ramit, I just don’t get why he is so hell-bent on proving the exception and not the rule. And he picked such a weird home for his example.
@@tims9376 I agree with you, a more expensive home doesn’t necessarily have more upkeep. It depends on the size of the home as well. An older home could theoretically need more maintenance because more things breakdown than a newer, more expensive home, but this is why I avoid having things like pools because pools suck a lot of money in upkeep. There are certain things that are not worth having in a home.
@@tims9376”it makes sense to buy 99% of the time” uh buddy the median individual income in the US is $40,480. I highly doubt it makes sense for someone earning $40K to buy, much less the hundred million people earning less than that
@@TonyCox1351 exactly this... I doubt they're including long term costs of ownership on a house. Half folks that buy homes dont account for maintenance costs and upkeep of homes... and having a large house means you're going to be forking out 2-3x or more money just to maintain that house.
I ran the numbers, we'd save $186k over 8 years by renting. I'm glad you're putting this info out there because I have never really heard this side of the coin and frankly it makes a lot more sense. My husband and I are nowhere near deciding where we're going to live for 15+ years straight, and personally, I moved around a bunch as a kid and I turned out fine. Grew up in an apartment. I don't feel like I missed out on much by not having a white picket fence.
Do you know the size of coming rent increases? If that's not locked in, you're GUESSING about future savings -- just be aware of that.
I lived in a cheap apartment, so my rent was so cheap it didn't matter much. Plus once I'd been there for a decade and established my rep as a great tenant, I got a discount and knew they wouldn't raise me a lot, as they wanted to keep me.
(I was stable, followed the rules, got along with my neighbors, worked WITH the management and maintenance folks on any issues, etc. It's not hard to be a great tenant if you're surrounded by transients who won't follow the rules, tear up the place, fight with the neighbors, etc).
I 100% agree - and still caught myself falling for the myths embedded in my soul.
We got a 370k mortgage and another 70k debt for renovation. We bought the house because "If we pay 1700 a month for the mortgage vs 1500 a month in rent ... that's a no brainer, right? This way ALL that money is equity for our retirement" Well... no. We 100% underestimated
a) the hidden costs (oh hey, the boiler is actually getting a bit old and Putin decides to start a war, so gas becomes really expensive -> 20k for a new boiler; etc)
b) the "life happens" side of things
For a) we should have just done our homework of running the numbers a bit better...
For b) ... You're not the same person you were 5 years ago. So chances are you're not gonna be the same person in 5 years from now! We thought the house made perfect sense, as we got a stable job in the area, planned to have kids, etc. - Then life came around and threw a few curveballs (both good and bad!) and now we're moving away for 3-6 years (to somewhere, where housing is provided for free). If we hadn't bought that house we'd pay 0€ in rent, basically giving us 2000€/month for investing... As it stands we're left with a house that we can't really rent out (German renting law... basically we'd have to do so much renovation it wouldn't be worth it) but also don't need for several years.
TLDR:
Don't underestimate the value of flexibility that renting grants you! A house really can "tie you down"!
That's Germany
I guess moral of the story is as follows: Figure out what your rich life is, weigh how much buying and renting matter to you, and then run the numbers taking into account everything. Only thing is renting isn't all sunshine and roses with rent prices going up everywhere, and all these property management companies ruining the experience for some as a whole. So whatever choice you make, run the numbers, and analyze all possible factors.
In many metro areas rent prices are actualy plateauing and in some cases decreasing in 2024. Birth rates are at record lows all over the developed world. Many economists are predicting we simply wont need this much housing in the future and as boomers and gen x start to die off we will have a slow but steady price decrease. That will be a bad time to be an owner
@@concernedcitizen6572 And net migration in the developed world is increasing. Governments are compensating for dwindling numbers by importing people. So don't hold your breath for the prices decreasing.
@@db7084 The net migration rate has increased since when? Source? And what is thst rate compared to other periods? Such as the the 1960s or 1920s?
Also the birth rate is collapsing across the developing world as well so governments cannot count on immigration forever. The infalliable rule for a house to be a lucrative asset across the entire country will slowly but surely come to an end imo
@@concernedcitizen6572 Source? Go look on the internet at graphs of migration over the last decades in developed countries. They trend up, every single one, compared to decades ago. And yes, birth rates are collapsing across the world (except sub-Saharan Africa, which has exploded in my lifetime). And you're right, eventually house prices will collapse. But not until they run out of people to import. Which is a long, long way off, as many in the undeveloped world would move to the west in an instant if given the opportunity. And western governments will (and do) give them that opportunity. My point was, basically, don't hold your breath for the housing collapse that people seem to be waiting for. It won't happen until we are all long dead and buried.
Owning the property I live in is part of my rich life. I do not think of it as an “investment”. My investment is my retirement account.
I agree you shouldn’t see housing as an investment. But unfortunately because money is fungible, an extra dollar going towards housing is a dollar less to invest.
@@lucaspm98 And there are calculators out there that can show how much paying extra can save you vs investing, minus the risk. Given some of the mortgage rates out there, having a guaranteed return on your money vs a fluctuating return can make mathematical sense as well.
hah, checkmate Ramit :D
@@lucaspm98my mortgage is $1100. The rentals across the street from me start at $1400. You're dumb. That is all.
