Asking a real estate agent whether you should buy a home right now is like to asking an alcoholic whether they think you should have a drink lol. Homes in my neighborhood that cost around $450k in sales in 2019 are now going for $800 to $950k. Every seller in my neighborhood is currently making a $350k profit. Simply unreal. In all honesty, deflation is what we require. The only other option is for many people to go bankrupt, which would also be bad for the economy. That is the only way to return to normal.
That's because buying is usually better financially than renting. Inflation, high interest rates, & home owner insurance going up is really what makes it expensive to buy more so than the price itself. But yea, go ahead and blame realtors
good luck with deflation after the bazylions usd printed arround the whole globe are just about to return to the us due to brix currency ;) From a political point of view letting people go bancrupt is also unacceptable so in conclusion .......... absurdly high real estate prices in the us FOREVER!!!!!
Your analysis was very good. In my opinion, one of the main benefits of home ownership comes in your retirement years once the 15, 20 or 30 year loan is paid off. You no longer have to worry about the burden of the monthly payment whether it be for rent or loan repayment. Of course you still have maintenance fees, taxes and upkeep to worry about.
Yes, but those costs can easily escalate to 10s of thousands a yr...you will never know what to expect. Hope your retirement plan has a leverage account included.
You could also rent and invest the cash. When you retire use the investment gains to pay the rent. So financially, it's not much different. The main advantage IMO is it forces people into a good position. Most don't have the patience to invest, and not spend it all.
yeah, I think owning a home is good if you're at the stage in life where you need stability, i.e. not be told to leave because the home was sold and the new owners want to move in. Or if you actually want to do something with the home, i.e. gardening or some renovations.
@@dedrickbroussard9797 personally I don’t mind HOA. Yes they can be annoying but it’s for the benefits of everyone’s home. I do agree no HOA is nice but in some states I lived I really wished I was in one. I’ve only been annoyed by my HOA.
Not only that, but not sharing laundry facilities and common areas with strangers is WELL WORTH IT. I am saving for a house right now, and am considering giving up my car so it goes faster. I can get around faster without one, but I do have a balance that I can't afford to pay off...so that's something to deal with.
Great detailed breakdown, all the real-world examples made it more understandable too. It's good to know the answer still pretty much comes down to "it depends". I still occasionally see some people state "if you're renting you're just throwing your money down the drain", but it's clear that renting or buying can both be valid options, depending on the scenario.
The problem with people who say "rent is throwing money down the drain", is that they forget the interest part, which is basically the same as renting, except you've also put down a deposit, which could've went into stocks or just into a bank account with higher savings rate.
The biggest variable is the rising cost of rent and inflation being passed onto the renter. A mortgage payment, insurance and taxes could be $3,500-$4,500/month for a typical house here in Seattle. BUT rental prices are increasing constantly and as you said, if the landlord gets a bug up their butt, they can force you out into a competative rental market and you'd be screwed. This is happening to my aging parents right now since my dad tried to say that renting is better than buying for so long, and now we are having to consider a multi-generational household to keep them housed. The other thing not considered is wage increases. Most people's wages increase over time which works for the benefit of someone with an existing mortgage. That mortgage stays the same with a fixed rate loan. And you can use those wage increases into home improvements or like in Seattle, a DADU to bring in additional rental income and an increase of the housing supply which is greatly needed in this city. Plus, you have equity. And adding along with other folks chiming in, you have a place you can personalize and settle into. Landlords very often get upset if you nail a hole in the wall or paint the walls any color other than a shade of white. I've lived like that for decades and its depressing for a creative individual.
@@virtuouzgirl8328 gosh. So much has happened since my comment. Let's add to it since I hadn't even considered this at the time.... upheaval when my father died in November. My mother is now months away from not being able to afford the rental and may have to move into my apartment with me and my kids, and now we REALLY can't afford to buy a house. It's gunna get crowded. This is the reality that my family lives with.
There are many more things to consider. If you buy what happens when the HVAC system quits or the refrigerator or the washing machine? What about the cost of remodeling or just changing paint colors? If you live in a house rather than a condo you have lawn care and landscaping.
Yup ppl who’ve never owned have no idea what they’re signing up for. You better hope nothing happens when you own a home because it’s gonna cost a pretty penny for repairs. Better yet, learn to be handy, that will save you some money.
@@alexchopper7997this is why you shop for appliances with sensible warranties and you don’t buy a home if a potential failure is going to make the whole home not worth the buy. Ppl also say this as if there aren’t millions of ppl renting from slumlords where things don’t get repaired then either so while it’s definitely information ppl need to have the fear is not a sensible one
Thank you for your explanation on buying a house versus renting. We owned our house for 29 years, when we sold it it was worth four times the price we bought it for and didn’t have to pay taxes on capital gains 😀
If you calculate the total monthly payments plus the maintenance costs ........you probably broke even.....or made a small profit....but at best you were able to live for free.
In Canada, the mortgage has to renew every few years so your mortgage cost will vary a lot depends on the rate. If you can't afford your home during the high inflation period like now. You have to sell low and incur losses. Everyone is comparing the high to low market but not everyone is selling on high and buying in low. When you are selling, someone is buying so the timing is made make or lose the money
Great video. Outside of the financial calculation/analysis, the peace of mind and stability can also be leveraged into the calculation as part of the "opportunity cost". For some people, it is more important than the financial side of things.
Great video! My projections would be slightly different. If real estate prices are expected to rise by 3%/yr, I would also expect rental prices to rise by the same amount. Also, I would hesitate to assume 9.1% returns on equities, a few years ago I remember projections by Vanguard estimated growth to be subdued and they were projecting something like 5.5% - 8% through the 2020s. My estimate (or guess) would be more like 7.5% returns. I suppose my projections would put buying well ahead of renting in most cases.
This is a great breakdown to put it simply but It is missing several factors including tax exemption for your primary home and although SMP has high returns it is also added to your income if you choose to cash out. Also the market is unstable post Covid and seemingly more than real estate. Also rental cost is quoted way too low here for Toronto and Vancouver especially but so was the fees imo. These comps cannot be perfect by any means because of how many factors there are but I think it is very clear that home ownership would be the best choice for those who are able.
Such an excellent video! As a real estate agent in Hawaii, there are different assumptions I'd use for calculations, but you covered all the bases really well. Every location, neighborhood, and home will yield different results and real estate will not always be the best investment when compared to other options. It depends on so many factors, which you mentioned. Thank you for the video!
Thank you for the great explanation! One factor I'd consider (which you took into account with the disclaimer about the assumptions) is that even though using the historical rate of return for equities might make sense for the sake of simplicity when calculating the opportunity cost, I would presume most people don't keep their savings in a 100% equities portfolio, so this could make the option to buy even more advantageous comparatively.
I’m a realtor, I think there is a lot of grey area to owning a personal residence. There is an argument to be made that its just forced savings, however you can leverage your equity via a line of credit to do renovations or purchase investment properties. You can also write off a portion of the mortgage interest from your taxes.
