Average monthly cost of home maintenance in America, is $1,200. That’s not including any mortgage payments. You can find apartments cheaper than that. Add in a 30 year mortgage on a half a million dollar home, plus 30 years of maintenance costs, and that’s well over a million! You could rent for far much less than that, save the difference that you would’ve paid on a mortgage+maintenance, and invest the rest into the market, or just rent until you can buy a home in cash. Don’t buy in a high housing market (like now). Rent low, make, and save, as much as you can. Only buy homes at low prices, in cash! DO NOT take the mortgage death pledge.
John Smith ...and you think landlords are happily forgetting that cost when they rent to you? You are comparing the price of renting a grape to buying an orange. It’s not the same number. Of course saving up and buying with cash is ideal but that little apartment you are renting includes the cost of maintenance+mortgage payment to the landlord.
@MarkS: The number quoted includes everything including insurance, property taxes, utilities and actual repairs. It is a bit misleading. You could assume the same shared cost if you lived in a house you bought with your spouse or add in your parents or kids. The cost will technically be divided up as well. People make the mistake of comparing the cost to rent an apartment with buying house to support their biases. If you compare the cost of renting an apartment with buying one, it often comes out as a wash. Buying a house tends to do a bit better than renting. As BtB mentioned, it depends on what you want to do with the home. How long you're living there etc.
No. That's the national average per month for a single family home. That includes property taxes, home insurance, utilities bills(gas/oil/electricity) and actual maintenance. www.gobankingrates.com/investing/heres-costs-1126-month-maintain-average-american-home/
I'm happy renting. My rent is £385 a month, about $507 for a one bedroom apartment. I live alone which I love. I'm self employed so my earnings differ dramatically each year, this year has been very bad for me. I have no dependants, so even if I struggled with a mortgage I'd have no one to leave the property to anyway after I'm gone. I'd need to get a lodger to help pay the mortgage and I don't want to share with anyone, so my situation suits me. I'm nearly 50 and have rented all my life
It's hard to beat $507 a month. I wonder how much an equivalent place costs if you buy it in that same area. It's a lot of money that increases how much you have to earn every month to sustain yourself.
What most people forget, and what he failed to mention is, if your single, and you own your own home, and you lose your job, it's harder to sell your house than to move to another apartment down the street. That's why I prefer to rent rather than own, because it's so much easier to get up and move, than sell your home. I mean, it could take months or years!! It's like having your Emergency Fund in the stock market.
Gentrification is why I moved out my last place. I was paying $1100 a month. Landlord wanted to increase it to $1200/month on the new lease due to new development in the area. I dipped. Found a $800/month place just 7 miles away. There are loopholes in the renting game.
Since I quit work back in 2000. I wanted to move around and see the country. My main income plan was the stock market. Mostly to buy low after market meltdowns like in 2003 and 2008 and am getting very annoyed with the no recent meltdown in 8 yrs..grr I would sell my house now if the market was down 30 or 40% like before and pour all the money in the market. Of course you gotta have money to make money in the market so I moved around to places that were cheap to check them out for a while. An area not too cold and not too hot without dangerous weather. Had a house in Big Spring TX for $14K. Rented an apt in Roswell New Mexico for $300 per mo. Over the past 13 yrs had 3 houses in W Virginia. One for $19K, #2 for $39K and #3 for $52K. All done with cash. The house I bought for $19K was in a flood zone and the state bought me out for $82K. Talk about hitting the RE jackpot with that house....that was sweet going to the bank with that check. And haven't bothered to work in a "job" in 17 yrs. This yr I retired at 62...hehe And so far I have refused to live in a motor home, van or car to save even more money like so many people are doing now days with the high cost of housing.
I got divorced a few years before I quit my job. I do have a daughter that was married but now is also divorced. I just have to make a road trip to visit her in the big city.