And it's still and investment too
I’m a PhD economist that works on the decision between buying and owning, and while many of the points made are correct, many other are biased at best. Principal (not principle) is not a cost; interest for many people can be deducted; the market for rental and ownership is not the same and is not always possible to find a rental that provides the same service as an owner-occupied; renting puts people at the landlords decision on rent and moving costs are high; owning vs renting needs to be balanced, it can’t always be better to rent or be better to own, at current mortgage rates, either house prices decline or rents need to continue to increase to rebalance the market. No doubt that owning is not always better, but an unbiased analysis would have been welcome, I know you can do it.
Well, all of the things you listed are also biased based on the individual on the area in the cost analysis and won't apply to many people.
In the end, the only objective analysis is the NY Times rent vs own calculator, and even then, all the values are biased based on the person inputting the numbers.
You can't really have a completely unbiased analysis of rent vs own, as any figures used are also based on many assumptions as well, as is all economic data, and can be predictable on a long term scale or as a whole, but not on an individual basis.
This analysis is by definition, personal, and therefore always biased.
@@rebeltheharem7028ok, if you say so… Note that bias and uncertainty are different things. You seem to be mixing the two concepts, but I could be mistaken…
Everything you are saying he already stated in the video. He made it clear that people should do a detailed analysis to make the decision. Of course he is including his opinion this is a persuasive piece. Who comes to YT for unbiased videos?
@@Giasemi55 not true, but that’s fine! About 66% of US households own and 34% rent (there are other small categories but those are irrelevant and I just omitted them), of this allocation, how much do you think is misallocation (i.e., people who should rent but own and people who rent but should own)? I can tell you it must be minimal because it has been like this for several decades! Given the housing market structure, very few people/households are doing the “wrong thing”. After watching this video, you would think it’s the other way around. I don’t expect unbiased commentary on YT and I see that all the time, and that’s why I comment when I think a comment is due.
Owning a home is about the priceless intangibles: the stability of having a place to truly call your own, where you can put down roots and build lifelong memories. It’s about the freedom to customize your space and create the perfect sanctuary without needing permission. Homeownership means leaving a lasting legacy for your family, a tangible asset that can be passed down through generations. In a world of constant change, owning a home offers the unparalleled comfort of permanence. While it's tragic that homes have become overpriced for young couples in major urban areas in 2024, in a normal market, owning a home for at least 7 years remains the preferred choice for most. We're almost mortgage-free, enjoy watching the trees we planted years ago, have built long-term relationships with neighbors, and now have peace of mind in a home that has more than doubled in value since 2006. Even with the phantom costs, the value still increased significantly.
I would add, when some violence moved into my neighborhood, it was the homeowners who cared enough about the place to do something about it. The renters see things moving in a bad direction and leave, the owners see it moving in a bad direction and do something to change it. This is just generalities, but it has proven true for the vast majority living around me.
Every comment i always see on social media is about how a house is ALWAYS cheaper, and then they say how much they pay for a mortgage and the number they respond is always under $2000. Often it's under $1000.
Like, sure, maybe in middle America, not near a city, if you bought 10 years ago. But no one looking to buy has a time machine.
But I don't feel like they actually understand that a monthly mortgage on a 3+ bedroom, at least in the city I live in, if you buy right now, at the interest right now, is $4000+ (and for what we want, 8000). I honestly feel like that would blow their mind.
Also, we bought a house at 460k, the max we could afford in 2020. This meant we couldn't buy anything after 1980. Our house passed the inspection with flying colors and after we were locked in we went to work on the bathroom, which looked like it was in bad state. That ended up with us having to remove wall after wall after wall, following a trail of water damage that had been going back decades and made the house structurally unsound. In the end, we spent about $250k on renovations for our 460k house. We haven't even broken even yet.
Bingo
250k??
@@jgon321 yep
If I spent $250k in unexpected repairs on even a $2M home, I’d be crying 😅.
You sure you didn't get scammed? Those numbers seem way off...
I used to think the same on rent. Now renting makes good sense. When you rent you DON'T take on the risk of owning the home. I'm investing the difference.
Here’s the problem: you’re investing the difference currently. Often people start spending the difference then end up 70 without shelter. So long as you’re investing the difference you may be okay.
Find it strange renting is seen as throwing money away yet no one ever says bank interest is - especially the fact mortgages are weighted heavily towards interest at the start -nor other 'hidden costs'. Propaganda
I’ve always thought that renting is legit. Me and my wife were able to rent in an area for 12 years that we absolutely could not afford to buy. And it was amazing living by the beach in California with an ocean view. Not a waste of money at all. Once we had a baby and we’re both working full time from home since Covid, we decided we needed a bigger place, so we moved to oregon and bought a house. It’ was quite expensive up front but we wanted the stability, space, and freedom of owning and a big yard for our daughter. It was worth it now for us
Whatever goofications you need to justify.
@@johnmeehan7884 making up words automatically makes you look...goofy.
Imagine you had bought 12 years ago and didnt have multiple rental increases and then moved as you did
Your new place would be paid off in 8 years time only 😊
@@pauljansen6650 didn’t have enough money to put a down payment until recently… nice to dream though
For many, the emotional burden of renting (increasing rental costs, mean landlords, chance of having to move with short notice) seem to be worth the opportunity cost of not having money to invest. In the short term, for people who are in financially insecure circumstances, buying is the silver bullet to reducing the uncertainty around renting. But you’re only trading one insecurity for another and will more likely end up in debt or house poor considering the mortgage costs + property taxes + maintenance costs.