Great video. But I also see an x-factor when it comes to planning out these scenarios - that is, most people don't stick to a plan. You are more likely to skip out on an investment contribution to go drinking with your buddies than skipping out on a mortgage payment. Mortgage payment is forced savings. The other risk is having a large enough budget to continue paying rent and rent increases during retirement.
I think one thing that should be accounted for is keeping the monthly cash outflows the same in both scenarios. For example. In the I year example there is 8843 additional dollars spent to buy. That would give an additional 736 dollars to invest monthly if renting.
@@TheGreatLockdown Since we're talking about discipline, what are the consequences of missing a month's mortgage payment vs missing a month of investing? Surely one more grave than the other. If discipline *cough clearly not prejudice against renters cough* is truly the issue, maybe let people be their own demise.
Renting is convenient (you mentioned several factors) but smart real-state purchases lead to great asset/wealth creation, specially if the buyer is handy with renovation/improvement work. Location is of course a key factor for home valuation. Having good credit and taking advantage of interest rates when they are low is a smart thing to do as well (buy new property and refinance existing ones).
@@allenz.4153 And that depends on the rent. Prices today are very high in premium locations. If your needs are temporary and you do not want to commit or cannot afford the mortgage, then you have to manage wit what you have in hands of course. Years ago I was looking to rent a place as a second home (travel a lot). I saw that buying would be much less expensive. I was able to get a nice house (larger than a rental) for a lower mortgage price than the rentals in the same area. I could afford the 20% downpayment and interest rates were much lower a 5 years ago. I am happy with my choice. The house has already doubled the purchasing price so it was a good investment.
Yes it is. Bought my first home in 2014 for 315k with $15k down. Rent covers mortgage plus 700$. My home is now worth $850k. Outstanding mortgage is now around 200k. So, I turned 15k to 650k+
Thank you for your detailed and comprehensive video! The common view is that buying your own house is the best option, but in some situations renting is the better and most smart option.
I believe you should expand your list of items. Rent includes or renters usually don't pay garbage/recycling, city water-sewer, heating, full home insurance, so those costs should be included against the buyer. You didn't include the damage/security deposit for the renter.
I live in an apartment in CA, water, garbage/recycling, sewer, pet rent for my dog are added to the monthly rent payment. I also pay gas and electric to the utility companies.
My rent is way cheaper than home ownership. I feel freeI and I have time to put into my kids. I invest the difference; and am saving for a hefty down payment. If all goes to plan, my home will be paid for within 5yrs. Years ago, I owned a home and hated the stress. This time, I'm more prepared.
I think this is an interesting analysis. I think the fees for buying/selling the house should be taken into account though, that's quite a chunk of change.
Young people, you have my sympathies. I can’t imagine buying a home in these times. I was fortunate enough to purchase my home after the 2008 crash. It was a small patio home in an up and coming neighborhood in Houston, TX. I don’t see it getting better. Large real estate companies are trying to buy up everyone’s house. It seems that they want all future generations to rent for life.
Thank you. I’ve never heard a Gen X or Boomer feel sorry for us all they do is judge us and ask us why we’re not buying homes and getting married and having kids. We aren’t doing those things because it’s EXPENSIVE.
Great video Gabrielle! I teach a personal finance class at a college and take time to talk about many of these same items. This is a really informative and detailed video covering the topic. Nice job!
Wallstreet is projected to own 40% of houses by 2030 in the US. Once they own it all say good bye to quality and rent control. Buy when this recession gets bad, refinance it when it gets better and interest rates go down and keep it long term. In 30 years or less its paid and its a asset you keep and can be passed down
I lived in The North east it’s crazy what renters are paying I’ve moved to upstate New York and I’m paying for a mortgage what others are paying for rent. I do have additional expenses but peace of mind and I do what I want and don’t have to answer to anyone.
When you rent you also must budget for when you get the letter in the mail you must leave in 60 days. So make sure you budget moving costs and hopefully finding a new place for the same rent price.
Renting is making someone else rich, buying is making yourself a profit towards the end. I always heard that renting is like flushing money down the toilet. I’m a homeowner and happy for this blessing. 😊
I'm so happy and grateful to have finally found an in depth local creator such as yourself. Mostly all knowledge when searching this type of stuff it's always US based information, or it's from another province. It's a shame it's not cohesive system for all of our country, that'd be so much easier. Haha Thanks for the helpful knowledge Gabrielle. :)
Idk why people always think you have to own a large $200k+ home. Start small! It’s like buying a used car. Get a small home. Own it and stack your money.
This looks good when looking at pure transactional purposes. What’s missing are unforeseen issues such as maintenance. The age of the home. The condition of the roof. Renovations, etc. owning a home may have hidden costs. There is more to it than paying the mortgage.
leverage is the key in property ownership. also in realistic life, people put money in diversified baskets. property, stock, mutual funds, life insurance, etc.
What about the value of having a paid off home at time of retirement once you have a more fixed income in retirement and inflation impacts on your renting power??
it comes down to what fits your need...nothing wrong with renting or buying..i rented all my life and i dont have worried about maintenance cost or anything upgrading or make changes... i move place to place(miiltary) and dont have to worried about loan/mortgage..i only have to make sure i pay utilities bill...
Exactly. People assume that rent goes up but home ownership doesn't. Sure it does! Taxes (especially if your home and your area appreciates), insurance, maintenance, utilities go up too. Not to mention having to do all the lawn work, shovelling snow etc... the list goes on. I go home every night and relax. I don't have any chores on the weekend either. I do what I want.
Very good detailed and well researched vedio but if you dont own a house and put that money in stocks then the money used to rent a place has not been calculated.
Great Video Gabrielle. I am so glad I found you here on the tube. One glitch I see in the calculation though - you are only calculating a stock rate of return on the initial $100k, but in fact the renter has the ability to invest close to 9k (difference between rent and home ownership) on an annual basis. This is equal to approx $67k after a 9% return over those 5years
A renter would have to be VERY disciplined to be taking such a large chunk of their discretionary savings to automatically put in investments each month. This is why they call home ownership 'forced savings'.
@@zackhu9not in Canada and she’s basing this on a Canadian perspective. Principle residence is not tax deductible only properties that you own and rent out
@@TheGreatLockdownespecially in a world where over 60% of adults don’t have a savings of $1k. It’s unrealistic for majority of ppl and folks putting that kind of money in tend to have a home they’ve invested in also
Home ownership cannot only measured by financial only. Time and mental state are part of the money as well. Remember, majority of renters do not get a good landlord. So, we tend to move around. Every time we move, we spend money and also worry we won’t get the place we want. Moving cost, timing cost as we always spend time looking for a place to live. There is no piece of mind in living in someone else house. There are restrictions such as no pet, no guest/party, less cooking, can’t hang our favourite paintings or photos on wall, no indoor plants because it would destroy the floor, and many more as each landlord has different requirements.
Yup, exactly. However, in many places, housing prices are way too expensive and not worth it. Best to move to any of the 10 most affordable cities and buy a house there.