When you buy with a mortgage you are effectively renting house from the bank, but you have to pay for upkeep and repair of property PLUS you’re stuck with hassle and cost of selling if you need to move AND the risk of property prices fluctuations. My recommendation is to rent until you can afford to buy a property mortgage free, unless this is unviable for you (accepting that it is in some countries) or you have very strong motivation to “own” with mortgage.
Places,, in your country must be hight salaries , cheap real state, to be able to save $500k to buy a house in the united states will take a regular american 50 years ,,lol ,,
Erika Erika High salary, highest property prices - London, UK. Entirely possible but takes time, in my case 14 years saving. Shorter than most mortgage terms though 😎👍❤️
This is what we are doing. We also rent an apt (dependent upon the winter weather in area) and own an RV which we enjoy living in (if we are in a place with consistently good weather) while saving for a mortgage free home. We never stay in one place for more that 2-3 years so it works for us. We are in the US.
I rent in slums, cheap rent, I pay for service. Cost of living is for everyone, okay, you can't escape it. You either wasting your money on some interest and bills related to own house or on rent and landlord who pays all these important bills. I rent studio apartment for 417 € a month w/ bedroom. My yard is mowed, free snow removal, my water is paid... also cable and garbage fees included to the rent. And I am not even talking about not paying any other bills. If something is broken, I just call someone, and it gets fixed as soon as possible. Just one call. This may not be for everyone, but all house owners in Finland seem to be more of the same: I have too much bills. Then when someone is buying house and you walk there, they say let me give you a tour. I always ask are you selling it to me or what? Minimalism is the cure, you rent in slums, and you save money for something more important. Your money are not inside a thing. Because let's face it, homes are in dreams, they are just houses supposed to rust with you. Why to invest in something that could be gone tomorrow? I don't know. Now if you have a house in slums, these are not like your suburbian houses, but you can live. You can live just fine. Cost of living is for everyone, you can't escape food, housing, electricity and other bills. But you can save on that.
Super informative - I personally prefer to rent as it gives me location flexibility but I agree with your point on buying as a better long-term option.
Great Video. I am going to add that You should buy a home, ONLY after you have done below things: 1) Have 6-9 months of solid Emergency funds (liquid cash). 2) Have paid all Bad Debts (credit cards,loans). NO Bad Debts. 3) Have saved at 20% down payment. 4) Have invested in 401K to company match, and/or IRA. 5) Plan to live in same house for next 10 years. 5 years in too uncertain. 6) Fee that job and/or business income is reliable or safe. 7) Have general knowledge about house maintenance, upkeep, fixes, taxes, refinance process, and in general real estate market. There is nothing worse than buying a house in hurry and going through foreclosure. Rent until you have above list completed. Only then you are ready to Buy a house. Also, have a plan to pay off mortgage early.
Unfortunately, I'd have to disagree with some of the info presented here. The value of the house is only relevant to you when you buy it or sell it (or pay taxes). Just because the house prices appreciated 20% percent, it does not mean that you suddenly acquired 20% more wealth--it only means that IF you were to sell it RIGHT NOW you'd probably get 20% more cash than a few years ago. Since you live in your house, you can't call it an "investment," as in "thing that produces you money" unless you rent out rooms, or something. A rental property would be an investment. Of course, owning a house is a great vehicle to save money, budget, and overall improve your financial situation. But the existence of a house does not always equal "investment." Not by the very definition of the word.
It is an investment, think of it as a retirement fund (passive investment). It is a long one around 10 years or a lifetime if you refuse to move or you buy in cities like SF. Of course, if you buy in a hot area and sell every 2 years for profit, it will feel more like an investment.
I would argue that it is kind of like an investment it's just not that obvious. And it is because you *have* to live somewhere, if you don't buy a house, you have to pay rent. Here is my situation (I'm just gonna mention percentages because I live overseas in a completely different market): I bought my apartment 5 years ago with cash and if I add up all the costs of renovation, furniture, taxes, insurance and other costs that only a home owner pays then divide it by the number of months I lived here that is aprox. 23% of the rent I would pay if I rented a similar place. And that number will hopefully go down because I don't expect to have to buy for ex another bed for a looong time but let's just go with this number. So my investment in this apartment saves me 77% of rent or to put it another way every year it saves me 4.16% of the initial investment. I don't receive this money from anyone in particular but it's still money that I don't have to spend so I can use it for something else.
to me.....the value is not only relevant when you buy or sell it. What about all the rent increases you would face if you stayed there for many years....