If you really want to buy, buy a condo or buy something way under your means. For people who aren’t making millions (so for most ppl) this is the best option to ensure psychological safety and financial gain.
Had my house built 8 years ago. Insuranceand taxes have gone up but nothing we didn't already prepare for. My house is 3450 sq ft. 5 bed 4 bath finished basement. Principle and interest is $2100 with 3.5% fixed. Meanwhile a 2 bed 1 bath apartment 4 blocks away is $1900. It was only $1100 when we moved in. We made the right decision
Fun NYT tool. Put in all the numbers at my 2.5% interest rate that I and many others got during Covid and in every area is states the buying is better. Moved it to 7% and its renting is better in every situation. Moral of the story, at these interest rates you
might want to rent. But when I moved it down to 5% it all moved back to buying as the better option.
That's not counting in the risk when you own.
I think observing rental price trends is also valuable when making house purchase decisions. I’ve found that while my initial mortgage payment felt somewhat high, over time, it’s become cheaper and cheaper as rental costs go up
Thanks for the video , one of the best financial education class in youtube
The amortization table was a CHECK MATE for all the people who preach owning your house over renting.
You end up paying double your house because of interest and most interest in the first years
Pay off the house early say 5 years and invest everything afterwards
I hope you know how many people you have helped with this information! My youngest son and his wife felt very discouraged about buying a home with the current market then I told them about you. He immediately got your book. They currently own their small co op apartment outright purchased with cash about 6 years ago.
After reading your book, they realized they probably weren’t going to want to live in the same place for 10 years or more so they were able to rethink their plan, all the while saving & investing and buying a vehicle with cash. Since he works remote they are now visiting different states to see where they might want to rent a home. Your words about renting have really given people their power back, I believe, about what they really want to do.
Meanwhile our oldest son who works remote is in Europe for 3 months, as a renter he has the freedom to do this!
I feel like this video should include a modest Midwest small town example. Not everyone lives near a huge city with sky rocketing prices. My current mortgage/interest rate is just above $1100 for a single family home with four bedrooms. Please tell me where I can find a rent that low for a family of 5, needing 3 beds min. Also we have pets. Many rentals out here forbid pets.
Even with phantom costs, we are able to keep up with all bills and invest. If we ever decide to move in this market, we are beyond screwed. Over $2000 for a rent or even buy again, it would be 40-50% of our income. Interest rates are brutal right now.
BINGO
Okay well you bought years ago before the Covid craziness and skyrocketing inflation. Back then, I would tell almost anyone to buy. Now? NOPE. Way too expensive and that’s why so many people are screwed. So good for you that you dodged a bullet.
Thank you for your candid advice.
Very solid analysis. You're saying what many won't.
My favorite thing about Ramit - preaching the renting wisdom I've embraced for years and have always been chided for. When this came up on the Netflix show I couldn't believe it - THE VALIDATION
well hes not right so...
@mr_num_numz so? It is possible someone can live differently than you think we should and still be successful.
You use Netflix shows and RUclipsrs for validation?
@pauljansen6650 I use them for education, most definitely! The validation follows, because the education fixed my financial struggles.
So much truth in this video. I hope folks get this info through their heads.
Another thing is worth mentioning for people who are actially disciplined with money. It is absolutely worth to buy if you can afford and keep yourself to paying extra to your mortgage if you have you emergency fund and all other "eggs" in order. 7:51 This is exactly why it is important to do and understand your numbers. In many cases it can save you a ton of money to rent for 5-10 years and save heavily rather than buy, then buy with a larger down-payment and save yourself a ton of interest. I calculated this on my own before hearing about this a while back and it blew my mind. I had to triple check that I didn't make a mistake but when I looked at the amortization breakdown it all made sense
I've been saying this for years. People never believe me.
I used that NYT buy vs rent calculator and...... I saved myself $3,225,000 over 40 years by buying my condo rather than renting. Yay! 😁 And, really, it is probably way more than that because I took advantage of prepayment options and cut my 30 year amortizatiom down and will have it paid off in 10 years, so I saved myself probably over $100k alone in interest. 😊
paying off low interest debt early doesn't build wealth as quickly. While you are paying less in interest, you are also earning less in interest than if you had invested the money. If you make on average 8-12% returns in the stock market, then paying off 3-7% interest debt early will more often lower your future net worth.
@@zackcinq-mars2129And what is the market crashes and wipes you out clean like in 2008?
@@susiex6669 and what if the market crashes and wipes out the entire equity of your house to the point that you're under water, lose your job, get foreclosed on, and then sued for the loss that the bank took. We can play the "what if" game all day.
I didn't run the numbers quite this way when we bought, but I did do a full year projected budget with expected mortgage costs + 5% to account for what I didn't know. I just ran our purchase through the NYT mortgage calculator, and it estimates that we've made 88k on our purchase so far.
These buying/renting conversations are lively! I feel insanely lucky to have been able to buy a house back in 2018. We couldn't afford it today because prices have almost doubled. Re: amortization tables. Interest scared me too, which is why we made an extra payment every month until we could refinance down to 2.5%. Again, insanely lucky. Buying isn't for everyone! I anticipate owning this home for another 40 years+, but I look forward to selling and renting in the future for all the conveniences you mentioned. No yardwork, less cleaning, having fewer belongings for our loved ones to sort through when we die, etc.
You don't buy a property to rent it out to someone to make a loss or not even a zero at the end of the month. At least in Germany no one would be doing this.