Thank you. Also, a big one….being a renter in an apartment can also mean being exposed to harmful second hand smoke (and related carcinogens). When you’ve rented in an apartment that started out as desirable and declines due to poor management it is hard to leave as rent costs could then double when you move. I see many single long term renters in this situation. Also, single seniors who would benefit greatly from a pet, but not allowed.
How is the $100K deposit affecting only the "BUY" and not the "RENT"? In this scenario, if you were renting and owned $100K in stocks, renting seems to be a better option or am I missing something? Also, what is the difference in income needed in order to support a $2326 monthly mortgage payment or a $2000 rent?
I think it is considered affected in the video in the form of "cost of capital" in unrecoverable costs by virtue of (relatively arbitrary assumed) rates if return
However, interest and property taxes must still be paid. Some people borrow more because interest is tax deductible yet they forget they are still paying interest.
@@j.m.7056The deduction still exists for everyone. It's just capped now. So many lost the advantages of the deduction on the full amount of interest paid. This primarily hit homeowners in high property value, high tax states like NY and California.
Thank you for this video! Can you make another video elaborating on if you were to sell , what the capital gains would look like and all the transaction costs associated? Because at the end of the day even if your return on investment from the home is greater, you end up paying thousands in closing costs and on taxes. I dont know the difference you'd pay on taxes for a capital gain versus on something like a stock or ETF. Thanks for your help!
On thing to consider is that homeowners mostly end up having a net worth that's a significant multiple than that of renters. The Canadian real estate market in general has been pretty wild over the past 10 years; those who were in it potentially made a lot of money very quickly
@@miamilner1817 This is very true, it's why I always find the "Renting is better than Owning fallacy" in terms of finances comical as pretty much all the data proves otherwise
@@TheNewSchoolGamerI think for people that are disciplined such comparisons are fair. It's a bit hard to get into the housing market going solo where I am, so I invest 25% of my net income every pay period, haven't missed a payment since I started 14months ago! On top of that I contribute 10% of my gross income to my countries retirement scheme.
@@jamesc3953 That's awesome, take a lot of discipline to save and invest like that. Yeah, getting into real estate as a single person can be pretty tough
Another factor to keep in mind is how your income tax will be impacted from buying vs. renting. I'm not sure how it works in Canada, but here in the US it will have a significant impact.
Rent where you want to live. Own your assets. Renovate (force appreciation), Rent (passive income) Refinance (capital allocation into other investments), Repeat
@@leovargas760 There's a saying that the home you live in is not an asset, it's a liability (housing market can obviously dictate whether or not that's true). Renting gives you the freedom to move whenever. This is a strategy to get the best of both worlds. Your first property should be an investment, not a home. That way, you can build wealth and in your latter years, build and live in your dream home.
Should add another 1-2% of the property value per year for cost to own towards the actual house for maintenance and repair. Things can break down and need to be replaced, and sometimes a cost can also completely be out of your own control/fault. For instance, a broken AC/HVAC, a roof leak, water pipe burst, overgrown tree, etc.
I know of someone who bought a house, invested time and money renovating it, and diligently paid the mortgage for 26 years. Sadly, illness struck, leading to the loss of their home. The devastating blow sent the homeowner into a deep depression, and within a year, they passed away. It's a heartbreaking reality that often goes unspoken; we're accustomed to hearing about "forever homes," but life's twists can sometimes shatter those dreams.
I’ve done the calculations and for me it’s not as important as the idea of having the freedom to do what I want to my own home or having to beg the landlord to make improvements. Owning is worth a certain amount of extra cost and certainly adds to the financial decision if cheaper.
Thanks! I’ll stick to renting. Our local market would have buying @ more than $1M for that same amount of rent. Possibly as much as $1.4M (according to the agents). This is for older stock: maintenance would be somewhat higher too! The scarcity is with the land. Point taken with the leverage, but it’s unsustainable to have these property prices. Again, really dig you running the numbers: this helped. Best regards!
I think it would make sense to calculate investing the difference in cash flow when renting (vs buying). If renting is $300/mo less you can allocate that to stock investments
Owning a home has other advantages. For example, in the US, the property taxes and the interest on the mortgage are deductible. You can also get a HELOC and the interest may be deductible. The biggest advantage is that no one can kick you out of the property, or raise the rent arbitrarily.
Renting works better than home ownership if you put the same amount of money into the stock market as you would have put into home maintenance and interest payments
Good one. I have been of the same view. Also we can move whenever i want to a different place if i dont like my rented place. Own house is generally we r stuck.
A thing to note here; Real estate is one of the few investments that keep up with true cost of living, instead of the inflation calculation (which arguably is wildly incorrect at the moment). Real estate is for simple and effective generational wealth. "Opportunity" investments are complicated money pits that have the potential to wipe out generational wealth.
Good luck with renting. May seem an easier way to reduce costs associated with housing when you are a young couple, but good luck when you are elderly and on a pension and your landlord decides he wants to move in or sell it to a non investor. Financial security is what it's all about, and long term renting is not going to achieve that goal. No matter how tough it is, owning a property is the only way to go. Doesn't matter if it's a 1 bedroom flat, apartment or whatever. Just own it and get into the market.
@@sandysimmer1279 All I can say is that if you are elderly and still renting or have a mortgage, then you have stuffed up somewhere along the way. If someone doesn't have the foresight to prepare for their old age and live this "One day at a time" BS, then they get what they deserve.
@@martinwatson9568 Unfortunately, thousands of men leave women and children for what they 'believe' is a better partner, leaving them destitute and unprepared.
everyone has their own situation, just because someone couldn't afford a house and they renting its a bad thing, at this market you can rent a good house with 1k-1.5k a month, but with the same house the mortgage is somewhere 2.5k a month. and you know what, maybe that 1k-1.5k monthly payment is all they can afford.
All I know is that buying a great first home can bless you beyond thinkable! With the current market conditions it's definitely hard for it to be the case because of high interest rates.
I would say without any reservations - own your own home as soon as you are able to! This cost will never go away and never go down! So unless you plan on being homeless or constantly moving to a lower cost part of the country, you'd be better off planning on owning your home rather than renting - without exception!
great breakdown of the two choices. would you consider calculating paying of the mortgage in half the time of this example? I always think the velocity of money ( paying off quickly)can work in your favour.Once house has been paid then investments could increase
The main goal is to buy the house and pay it completely. You will have expenses that you have to address or fix yourself in order to save money. I fix almost anything inside and out of the house. I don't even pay insurance since I could save up all that money to pay for natural disaster repairs. I only pay $1600 in taxes at the end of the year plus utilities and repairs. I purchased my house in the ever so inflated Miami, Florida on 2020 for 330K and its worth 650K as of today.
The solution is to rent a very cheap house or room for a few years until you save up enough to avoid a mortgage with high interest rate. Having your own house when you retire is the greatest blessing of all.