I'm taking a personal finance elective and we were working on rent vs buy scenarios. Exactly like what you said it's always cheaper to buy and then rent in the end. A lot of the stuff in the class is familiar to me because I watched your videos! They're very informative and interesting. Thanks for making these great videos!
I think renting is better if you're not a generally handy sort of person. A lot of people really overlook the service aspect of renting. With a house there is upkeep, and when you live in an apartment or rented house, you don't notice all the time maintenance comes down, the landlord does something, etc. Your fridge breaks, apartment, get a new one in a week, included in the bill. Owning a house, need to figure out $400 for a new fridge somehow. Going even further, even aside from basic plumbing like sink traps/etc ($50-100 for a plumber to come out) there's things that aren't very reasonably DIY like roofs that need to be replaced. Our house needed a new roof and it's a small house and cost about $10K. $10K over a few years pretty much makes the difference in renting nothing. And of course as well, just wear and tear stuff from living in one spot for so long, like painting, carpets/flooring etc, add up (especially again, if you're not doing them yourself) whereas renting you might stay for 3-4 years, go to another place, and get those "new" again. Renting is a good service, and I think it's better for someone that doesn't want to be handy/can't be handy (my mom is disabled and elderly and can do basically no home repair stuff...) to just rent, as houses like cars, inevitably have problems, and this is one reason I don't believe houses are just an automatic investment.
I Agree. Although people may argue that landlords will also pass down the costs of the maintenance, large apartment complexes often benefit from the economy of scale. The costs of replacing one thing yourself vs. the apartment complex replacing them in bulk can be very different.
Why do these days people keep talking negative about buying and renting is way better? You're one of the only few videos that gives really good information...Thx!
Here's what a lot of people don't understand (and gets lost with everyone patting themselves on the back). A mortgage is an obligation. Not only that, it's a 30 year obligation. It limits your job and living options. You also have to buy surplus room in case you get married or have kids. The extra room is not free, there's a cost associated with that. When you rent, you only rent the EXACT space that you need. Sure you can rent a room out, but now you're not living alone. The opportunity costs for not being able to put extra money in a retirement fund because you have to pay for the extra space you're not using but might somewhere down the road is enormous. On top of that there's property taxes. Sure they are deductible, but it's not a credit. Huge difference. The truth of the matter is that buying a home is a FANTASTIC investment... for the bank.
BeatTheBush If you bought at the bottom of the 2008 crash, you would've tripled your money in the stock market. You would only have doubled your money if you had bought a house. If you lose your job or your financial situation changes, you still have to pay the mortgage on the 3 bedroom house when you only really need one. Whereas if you rent you only have to finish the lease then move someplace cheaper. The fact of the matter is that there are opportunity costs associated with buying a house and people tend to downplay the maintenance and insurance. A better indicator of whether or not a house would be a good investment is to look at the P/R ratio ($320k house / $16k annual rent = 20 ). A P/R of less than 15 is a good buy indicator and anything above 20 is not.
Rent is forever while mortgages stop when it's paid. You can also vary the downpayment to lessen interest charges. Leveraging is also better in RE as you will never match the amount invested in a house (using mostly the Bank's money) versus stocks (which is mainly your money) unless you do very heavy margin trading which is risky. I've rented for a long time and now I own and owning easily beats renting.