Bought a cheaper condo in Chicago HCOL area since we were having kids vs renting and even with HOA we save 2.5M over 30 years.
Various sites value this home $1.9ish to $2.4M; a quick comparable sales appraisal with adjustments is a lot more reliable than Redfin, Zillow etc. Most homes in this county have done very well since 2018, with the median price changing from about $1.4M to $2M (Palo Alto higher than this median). In this area, it is usually cheaper to rent than to buy for the average home at its current value; those who bought some time back ago are paying lower than rent and have much lower property tax. All homes will require ongoing maintenance.
Insightful video! I learnt that it’s beneficial for me to rent for the next few years while I save up for my house. Running my 28/36 rule numbers, renting at the moment is the right decision for me! Thanks for always educating me and making me run my numbers!
I prefer renting, but I bought our house. Why? Because I don't like to have close neighbors. I am a light sleeper and sleeps early(9 or 10pm), so if I have neighbors close by like in a condo or apartment, most likely I won't be able to sleep due to the noise.
Be nice to hear anyone's advice on renting vs buying if one of the need of my 'rich life' is peace and quiet after 9pm. :)
Ramit, I truly love your content but you have missed the emotional stress around renting:
- inflation and no control over the annual increase in rent
- horrible landlords and greedy leasing companies
- little to no tenant rights
Renting can be exhausting and unpredictable stressful. But from a financial standpoint, I completely agree with your points.
What about the emotional stress of renewing your mortgage, redoing your bathroom, kitchen and renovating life is filled with stress no matter what…I know some ppl who got into their house paying 2000 month and now they are paying 5000. In Canada some ppl can’t even renew their mortgage rates because of interest rates and are loosing their homes
Ever since I bought my house 2 1/2 years ago, I've been overwhelmed with the emotional stress of owning. It's been really rough being responsible for all my own repairs - not just paying for them, but finding contractors I can trust not to rip me off, figuring out the signs of things that need to be repaired soon before they become even bigger issues, etc. Owning can be unpredictable too, and to be honest I had no idea it would affect me this much.
@@upnorthsociety6146both renting and owning as pros and cons. It’s really up to the person. I hate how people tug on the emotions of people own a home as if there isn’t major cons for renting too. We have had our land lord sell the property with out telling none of the tenants. The previous owner did not keep up with maintenance either. There is nothing wrong with owning or renting it’s just up to you and your pockets.
@@upnorthsociety6146That is nothing compared to the insecurity you have to live with dealing with a greedy landlord who can evict you at any moment.
A lot of cities limit the yearly increase on rent, that's a good policy. I think more of them should ban companies from owning housing, as bad as some landlords are they are still way better than those faceless companies.
My gf bought a house in 2017 for 184k and now its worth 485k idk about you but thats some good stuff right there.
Great video, broken down excellent 👍🏾
I rented from a landlord for 10 years, and never had to take a home Depot trip or care for his lawn, he took care of everything, and I took good care of his property, he was the best.
After 10 years, He sold the duplex in 1 day in 2020, so we moved to an exact sq ft duplex, but this time it was managed by a property management company. It's been hell, our lease is 35 pages, we have to take care of the lawn, and any repairs needed under $100, we have to fix. I have a list of things we have fixed, we're up to 1k in 3 years. If your rent is 1 day late, even if it's due to your pay period being weird that month, they charge 10% late fee of your rent amount, and $5 each day. Needless to say, this has been rough.
I have no choice but to rent, so I watch these videos to cheer me up, cause it could be worse. I'll take 1k in 3 years vs 1k each month in phantom cost for now.
That sounds horrible. My experience has been the exact opposite. In California we where with a manager who was hired by the owner of the complex and it was all hell getting anything done. Here in Iowa I moved to a larger complex with a professional management company and things are straightened out quickly and without any arguing. It blew my mind compared to what I had to deal with the 10yrs prior. And the manager in California was new every 1 or 2 years
Companies shouldn't own houses, as annoying as some landlords can be they are way better than a faceless sneaky company that has no interest in mind but to take as much of your money as possible.
You had a choice to not lease with them. Those leasing terms are ridiculous but you accepted them.
Consider moving?
@@mithicash1444 I'm glad it worked out for you. Maybe not all management company are created equal. I should look around.
It’s true you rarely are really “throwing money away”, especially if you subscribe to the subjective theory of value. But there is not an opportunity cost of investment for the meal you consume. There is no rent versus buy equivalent, and thus no opportunity cost to compare against. It’s just consumption. Whereas housing has the possibility of being an investment and not mere consumption. That’s why more people say it’s throwing away money.
I disagree because you are always renting the housing asset, either from someone else or yourself because if you purchase you're forgoing the rent you could receive from it. Once you disentangle the renting from the asset ownership it's much easier to understand what is going on.
Very informative, thank you.
Thanks for the video! I used the New York Times calculator you recommended, which gave me some decent news. I plan to move to El Paso in a few months, and if I pay cash at about $266K or rent at $2100 over 4 years, it's even. I was happy to see that because it allowed me to remove my emotions and see that the numbers were equal. I assumed a 1.2% home price growth, 2% rent rate growth, 4.5% investment return rate opportunity loss, and 1.5% maintenance fees.