I don’t care what the finances say I’d never want to rent again in my life. There’s a lot of benefit to owning outside of finances especially when you pay the mortgage off - financial and mental. When you rent you always know it’s someone else’s property - you are literally paying for their mortgage - and one day you will have to walk away from your residence that you paid so much money on. $1000/mo or whatever - literally gone. Nope. I get your point but renting should only be done temporarily.
thank you for this video! this made a lot more sense to my accounting brain compared to other real estate propaganda i’ve been subject to. one thing i was wondering about was why you didn’t include the 9% rate of return on the $100K on the renter side as well? i think that this would drastically change the comparison of your final numbers that included the cost of capital such that renting would be more favorable. assuming that the person in this scenario has $100K and is trying to determine whether they should buy or rent, i would imagine that the renter would be reaping the benefit of that $100K being invested?
You should do a special Florida edition where home ownwer's insurance (not mentioned here) is substantial. Also, the percentage of inventory (available homes for sale) is skyrocketing right now. Supply & Demand would expect a decrease on what home owners can realistically get from a buyer if they sell, since supply is higher than demand in many areas, particularly the Gulf coast. Naples, ouch.
I can’t afford to buy so I’ll try my best as a renter. Investing all my excess money to the market through TFSA. The goal is to keep my taxable income extremely low in retirement so I would qualify for many senior benefits.
That's actually a great point. In many cases, a person's main home is excluded as asset when applying for benefits while a stock portfolio is considered asset that may disqualified one from benefit.
I think one thing that is missing is that any extra cash that are not going into spending on the house can also be invested. Therefore rapidly increasing your base
The benefit of eventually owning a home and having no mortgage paying isn’t mentioned or the option of house-hacking, which is living in a property and renting-out part of the space that you’re not utilizing for additional income. One downside of owning is that many properties now have variable HOA fees from one year to the next, or annoying rules from the HOA board. However HOAs are very case by case. For some, the monthly HOA fee is a bargain for what one gets back.
Interesting point of comparison. You mention stability for mortgage, but... what of variable rate mortgages, like in Sweden and Norway? Interest rate on current mortgages are adjusted, by default, every three months. Great if interest are called to drop, but today, they are very high and it's far from stable for home owners. How much do you know about this? And in general, about the change in banking towards more variable rate mortgages?
I really needed this , great explanation. It would be even better if you can share the excel sheets, so we can do the some of the maths ourself and understand them better!
I know found why the issues with videos/debate like this. main issue, people missed the fact that almost all rentals are used properties vs buying new. another is living within your means, what if you bought a property that is way below budget that you can pay it within 15-10 years.
This housing crisis has proven how owing a home is always a good choice in a long run. Imagine getting to your retired age and still struggling with a place to live, and the risk of being homeless. It's obvious when comparing the cost of rent which guarantees will go up every year to the cost of mortgage which will decrease as you pay towards the end of the mortgage term. Part of your mortgage payment is your equity whereas your rent is total expense. Paying for your mortgage is paying to acquire your own asset whereas paying rent is paying for someone else's asset. The hype of "rent better than buy" is only for short term when young people want to experience lifestyle. However, the end goal should be owning a house as it is a basic need. It's all about priority in most cases.
Here is the problem, when you young say the age 25-30 your money making ability is high and easier to get a job and when you at your 50 your money making ability gets lower and lower, if you do not own a house the rent cost will be much higher and you will forced to find a cheaper place and your life standard will get lower and lower along with your age. I own low cost rental buildings I have lot of old tenants who were middle class or higher than middle class when they young and now they are over 50 some are 70+ they end up in my place because they did not buy a house when they could, it is a sad thing to see they went down like this they were very capable people. The bottom line is that when you are 50 you do not want to move into your parent's basement because the rent is too high and you cant make enough money to keep up or you lose your job.
Yeah but who on RUclips is saying rent trends up over decades so owing a house is like having cheap rent because the majority of mortgages that are fixed rate don't. With so many not making enough to avoid being broke telling broke people to buy super expensive houses is a much harder sell!!!! It is way easier to just tell them to keep renting since for so many it is more affordable at the momment.
I didn't see HOA lumped in there. Around here, you can expect around 20% of your monthly payment for a condo/townhouse, but we seem to be higher than the rest of the US. Also didn't see a repair budget (not maintenance), which needs to be set aside for a purchase. Also closing costs, fees & insurance. Homeowners do get the interest writeoff on taxes. Rent increases are probably higher than 2%. Offsetting that though - where can you find a 5% mortgage these days? I think we're still in the 7s. Ouch.
Good vid, much better than the other crap on youtube on this topic. The elefant in room is here 422 sqft apartment for 500k Ridiculous! About 10x what be kind of reasonable. Dont need to run the numbers for that to see.
Asking a real estate agent whether you should buy a home right now is like to asking an alcoholic whether they think you should have a drink lol. Homes in my neighborhood that cost around $450k in sales in 2019 are now going for $800 to $950k. Every seller in my neighborhood is currently making a $350k profit. Simply unreal. In all honesty, deflation is what we require. The only other option is for many people to go bankrupt, which would also be bad for the economy. That is the only way to return to normal.
normal is way unrealistic when it comes to cost, demand and supply
That's because buying is usually better financially than renting. Inflation, high interest rates, & home owner insurance going up is really what makes it expensive to buy more so than the price itself. But yea, go ahead and blame realtors
Or a bigger swath of people are going to have to rent going forward
It depends on Financial, Time . And your are ready and Area?
good luck with deflation after the bazylions usd printed arround the whole globe are just about to return to the us due to brix currency ;) From a political point of view letting people go bancrupt is also unacceptable so in conclusion .......... absurdly high real estate prices in the us FOREVER!!!!!
One item that is not included is the transaction costs of buying and selling which are significant.
Your analysis was very good. In my opinion, one of the main benefits of home ownership comes in your retirement years once the 15, 20 or 30 year loan is paid off. You no longer have to worry about the burden of the monthly payment whether it be for rent or loan repayment. Of course you still have maintenance fees, taxes and upkeep to worry about.
Yes, but those costs can easily escalate to 10s of thousands a yr...you will never know what to expect. Hope your retirement plan has a leverage account included.
Yes I have many retirees looking for work in order kto keep their homes
10s of thousands a year LOL@@vm6824
You could also rent and invest the cash. When you retire use the investment gains to pay the rent.
So financially, it's not much different.
The main advantage IMO is it forces people into a good position. Most don't have the patience to invest, and not spend it all.
Not to mention you pretty much secure a house for your kids not having to worry about rent after you pass.
The best part of owning a house is the ability to do with it what you please, and not to have to answer to a landlord.
yeah, I think owning a home is good if you're at the stage in life where you need stability, i.e. not be told to leave because the home was sold and the new owners want to move in.
Or if you actually want to do something with the home, i.e. gardening or some renovations.
Hoa
@@IL_Bgentyl I would recommend purchasing a home in an area without a HOA, but even a HOA only regulates what is on the outside of the house.
@@dedrickbroussard9797 personally I don’t mind HOA. Yes they can be annoying but it’s for the benefits of everyone’s home.
I do agree no HOA is nice but in some states I lived I really wished I was in one. I’ve only been annoyed by my HOA.
Not only that, but not sharing laundry facilities and common areas with strangers is WELL WORTH IT. I am saving for a house right now, and am considering giving up my car so it goes faster. I can get around faster without one, but I do have a balance that I can't afford to pay off...so that's something to deal with.
Great detailed breakdown, all the real-world examples made it more understandable too. It's good to know the answer still pretty much comes down to "it depends". I still occasionally see some people state "if you're renting you're just throwing your money down the drain", but it's clear that renting or buying can both be valid options, depending on the scenario.
The problem with people who say "rent is throwing money down the drain", is that they forget the interest part, which is basically the same as renting, except you've also put down a deposit, which could've went into stocks or just into a bank account with higher savings rate.
@@GameFuMasterExactly and also not to mention recurring property taxes and maintenance cost and hoa.
@@June0696 I was under the impression that these costs were all passed down to the renter.
Been both a renter when still living with my parents vs now owning a home. I pick ownership over renting anytime
Totally worth it! Bought my house in 2017 for $625K, paid off the mortgage by 2023, now living rent-free!
Really???
I bought my first house last year for $950K and had it paid off last month!! You're such an amateur!!
@@jasonkirkland1304this comment screams insecurity 😂
@@hk2737Its clearly a joke
woahh how was that mortgage looking like? im genuinely curious
How much is your property tax?
Has it increased over the years?
The biggest variable is the rising cost of rent and inflation being passed onto the renter. A mortgage payment, insurance and taxes could be $3,500-$4,500/month for a typical house here in Seattle. BUT rental prices are increasing constantly and as you said, if the landlord gets a bug up their butt, they can force you out into a competative rental market and you'd be screwed. This is happening to my aging parents right now since my dad tried to say that renting is better than buying for so long, and now we are having to consider a multi-generational household to keep them housed.
The other thing not considered is wage increases. Most people's wages increase over time which works for the benefit of someone with an existing mortgage. That mortgage stays the same with a fixed rate loan. And you can use those wage increases into home improvements or like in Seattle, a DADU to bring in additional rental income and an increase of the housing supply which is greatly needed in this city. Plus, you have equity.
And adding along with other folks chiming in, you have a place you can personalize and settle into. Landlords very often get upset if you nail a hole in the wall or paint the walls any color other than a shade of white. I've lived like that for decades and its depressing for a creative individual.
Brilliantly said!
@@virtuouzgirl8328 gosh. So much has happened since my comment. Let's add to it since I hadn't even considered this at the time.... upheaval when my father died in November. My mother is now months away from not being able to afford the rental and may have to move into my apartment with me and my kids, and now we REALLY can't afford to buy a house. It's gunna get crowded. This is the reality that my family lives with.
There are many more things to consider. If you buy what happens when the HVAC system quits or the refrigerator or the washing machine? What about the cost of remodeling or just changing paint colors? If you live in a house rather than a condo you have lawn care and landscaping.
Yup ppl who’ve never owned have no idea what they’re signing up for. You better hope nothing happens when you own a home because it’s gonna cost a pretty penny for repairs. Better yet, learn to be handy, that will save you some money.
Have a emergency fund
Bunch of BS boys. if Hvac quitting on you is “huge” issue then you are definitely not cut for this market.
Keep paying rent and make someone wealthy
@@AndreyNabutovskyright lol.
@@alexchopper7997this is why you shop for appliances with sensible warranties and you don’t buy a home if a potential failure is going to make the whole home not worth the buy. Ppl also say this as if there aren’t millions of ppl renting from slumlords where things don’t get repaired then either so while it’s definitely information ppl need to have the fear is not a sensible one
Thank you for your explanation on buying a house versus renting.
We owned our house for 29 years, when we sold it it was worth four times the price we bought it for and didn’t have to pay taxes on capital gains 😀
No one ever speaks on the exit opportunities of a home. You can turn it to a rental or sell it and get your money back plus more due to appreciation.
If you calculate the total monthly payments plus the maintenance costs ........you probably broke even.....or made a small profit....but at best you were able to live for free.
In Canada, the mortgage has to renew every few years so your mortgage cost will vary a lot depends on the rate. If you can't afford your home during the high inflation period like now. You have to sell low and incur losses. Everyone is comparing the high to low market but not everyone is selling on high and buying in low. When you are selling, someone is buying so the timing is made make or lose the money
Great video. Outside of the financial calculation/analysis, the peace of mind and stability can also be leveraged into the calculation as part of the "opportunity cost". For some people, it is more important than the financial side of things.
Great video!
My projections would be slightly different. If real estate prices are expected to rise by 3%/yr, I would also expect rental prices to rise by the same amount. Also, I would hesitate to assume 9.1% returns on equities, a few years ago I remember projections by Vanguard estimated growth to be subdued and they were projecting something like 5.5% - 8% through the 2020s. My estimate (or guess) would be more like 7.5% returns.
I suppose my projections would put buying well ahead of renting in most cases.
This is a great breakdown to put it simply but It is missing several factors including tax exemption for your primary home and although SMP has high returns it is also added to your income if you choose to cash out. Also the market is unstable post Covid and seemingly more than real estate. Also rental cost is quoted way too low here for Toronto and Vancouver especially but so was the fees imo. These comps cannot be perfect by any means because of how many factors there are but I think it is very clear that home ownership would be the best choice for those who are able.
Such an excellent video! As a real estate agent in Hawaii, there are different assumptions I'd use for calculations, but you covered all the bases really well. Every location, neighborhood, and home will yield different results and real estate will not always be the best investment when compared to other options. It depends on so many factors, which you mentioned. Thank you for the video!
Thank you for the great explanation! One factor I'd consider (which you took into account with the disclaimer about the assumptions) is that even though using the historical rate of return for equities might make sense for the sake of simplicity when calculating the opportunity cost, I would presume most people don't keep their savings in a 100% equities portfolio, so this could make the option to buy even more advantageous comparatively.
Don't forget there are tax considerations and also limitations to non-real estate investments as well which are not covered.
It’s totally worth it for me. I built my own house and now I can save 60-70% of my income and retire early.
I’m a realtor, I think there is a lot of grey area to owning a personal residence. There is an argument to be made that its just forced savings, however you can leverage your equity via a line of credit to do renovations or purchase investment properties. You can also write off a portion of the mortgage interest from your taxes.
Your candor is refreshing
Great video. But I also see an x-factor when it comes to planning out these scenarios - that is, most people don't stick to a plan. You are more likely to skip out on an investment contribution to go drinking with your buddies than skipping out on a mortgage payment. Mortgage payment is forced savings. The other risk is having a large enough budget to continue paying rent and rent increases during retirement.
I think one thing that should be accounted for is keeping the monthly cash outflows the same in both scenarios. For example. In the I year example there is 8843 additional dollars spent to buy. That would give an additional 736 dollars to invest monthly if renting.
How many people that are renting are going to be that disciplined? They call home ownership 'forced savings' for a reason :)
@@TheGreatLockdown and ur point is?
for the sake of a better comparison let's not assume that ppl will mismanage funds
@@TheGreatLockdown homeowners spend more money on furniture and decor than renters with the same income so it probably evens out.🤷🏾♂️
@@TheGreatLockdown Since we're talking about discipline, what are the consequences of missing a month's mortgage payment vs missing a month of investing? Surely one more grave than the other. If discipline *cough clearly not prejudice against renters cough* is truly the issue, maybe let people be their own demise.