I've heard people say renting is silly, but people tend to forget its so individual. If I BOUGHT my current apartment, I'd have given 20% deposit (with 5% of that going in the bin thanks to interest), and I'd still be paying £800 more per month. Instead I invested that 20% and have made so far as of today, a 16.54% return (and saved that extra £800 a month). So why would renting be silly for me? lol. Equity? since when was equity only in the form of a house? People at this point are just regurgitating common statements without thinking. Also, you DO NOT OWN A HOUSE until you no longer owe the bank.
Every month I pay off $1500 in principal and gain about $1500 in equity on my house on a 15 year loan. To rent would be $3000 a month for a similar 3 bedroom house. That's a $6,000 swing every month. Sure, I don't see that money now, but I'll take it later. Around here, in the Northeast US, the Palo Alto example doesn't work. Property taxes are so high here that landlords have to cover that cost, so rentals and mortgages are about the same. In CA, original owners pay very low property tax.
Landlords are cleaning up right now
Thank you for this video and the others on this topic. I had to stop certain family members from constantly nagging me to buy a house and assuming it's because I'm afraid of the down payment, etc. It's not a good financial decision for me and my family at this time. Now when family members (and some friends) come at me about buying a house vs renting, I'm sharing this video with them!
Thank you this was very information and I really enjoyed this video
Ramit seems anti-home ownership.
There are a few things he doesn't mention that are applicable to most of America (that are not in large expensive metro areas).
A mortgage fluctuates very little over time. It may go up a few dollars a year due to changes in taxes and insurance. However, rent prices are subject to go up every year. In 5 years the rent may be more than the mortgage and phantom cost combined and in 10 years it almost certainly will be.
With every mortgage payment you are building equity in your home. If you have a $1500 a month house payment or a $1500 rent payment, with the house payment you will (most likely) get $200-300 of that 1500 back if you ever sell the house and the amount goes up every month. Just as there are "phantom expenses" in home ownership there is also phantom "wealth building".
You can eventually pay off a mortgage and not have any house payment (or rent). Then you can take your house payment and invest, travel, or use it to live "your rich life" any way you want.
Neither renting or Home Ownership is a magic bullet to building wealth. You need to be investing regularly in assets that tend to go up in value to build wealth, no matter where you live. I wish I had learned that in my 20's. You can rent for 30 years and not have any money or you can have a paid off house and not have any money. However, if you have a paid off house it is easier to "catch up" on investing because you have more disposable income due to a lack of house payment or rent payment.
Ramit also doesn't mention the fact that home owners statistically have a much higher net worth than renters.
This quote is from the Motley Fool article How Much Richer Are Homeowners Compared to Renters? dated Jan 16, 2024 by Christy Bieber
"The reality, though, is that owning a home usually does make it a whole lot easier to build wealth. That's because:
Each housing payment helps the homeowner acquire a valuable asset, which they eventually own free and clear. So each payment grows their net worth a bit, which is not the case when someone is paying rent.
Homes often go up in value. A homeowner could add tens of thousands, or even millions of dollars, to their net worth as the home they are living in increases in value."
and
"If you decide not to buy a home, though, you'll need to make sure you are using plenty of your money to purchase other assets (such as stocks) that can help your wealth grow over time. You won't have the forced saving and property appreciation a homeowner gets, so if you want to be rich, you'll need to be much more intentional about finding another way to make it happen."
I think a lot of what you are saying is more true in lower interest rate times. At 7% interest right now only about 10% of your mortgage payment goes towards principal the first year vs what it was a few years back when we had 3% interest rates, about 40% of your mortgage goes towards principal the first year. So the Phantom wealth building you are talking about is much smaller nowadays. I do think Ramit leaves this perspective out though. In 5 years if interest rates go back down, this video/advice will look quite outdated, because in lower interest rate environments it tends to make more long term sense to buy.
While I appreciate the contrarian look at home buying, It definitely has great points. The mantra of rent is the least you’ll pay….well that may be so…for a year. I don’t buy that mantra anymore than I do the paying someone else’s mortgage statement.
Also on this cool calculator did the rent over 8-10 years increase every year or so? Doesn’t look like it.
Great video
As someone how works in the rental industry, owning is quickly becoming less profitable for investors. I personally rather rent because demand determines the market rate there is a limit to rent increases and what renters can afford. Renters can move location, change jobs or get roommates.
On the other hand home prices, maintenance, repairs, taxes, insurance etc the sky is the limit when it comes to cost. I own a home that appreciated in value, but it does not matter because I can't afford to sell and buy a new primary home.
Sure buy a home if you can go back before 2010 or if you are will to live in the high crime, non desirable, low income, non coastal towns.
Yet you could sell your home and rent. Wonder why you haven't done so already? Weird.
I'll buy later if I ever decide to settle in one place.
That's the hard part. Finding a decent location to live.
You know you can sell after buying a house 😂 you aren't stuck there
@@pauljansen6650 really? Wow! Thanks for letting me know. Amazing information.
always crunch the numbers! as someone that put down almost 50% dp on my current house it made much more sense to own than rent. More of my payment was going towards the principle than interest right from the very FIRST payment. I am now mortgage free so I do not need to panic every year as rents increase in my city.
Such a concise and informative watch!
If you look at a mortgage calculator 20% down on a $1million house, you end up paying around $1.1 million in interest at a 7% rate! That's $1 million that you pay for the house + $1.1 million in interest on top of that. So you are putting yourself in debt for $2.2 million. You are paying almost all interest in the first half of the loan. You really need to think about whether your situation is such that paying that much interest to the bank is ok.