@@TheGreatLockdown is that’s the case, why do comparison at all?
Renting is convenient (you mentioned several factors) but smart real-state purchases lead to great asset/wealth creation, specially if the buyer is handy with renovation/improvement work. Location is of course a key factor for home valuation. Having good credit and taking advantage of interest rates when they are low is a smart thing to do as well (buy new property and refinance existing ones).
The best u can get from a renting is saving money, can never making money from renting.
@@allenz.4153 And that depends on the rent. Prices today are very high in premium locations. If your needs are temporary and you do not want to commit or cannot afford the mortgage, then you have to manage wit what you have in hands of course. Years ago I was looking to rent a place as a second home (travel a lot). I saw that buying would be much less expensive. I was able to get a nice house (larger than a rental) for a lower mortgage price than the rentals in the same area. I could afford the 20% downpayment and interest rates were much lower a 5 years ago. I am happy with my choice. The house has already doubled the purchasing price so it was a good investment.
Yes it is. Bought my first home in 2014 for 315k with $15k down. Rent covers mortgage plus 700$. My home is now worth $850k. Outstanding mortgage is now around 200k. So, I turned 15k to 650k+
Thank you for your detailed and comprehensive video! The common view is that buying your own house is the best option, but in some situations renting is the better and most smart option.
yup keep renting
I believe you should expand your list of items. Rent includes or renters usually don't pay garbage/recycling, city water-sewer, heating, full home insurance, so those costs should be included against the buyer. You didn't include the damage/security deposit for the renter.
You can also say if you own a home outright you have ZERO PAYMENTS lol
I live in an apartment in CA, water, garbage/recycling, sewer, pet rent for my dog are added to the monthly rent payment. I also pay gas and electric to the utility companies.
My rent is way cheaper than home ownership. I feel freeI and I have time to put into my kids. I invest the difference; and am saving for a hefty down payment. If all goes to plan, my home will be paid for within 5yrs. Years ago, I owned a home and hated the stress. This time, I'm more prepared.
Not sure where you live, but here rent does not include garbage or sewer or anything else, and you need renters insurance.
I'm in the position of thinking of buying my first home at the moment so this is really helpful! Thanks Gabrielle :)
Home ownership is crucial.
I think this is an interesting analysis. I think the fees for buying/selling the house should be taken into account though, that's quite a chunk of change.
Young people, you have my sympathies. I can’t imagine buying a home in these times. I was fortunate enough to purchase my home after the 2008 crash. It was a small patio home in an up and coming neighborhood in Houston, TX. I don’t see it getting better. Large real estate companies are trying to buy up everyone’s house. It seems that they want all future generations to rent for life.
That’s why I brought a house last year, soon most homes will be rented property.
Thank you. I’ve never heard a Gen X or Boomer feel sorry for us all they do is judge us and ask us why we’re not buying homes and getting married and having kids. We aren’t doing those things because it’s EXPENSIVE.
Great video Gabrielle! I teach a personal finance class at a college and take time to talk about many of these same items. This is a really informative and detailed video covering the topic. Nice job!
Wallstreet is projected to own 40% of houses by 2030 in the US. Once they own it all say good bye to quality and rent control.
Buy when this recession gets bad, refinance it when it gets better and interest rates go down and keep it long term. In 30 years or less its paid and its a asset you keep and can be passed down
I lived in The North east it’s crazy what renters are paying I’ve moved to upstate New York and I’m paying for a mortgage what others are paying for rent. I do have additional expenses but peace of mind and I do what I want and don’t have to answer to anyone.
When you rent you also must budget for when you get the letter in the mail you must leave in 60 days. So make sure you budget moving costs and hopefully finding a new place for the same rent price.
Renting is making someone else rich, buying is making yourself a profit towards the end. I always heard that renting is like flushing money down the toilet. I’m a homeowner and happy for this blessing. 😊
I'm so happy and grateful to have finally found an in depth local creator such as yourself. Mostly all knowledge when searching this type of stuff it's always US based information, or it's from another province. It's a shame it's not cohesive system for all of our country, that'd be so much easier. Haha
Thanks for the helpful knowledge Gabrielle. :)
Idk why people always think you have to own a large $200k+ home. Start small! It’s like buying a used car. Get a small home. Own it and stack your money.
agreed. i now found the issues why they say renting has a chance to be better. one is the thing you mentioned
This is a great starting point however I believe the costs of home ownership maintenance should be added in to the equation
This looks good when looking at pure transactional purposes. What’s missing are unforeseen issues such as maintenance. The age of the home. The condition of the roof. Renovations, etc. owning a home may have hidden costs. There is more to it than paying the mortgage.
Yes own a home. Anyone tells you not to is full of it. Buy a home an rent it to someone else if you want.
leverage is the key in property ownership. also in realistic life, people put money in diversified baskets. property, stock, mutual funds, life insurance, etc.
What about the value of having a paid off home at time of retirement once you have a more fixed income in retirement and inflation impacts on your renting power??
it comes down to what fits your need...nothing wrong with renting or buying..i rented all my life and i dont have worried about maintenance cost or anything upgrading or make changes... i move place to place(miiltary) and dont have to worried about loan/mortgage..i only have to make sure i pay utilities bill...
Exactly. People assume that rent goes up but home ownership doesn't. Sure it does! Taxes (especially if your home and your area appreciates), insurance, maintenance, utilities go up too. Not to mention having to do all the lawn work, shovelling snow etc... the list goes on. I go home every night and relax. I don't have any chores on the weekend either. I do what I want.
Very good detailed and well researched vedio but if you dont own a house and put that money in stocks then the money used to rent a place has not been calculated.
Great Video Gabrielle. I am so glad I found you here on the tube. One glitch I see in the calculation though - you are only calculating a stock rate of return on the initial $100k, but in fact the renter has the ability to invest close to 9k (difference between rent and home ownership) on an annual basis. This is equal to approx $67k after a 9% return over those 5years
A renter would have to be VERY disciplined to be taking such a large chunk of their discretionary savings to automatically put in investments each month. This is why they call home ownership 'forced savings'.
also here in the states, interests are tax deductible. You get one more plus on the owning side.
@@zackhu9not in Canada and she’s basing this on a Canadian perspective. Principle residence is not tax deductible only properties that you own and rent out
@@TheGreatLockdownespecially in a world where over 60% of adults don’t have a savings of $1k. It’s unrealistic for majority of ppl and folks putting that kind of money in tend to have a home they’ve invested in also
Home ownership cannot only measured by financial only. Time and mental state are
part of the money as well. Remember, majority of renters do not get a good landlord. So, we tend to move around. Every time we move, we spend money and also worry we won’t get the place we want. Moving cost, timing cost as we always spend time looking for a place to live. There is no piece of mind in living in someone else house. There are restrictions such as no pet, no guest/party, less cooking, can’t hang our favourite paintings or photos on wall, no indoor plants because it would destroy the floor, and many more as each landlord has different requirements.
Yup, exactly. However, in many places, housing prices are way too expensive and not worth it. Best to move to any of the 10 most affordable cities and buy a house there.
Thank you. Also, a big one….being a renter in an apartment can also mean being exposed to harmful second hand smoke (and related carcinogens). When you’ve rented in an apartment that started out as desirable and declines due to poor management it is hard to leave as rent costs could then double when you move. I see many single long term renters in this situation.
Also, single seniors who would benefit greatly from a pet, but not allowed.
I have a great landlord and peace of mind from being tied to a home. Eventually, I'll own again, but will not be slave to a bank.
@@republicunited2183just a slave to your landlord.sure they not complaining about you taking care of their income.
How is the $100K deposit affecting only the "BUY" and not the "RENT"? In this scenario, if you were renting and owned $100K in stocks, renting seems to be a better option or am I missing something? Also, what is the difference in income needed in order to support a $2326 monthly mortgage payment or a $2000 rent?
I think it is considered affected in the video in the form of "cost of capital" in unrecoverable costs by virtue of (relatively arbitrary assumed) rates if return
And yes, also inflation
One of the big benefits in home ownership may be the tax benefits through deductions.
yes, interest paid is generally tax deductable, no such benefit in renting.
In the US many cannot deduct mortgage interest since the standard deduction has increased for federal income tax.
However, interest and property taxes must still be paid. Some people borrow more because interest is tax deductible yet they forget they are still paying interest.
@@j.m.7056The deduction still exists for everyone. It's just capped now. So many lost the advantages of the deduction on the full amount of interest paid. This primarily hit homeowners in high property value, high tax states like NY and California.
It's not always best to own a home. Everyone has their own circumstances, not all have the same situation.
Gabrielle, you are a gem. Your videos are very helpful. Thank you.
Thank you for this video! Can you make another video elaborating on if you were to sell , what the capital gains would look like and all the transaction costs associated? Because at the end of the day even if your return on investment from the home is greater, you end up paying thousands in closing costs and on taxes. I dont know the difference you'd pay on taxes for a capital gain versus on something like a stock or ETF. Thanks for your help!
On thing to consider is that homeowners mostly end up having a net worth that's a significant multiple than that of renters. The Canadian real estate market in general has been pretty wild over the past 10 years; those who were in it potentially made a lot of money very quickly
Leverage! It's a beautiful thing.
This is also because most renters do not invest.
@@miamilner1817
This is very true, it's why I always find the "Renting is better than Owning fallacy" in terms of finances comical as pretty much all the data proves otherwise
@@TheNewSchoolGamerI think for people that are disciplined such comparisons are fair. It's a bit hard to get into the housing market going solo where I am, so I invest 25% of my net income every pay period, haven't missed a payment since I started 14months ago! On top of that I contribute 10% of my gross income to my countries retirement scheme.
@@jamesc3953
That's awesome, take a lot of discipline to save and invest like that. Yeah, getting into real estate as a single person can be pretty tough
Another factor to keep in mind is how your income tax will be impacted from buying vs. renting. I'm not sure how it works in Canada, but here in the US it will have a significant impact.
Rent where you want to live.
Own your assets. Renovate (force appreciation), Rent (passive income) Refinance (capital allocation into other investments), Repeat
What do you mean rent were you want live ?
@@leovargas760 There's a saying that the home you live in is not an asset, it's a liability (housing market can obviously dictate whether or not that's true). Renting gives you the freedom to move whenever. This is a strategy to get the best of both worlds. Your first property should be an investment, not a home. That way, you can build wealth and in your latter years, build and live in your dream home.
@@karamal-hassanieh5477 got ya thanks buddy
Should add another 1-2% of the property value per year for cost to own towards the actual house for maintenance and repair. Things can break down and need to be replaced, and sometimes a cost can also completely be out of your own control/fault. For instance, a broken AC/HVAC, a roof leak, water pipe burst, overgrown tree, etc.
In the U.S. the interest paid to mortgage could deducted on income tax. I would think in the long run buying a house is a better option.
I know of someone who bought a house, invested time and money renovating it, and diligently paid the mortgage for 26 years. Sadly, illness struck, leading to the loss of their home. The devastating blow sent the homeowner into a deep depression, and within a year, they passed away. It's a heartbreaking reality that often goes unspoken; we're accustomed to hearing about "forever homes," but life's twists can sometimes shatter those dreams.
I’m manifesting this reading & this resonates so deeply…it’s scary 😮😅 Thank you so much 🙏🏽
Eeverything is clear when you say it..thank you
I’m 63 and our paid for house is more than 1/2 of our net worth. Houses in Florida are fairly liquid.
so if in any year it costs x to rent and x+y to buy, are you accounting for what happens if the renter invests y in the stock market?
I like these cost analysis videos. I would like to see more of them.
I’ve done the calculations and for me it’s not as important as the idea of having the freedom to do what I want to my own home or having to beg the landlord to make improvements. Owning is worth a certain amount of extra cost and certainly adds to the financial decision if cheaper.
Thanks! I’ll stick to renting. Our local market would have buying @ more than $1M for that same amount of rent. Possibly as much as $1.4M (according to the agents). This is for older stock: maintenance would be somewhat higher too! The scarcity is with the land. Point taken with the leverage, but it’s unsustainable to have these property prices. Again, really dig you running the numbers: this helped. Best regards!
I think it would make sense to calculate investing the difference in cash flow when renting (vs buying).
If renting is $300/mo less you can allocate that to stock investments
Owning a home has other advantages. For example, in the US, the property taxes and the interest on the mortgage are deductible. You can also get a HELOC and the interest may be deductible. The biggest advantage is that no one can kick you out of the property, or raise the rent arbitrarily.
Renting works better than home ownership if you put the same amount of money into the stock market as you would have put into home maintenance and interest payments
Thanks Gabriel for the excellent video on buying vs renting comparison...keep up the great work...👍
Good one. I have been of the same view. Also we can move whenever i want to a different place if i dont like my rented place. Own house is generally we r stuck.
Sure your landlord agree
A thing to note here;
Real estate is one of the few investments that keep up with true cost of living, instead of the inflation calculation (which arguably is wildly incorrect at the moment).
Real estate is for simple and effective generational wealth. "Opportunity" investments are complicated money pits that have the potential to wipe out generational wealth.
Good luck with renting. May seem an easier way to reduce costs associated with housing when you are a young couple, but good luck when you are elderly and on a pension and your landlord decides he wants to move in or sell it to a non investor. Financial security is what it's all about, and long term renting is not going to achieve that goal. No matter how tough it is, owning a property is the only way to go. Doesn't matter if it's a 1 bedroom flat, apartment or whatever. Just own it and get into the market.
@@sandysimmer1279 All I can say is that if you are elderly and still renting or have a mortgage, then you have stuffed up somewhere along the way. If someone doesn't have the foresight to prepare for their old age and live this "One day at a time" BS, then they get what they deserve.