Or pay off someone else's investment and set your money on fire.
How much are you paying for rent to have that 1 million dollar home? Now increase that price 3-5% every year until you die.
Now buy that home for 1.1 million today….pay your 1 million in interest over 30 years. That 1.1 million dollar home in years in worth at a minimum 2.1 million and when you sell it you get back your purchase price and interest meaning you paid nothing to live there. (Except repairs and property taxes….which are waaaaaaaaay cheaper than your rent for that place increased over time)
@@michaeldwyer977 did you watch the video?
@@mmms1979 yup! Did you read my comment?
One item that I have not heard Ramit mention around home ownership is landscaping costs. This is outside of home maintenance (which I think of roof repair, painting, new faucet, etc. I pay someone to keep the weeds out of my grass, someone to cut my grass, and someone to weed my mulch bed several times each year. It costs me thousands and people forget costs like this. Also, I have had to pay for new shrubs and then to have larger trees removed as the DOT came by and said they were a hazzard. Plus, there are HOA fees too. I started doing my CSP about a year ago and it’s been really eye opening!
💯
A lot of people don't consider those kinds of costs. If you don't want to pay, do it yourself. If you don't want to do it yourself, best to buy a place like a condo, in an HOA that will do it for you, or replace it all with hardscaping.
I hate landscaping. Worst part of being a homeowner IMO. I know some people love their lawn, but for me it’s just another thing I have to do in the hot summer that has little functional benefit. And god help you if your sprinkler pipes break
Yep…I already have in my “can you afford to buy” list landscaping and snow removal because I KNOW me…I’ll be the most hated neighbor on the block because I’ll be inside reading a book while my lawn grows up to the height of your average third grader… 😅
@@TonyCox1351 if you have natural grass and not silly imported sod, you literally only need to cut the grass. No other maintenance. Watering grass is WILD to me.
Excellent video 👍
Thank you!
Fantastic video that needs to be shared around the world and listened to
I used to rent all my life, until my previous landlady kicked me out of the house after 10 years because her daughter wanted to move in. I had to find a new place in a very short time, and there were not any houses available to rent in good condition and at a reasonable price. I decided to buy my own house and I have not regretted it not even a tiny bit.
It’s just hard to believe that a wealthy person would mortgage such a house
I love this channel. This man saved my life.
Thanks for the great video and breakdown, Ramit. The key is to understand all the points before making your decision. Laying them out like this is refreshing. Ive shared the vid a bunch of times! Good job 👏👏👏
As a renter, how do you run the numbers as far as projecting annual rent increases?
You can look at the national rent increases or search for rent increases local to your area (recommended). Most generally assume ~3% for rent increases as a general back-of-the-napkin number.
10:51 please keep in mind that in the US a 30yr fixed mortgage is offered meaning that $2k mortgage is a fixed priced for 30 years . The average rent for a 3 bed house 30 yrs ago was $1,400/mo. That house average today is $2,300/mo. That % increase over 30 yrs needs to be taken into account. Also if you purchase that house you’re on the path to eventually eliminating rent all together. For instance if your property appreciates and you take that $ and downsize you can buy the next house without a mortgage. Eliminating you highest monthly cost , housing, is possible by owning. Renting costs never end.
This is a very simplistic analysis. What if the total cost of ownership is more than double what it costs to rent? What if you factor in investing your down payment and the difference each month? And on and on. You need to go much deeper than your comment!
@@ramitsethiThe original comment is correct but doesn’t talk about the income tax benefits of owning and the cheaper car insurance. I just got a discount for being a homeowner on my car insurance. Renters don’t receive tax benefits and are more likely to owe money during tax season. Most homeowners receive a huge tax refund the year after they get the mortgage.
@@ramitsethidoes one have to pay tax on investment?(capital gains), how does that rate compare to current mortgage interest rates? You are pointing out the simplicity on the poster argument, when his argument and your video are equally oversimplified.
@@Jack-pd4ps Too simplistic - you are missing all kinds of things that are going on. For example landlords get all of the same tax benefits as homeowners plus A LOT more - and can pass that on to renters in the form of lower rent. Since you don't directly see it you don't realize it's there. Landlords can push the price down far lower than a comparable homeowner can afford for the same house and still be break-even. There's a reason the government doesn't track home prices in CPI calculations - and only uses rent. Because rent is the true cost of housing. Anyone paying more than the equivalent cost of rent for the same good, is, by definition, overpaying for housing.
@@dancox3251 landlords “can” push their prices down doesn’t mean they “are” pushing it down. Rent is still high and should be much lower but they aren’t. Used to be able to rent a decent apartment for $8-900 but now they’re around $1400. Other places are even worse.
I live in the Dominican Republic and together with my wife we have decided to rent and invest the difference. After 2 and a half years, compound interest is becoming an excellent ally that is allowing us to lighten the burden because a part of the savings month after month come from investments. Here in the Dominican Republic, properties have risen in many cases between 400 to 500% depending on the area after 2020. Here the mortgage loan rates are at 14 - 14.75% annually, it is crazy because you end up paying around 3 times for the property on a 20-year loan. We are living rented in a central area that allows me quick mobility to take and pick up my daughter from school and to be able to go to eat at my house and for us that is priceless.
If you want to talk about phantom costs of ownership that trip people up, please talk more about property taxes. Yes, everybody knows (or should know) that you have to pay property taxes. But did you know that when you see a "property tax" number on a real estate listing, that's NOT the amount that you'll have to pay? Rather, it's the amount that the current owner is paying - and what that means for how much YOU will pay depends on where you are.
In many states, property taxes are stabilized for owner-occupants, so that regardless of how much the house value appreciates, property taxes only go up by a certain amount. In some states, that amount is zero - meaning that the owners are still paying taxes based on the assessed value when they moved in 10 or 20 years ago. If you put that number into your budget for property taxes, you're in for a very unpleasant surprise.
And you MUST do your own research on this. As far as I can tell, there's no law - nor even any professional standard - that requires real estate agents or mortgage lenders to give you good information about property taxes. If you pay your property taxes through an escrow account on your mortgage, they can set your escrow payment to any old number that might have nothing to do with what your taxes are going to be. And you won't find out that anything is wrong until taxes come due and there's not enough money in the account - at which point your monthly payment will jump by many hundreds of dollars a month. You'll have no recourse against anybody when this happens.
I know so many people (including me) who have gotten burned by this. But somehow, it seems like nobody talks about it, and I've never seen it mentioned in any first-time homebuyer information resources.
I dont mean to be rude, but this is wrong and misleading. First, the process for setting the escrow amount is standardized. It is the opposite of any old value. And you, as owner, have access to the documentation for it if you wanted to check.
Even if your state has a Homestead protection on taxes that caps at zero increase, the assessments still happen. You can get those numbers easily as part of the process. Even Zillow or Redfin type site has assessed values and property taxes going back. If they look strange (or even if they don't) you can discuss what your property taxes would like with your realtor. Or talk to someone from the taxing government entity.
If you are worried that first year will be a big debt due to some type of escalation (such a Homestead ending on ownership change) you can put extra into it. You are right that the longer a home is owned, the bigger the potential impact. But that is also a known value.
While the concern is valid, treating this as unexpected or even phantom is not. Even in the rushed closing of today (mine was literally the first day the lender said they would be ready) you can still do this.
@@michaelpantano3324 I don't mean to be rude either, but I'm not just speaking academically. This actually happened to me, and you're in no position to tell me that it didn't.
I bought my house at the end of 2021. The mortgage lender, for whatever reason, set the escrow payment based on what the previous owner was paying in property taxes in 2019. I thought the number seemed low - it was even lower than the number that appeared on the listing - so I asked them about it, and they assured me that it was right. In hindsight, I should have pushed back harder, but I was overwhelmed with all the other details of buying/moving, and it wasn't on my radar that it was my responsibility to double-check the lender's numbers.
Taxes came due a year later, and there wasn't enough in escrow to cover them. My monthly payment jumped by $340, because I had to pay back the deficit that had built up and pay the higher amount that I should have been paying all along. If you're saying that my lender actually did something wrong here and there's someplace I can report them, do tell. Because I've looked into this already and have come up empty so far.
Okay this talk about landlords only charging what the market will bear is just false. There was just a big story about how a company that owns lots of properties across the US was engaged in price fixing and forced prices up by purposefully keeping units empty.
How does that work?
@@MT-yx5cu More demand than units available drives rent up.
@@susiex6669 ohhh
Hi, Remit. As a real estate agent, you are right! But at the same time, you want to buy and rent it out after looking at the number if they make sense, like buying a new build and renting it out for more than your mortgage and selling it in Five years. Your house is not investment your investment house in your investment.
OMG Shout this from the rooftop!!!! So ridiculous the amount of pressure from our parents to buy a house, especially in expensive markets with little stock available, that renting is becoming hard to afford.
People gotta stay off social media. It’s destroying mental health. It’s obvious people can’t use it responsibly. The comments on every single type of topic in every platform is just people at each others throats arguing. It’s like a weird insecurity competition between complete anonymous strangers.
True
The main reason I want to own my own property is to have more of a safety net, specifically when I finish paying the mortgage and then I don´t risk getting kicked out by a landlord when I´m 80.
I can understand that. What if, alternatively, you had such a large investment portfolio that your housing would never be at risk? That portfolio, which had grown and compounded over time, would pay your housing costs in perpetuity, whether you wanted to rent or own. Wouldn't that also be a safety net?
Not really. Landlords can sell to other terrible landlords. Force move outs just by making it living hell to live in a place. No amount of investment cushion can protect against that.
What % of renters get to that multi million dollar safety net do you think? 1%? And they'll be means-tested on that cash nest egg for access to healthcare, social care etc while the homeowner will have their primary residence wealth ring-fenced. It's an incredible gamble to opt out of ownership and trust the market to keep you alive.
@@ramitsethi Not sure. I didn't mean that I won't have the money to rent if I get evicted; my point was that even if I CAN afford to quickly rent another place, I don't think I want that kind of hassle when I'm 70 years old. I want to be able to retire at a place where I don't risk getting evicted. Does that make sense?
This was an amazing, insightful video. Thanks so much!
Your advice is so true.
Happy renter here - I'm definitely going to start saying "I don't want to throw money away on interest"
Due to inflation, many people who bought before Covid will not “pay” what they owe. Right now their mortgage is being paid with money less valuable than when the loan originated.
Ramit is admitted a renter & not a home owner, because of this he neglected to state/ or is unaware there is a home mortgage interest deduction for all home
Renting is 100% interest
@@dionmccall6581 that’s correct. You need to itemize your deductions though. So for a two person household only the interest paid above the $28k standard deduction is a net gain. Unless you have other deductions which most don’t have.