@@martinwatson9568 Unfortunately, thousands of men leave women and children for what they 'believe' is a better partner, leaving them destitute and unprepared.
everyone has their own situation, just because someone couldn't afford a house and they renting its a bad thing, at this market you can rent a good house with 1k-1.5k a month, but with the same house the mortgage is somewhere 2.5k a month. and you know what, maybe that 1k-1.5k monthly payment is all they can afford.
All I know is that buying a great first home can bless you beyond thinkable! With the current market conditions it's definitely hard for it to be the case because of high interest rates.
Thank you for this informative video Gab, you're amazing!
i would say lease vs financing a car is more of a debate. buying property vs renting will be better every single time
If you're here to invest in property, there is one main reason: leverage.
I love this comparison. I rent in Miami Beach. It would cost me three times more to buy here.
dude u went ham on this thought of everything
Rent can always be raised even if it doesn't make sense. Moving is expensive. Thats why I think owning is better.
I would say without any reservations - own your own home as soon as you are able to! This cost will never go away and never go down! So unless you plan on being homeless or constantly moving to a lower cost part of the country, you'd be better off planning on owning your home rather than renting - without exception!
Thank you for that rundown. It helps me rationalize my doubts.
Caveat being..........unless you're using leverage in stocks, as well. ;)
great breakdown of the two choices. would you consider calculating paying of the mortgage in half the time of this example? I always think the velocity of money ( paying off quickly)can work in your favour.Once house has been paid then investments could increase
The main goal is to buy the house and pay it completely. You will have expenses that you have to address or fix yourself in order to save money. I fix almost anything inside and out of the house. I don't even pay insurance since I could save up all that money to pay for natural disaster repairs. I only pay $1600 in taxes at the end of the year plus utilities and repairs. I purchased my house in the ever so inflated Miami, Florida on 2020 for 330K and its worth 650K as of today.
The solution is to rent a very cheap house or room for a few years until you save up enough to avoid a mortgage with high interest rate. Having your own house when you retire is the greatest blessing of all.
I don’t care what the finances say I’d never want to rent again in my life. There’s a lot of benefit to owning outside of finances especially when you pay the mortgage off - financial and mental. When you rent you always know it’s someone else’s property - you are literally paying for their mortgage - and one day you will have to walk away from your residence that you paid so much money on. $1000/mo or whatever - literally gone. Nope. I get your point but renting should only be done temporarily.
thank you for this video! this made a lot more sense to my accounting brain compared to other real estate propaganda i’ve been subject to. one thing i was wondering about was why you didn’t include the 9% rate of return on the $100K on the renter side as well? i think that this would drastically change the comparison of your final numbers that included the cost of capital such that renting would be more favorable. assuming that the person in this scenario has $100K and is trying to determine whether they should buy or rent, i would imagine that the renter would be reaping the benefit of that $100K being invested?
You should do a special Florida edition where home ownwer's insurance (not mentioned here) is substantial. Also, the percentage of inventory (available homes for sale) is skyrocketing right now. Supply & Demand would expect a decrease on what home owners can realistically get from a buyer if they sell, since supply is higher than demand in many areas, particularly the Gulf coast. Naples, ouch.
Other consideration, some "unrecoverable costs" such as mortgage interest and property tax are write-offs and decrease your tax liability.
That’s in the states. Primary residence interest and I also believe tax can’t be written off in Canada
Great simplified view and calculations, thank you so much! I think 5 year ROR is incorrect, it should be 53862.39 for stocks
I can’t afford to buy so I’ll try my best as a renter. Investing all my excess money to the market through TFSA. The goal is to keep my taxable income extremely low in retirement so I would qualify for many senior benefits.
That's actually a great point. In many cases, a person's main home is excluded as asset when applying for benefits while a stock portfolio is considered asset that may disqualified one from benefit.
I think one thing that is missing is that any extra cash that are not going into spending on the house can also be invested. Therefore rapidly increasing your base
Sooo happy i found your channel
The benefit of eventually owning a home and having no mortgage paying isn’t mentioned or the option of house-hacking, which is living in a property and renting-out part of the space that you’re not utilizing for additional income.
One downside of owning is that many
properties now have variable HOA fees from one year to the next, or annoying rules from the HOA board. However HOAs are very case by case.
For some, the monthly HOA fee is a bargain for what one gets back.
Interesting point of comparison. You mention stability for mortgage, but... what of variable rate mortgages, like in Sweden and Norway? Interest rate on current mortgages are adjusted, by default, every three months. Great if interest are called to drop, but today, they are very high and it's far from stable for home owners.
How much do you know about this? And in general, about the change in banking towards more variable rate mortgages?
yes, it makes sense to buy because you pay property tax annualy/monthly either way as well as repaire costs ( all costs/taxes/fee build in to rent).
I really needed this , great explanation. It would be even better if you can share the excel sheets, so we can do the some of the maths ourself and understand them better!
I know found why the issues with videos/debate like this. main issue, people missed the fact that almost all rentals are used properties vs buying new. another is living within your means, what if you bought a property that is way below budget that you can pay it within 15-10 years.
This housing crisis has proven how owing a home is always a good choice in a long run. Imagine getting to your retired age and still struggling with a place to live, and the risk of being homeless. It's obvious when comparing the cost of rent which guarantees will go up every year to the cost of mortgage which will decrease as you pay towards the end of the mortgage term. Part of your mortgage payment is your equity whereas your rent is total expense. Paying for your mortgage is paying to acquire your own asset whereas paying rent is paying for someone else's asset. The hype of "rent better than buy" is only for short term when young people want to experience lifestyle. However, the end goal should be owning a house as it is a basic need. It's all about priority in most cases.
Here is the problem, when you young say the age 25-30 your money making ability is high and easier to get a job and when you at your 50 your money making ability gets lower and lower, if you do not own a house the rent cost will be much higher and you will forced to find a cheaper place and your life standard will get lower and lower along with your age. I own low cost rental buildings I have lot of old tenants who were middle class or higher than middle class when they young and now they are over 50 some are 70+ they end up in my place because they did not buy a house when they could, it is a sad thing to see they went down like this they were very capable people. The bottom line is that when you are 50 you do not want to move into your parent's basement because the rent is too high and you cant make enough money to keep up or you lose your job.
Yeah but who on RUclips is saying rent trends up over decades so owing a house is like having cheap rent because the majority of mortgages that are fixed rate don't. With so many not making enough to avoid being broke telling broke people to buy super expensive houses is a much harder sell!!!! It is way easier to just tell them to keep renting since for so many it is more affordable at the momment.
I didn't see HOA lumped in there. Around here, you can expect around 20% of your monthly payment for a condo/townhouse, but we seem to be higher than the rest of the US. Also didn't see a repair budget (not maintenance), which needs to be set aside for a purchase. Also closing costs, fees & insurance. Homeowners do get the interest writeoff on taxes. Rent increases are probably higher than 2%. Offsetting that though - where can you find a 5% mortgage these days? I think we're still in the 7s. Ouch.
Great analysis/video ; thank you!
Good vid, much better than the other crap on youtube on this topic.
The elefant in room is here
422 sqft apartment for 500k
Ridiculous!
About 10x what be kind of reasonable.
Dont need to run the numbers for that to see.
Very detailed explanation. Thank you