@@Blueskydaisy000right, but you don’t have any money tied up in home equity, so you can invest 100% of it in the S&P500.
People across the world have done these comparison calculators between owning a home and renting while investing in the stock market.
They end up being a tie in most cases. So if you prefer the freedom and flexibility of moving when you want to, and not having to maintain your own home, renting is the superior choice.
I buy a house. I live in said house for a few years, make repairs, and make it nice and tidy. Then I buy another house and find a tenant for the old house. It has worked out well for me. I have low interest mortgages. I make a small profit. I like having control. I don't like living under someone else's roof and rules.
I will add that I do invest too.
Key words: “I have low interest mortgages”
@michaelhang3557 You are absolutely right. I bought a single family house and a duplex in short order during the Covid-19 pandemic when the fed was artificially driving the interest rates low. I decided to switch to a job that paid significantly more, took the free money from the government, and took on two part-time jobs to make it happen. Never be too lazy to take action when a great opportunity walks your way!
@@lprice5583 Unfortunately I was not financially prepared to take advantage of the low interest rates during COVID but I will be on the sidelines until the next opportunity presents itself. Sometimes it’s just about luck and timing.
Insightful breakdown of the rent vs. buy dilemma! 🏠 It's crucial for anyone facing this decision to consider both the numerical analysis and personal lifestyle factors to make the most informed choice possible.
In my early 20's, instead of going into a long thing like this video, I used to just say "I don't want to have to buy a refrigerator", re the whole IDEA of ALL the extra expenses to owning a home vs. living in a simple apartment.
I am so not a renter (also couldn't stand a HOA). Too many pets and crazy about gardening. I also decorate like crazy. No one is going to tell me what to do with my own home. If you are going to buy a house, learn how to fix things . . . well. We do everything we can on our own. Yes, it's time consuming, but we save a ton of money and we know it's good quality as we don't do things half way.
Eating fresh blueberries and tomatoes I grew in my backyard is one of the greatest joys I’ve ever experienced. I was never allowed to do this in any rental I had before. And even so, find a rental with 10 yr old blueberry bushes! Over the years, I’ve been learning so much about how to grow so many different kinds of plants and how to make and fix so many things. It makes me genuinely happy. I could never have gotten this experience if I didn’t buy a home. It depends on what you want out of life. I’ve pretty much always known this is what I want!
Appreciate the lack of swearing so my kids can watch. Can you do a kids version? With kid examples etc
What are kids buying lol?
Tell them yourself.
The current existing houses selling are obvius overpriced by investers'speculation. Renting an apartment with great location to access everything help us save ton of money for transportation. It give us time and peace of mind during the career building.
This was an excellent video. I have been in banking and real estate for close 40 years and I have not seen this material broken down better. I shared it with about 20 people. I knew I was going to have to break the rule in terms of DTI, but determined it was acceptable due to me accumulated assets and the fact I would not have to alter my savings rate of approx 30%. So I sacrifice in other areas to keep on track. Again excellent video, please continue to educate the masses....
In Toronto. Most houses are over a million it takes average of 10-20 years for your down payment..then 30 years into a mortgage.
Why would it take 20 years are you spending too much of your income on rent?
Depends on your income
@@isiah675 People don't have much of a choice. Rents have increased with mortgages. What isn't being mentioned is landlords don't pay the cost of housing and rent the homes out at less than cost. More than ever, property is being bought by corporations for the express purpose of renting and making a profit. new builds in my area are frequently more that 75% bought as rentals. Market rent has become so inflated, that an apartment that is older and renting for a couple hundred cheaper have people offering a years rent in advance to secure tenancy. It's absolute insanity.
There is a huge shortage of housing in Canada.
@@carlam4986 I hear you I live in a higher cost of living area than Toronto. It's very difficult for people to buy right now but 20 years of intentional saving for a down payment doesn't make any sense.
@@isiah675 I doubt that is actually being done, it's just what it would take considering how much housing costs have ballooned over incomes. 20 years haven't passed since housing and rent skyrocketed. costs have been escalating the past 10years or so and like everything doubled and tripled after the pandemic.
completely agree with you. Here in texas, with the current home prices, if we buy a 4 bedroom home, just the property tax alone is equivalent to renting a 3 bedroom home. Of course we are getting a bigger home and satisfaction of owning a home. Repairs and other expenses for the home will easy add to the headache.
I have the privilege of renting from family and therefore getting an intimate knowledge of the phantom costs. Utilities included in a rental (not common where I am but still sometimes present) alone can save me 200-300/mo. Let alone the maintenance/renovation costs over time
this is heavily country-dependent. In the UK these rules do not apply. Same for most of Europe.
Agreed
The situation is much worse In London you can rent a 2 million pupind apartment for 3 grand a month. To able to buy it with a mortgage you will giving the bank so much money in interest. The uk government is introducing longer term more mortgages with less deposit meaning your giving a lot of money to the bank over 30 years
Are you joking real term house prices haven't increased in the last 15 years
House prices have stayed falt since 2021 and inflation has been 20% since then. House value have actually gone down in the UK because inflation has been so high
They still apply but the numbers are different. In fact, in many German cities for example, buying is even more expensive compared to renting than in the US!
Here with my popcorn. 🍿🍿
Fantastic rent/buy calculator. Thanks!