The housing market is a big game and it's so predictable. We are in a bubble now and the prices are getting scary high. If you have a house I would sell now and go live in a rental for a few years while you wait for the crash. When the housing market crashes hard it's time to buy a house at auction. At the last market crash I've seen really nice homes that were around $150k in value sell for $30k at auction. You can get insane deals and really grow your net worth 3x-5x over ~10 years without actually having to work. I hope to have $100k in cash the next round of the housing market so I can grab a few homes. Put them in rentals. And wait patiently for the bubble. If you miss the bubble it's no big problem, just wait another 10 years and those houses will be in the bubble again.
Ahhh so I see you are in the camp that it is way overpriced. I do think its a bit high but I also think there is a chance it might just stay flat for a long time rather than a big crash. Very unpredictable.
I don't think the crash will be as bad as it was last time. The majority of homes that were sold way under value were investment properties which people had the minimum amount invested into. Now most people are weary of buying an investment properties with a low deposits. So most homes are occupied by owners who are happy to pay their mortgage as it is cheaper to the equivalent rent after a few ears anyway.
For those that say you don't have mobility when you have a mortgage. Buy a property that you can easily rent out then use that rent to pay off the mortgage and property taxes. This to me is total freedom with an appreciating asset.
You made a good point. I think it is a good plan to buy during recession. Mr. Kiyosaki said it is like everything is on sale. I plan to sell when the economy is doing very good like now. This is all in the future because i am still in college.
I'm a renter because house prices are insanely high in Australia. 500k or more for a house that would sell for 100k. Our people are debt saturated as well but we all carry on as if we're okay. I want to own but not without a major downtirn in prices.
So currently, we sold out moved across the country, income has went up, now we currently rent at a rate that is less then the property tax and utilities costs. So we are only staying here long enough to get the last of the kids through college. And then we are hitting the road . Our current projection is 33k, in liquid assets per year I to savings,.. The housing market has peaked here so it is better to rent especially for where we are at and the low cost.
Because in Soviet Australia real estate sale tax and agency fees are high normally you have to stay in a place for 5-10 years to make purchasing worth it.
Depends entirely where you live, where you want to live, and how you want to live, and how long you'll be there. Yes, a 1 bedroom apt is really cheap compared to a 4 bedroom 3 bath 3000 square foot home. But that apartment is nothing like living in a really nice house. A single guy or gal doesn't need a really nice house, but if you are married with a kid or two, a single bedroom apt isn't going to cut it. I've only been in my house for a year, and local adjusters added 10k to its value. Also added hardwood floors and fixing up things to the way I like it, but not in a custom way that it won't add value or need to fit a particular buyer. Yes it costs more, but all of it adds even more value to the home. Having closely followed my market (which is pretty tight, so its a sellers market) I would wager that my house market value is already 25000 more than it was only a year ago. So if you are smart about how you live and treat the place you live with care and invest in it, then you should buy a home. If you don't care about where you rest your head or are just lazy and rather not think about how to take care of things, rent.
Beathebush, the problem with buying for many people is that 1. Many people have so much debt (credit cards, student loans etc) and have poor credit that they arent financially able to buy a home at this time. 2. Need $$$ for a down payment.....I read somewhere that a large number of americans have less than a few thousand in savings and a large percentage are living paycheck to paycheck. While buying is great, to a good majority of people this is not possible.
Buying a house 25 years ago and paying it off in 10 years is the best financial decision I ever made. Was able to afford to send my kids the best schools money can buy and was able to retire early, real early. Buying a house NOW is an entirely different issue.
Just bought my first home, I'm 30 years old. The house I bought is 18 years old. I really wanted to buy a new construction, but was $20K short. Not in cash of course, I was approved for $20 less than the new home is. I would like to sell this house in about 8-10 years and hopefully by than I will have a righter income, and make some positive equity and will be able to afford to build a new house. I'm not looking to make crazy cash, I hate moving, I just want to own a brand new home.
Good topic. I am renting in Florida by choice. I found an apartment that costs 30% less than nearby similar options, and is close to my partner's job. By my math, it costs us less to live in this large apartment than it would to own a modest house of similar size, once maintenance, interest, realtor fees (5 yr amortization), taxes, and commute costs are added up. The increase in liquidity enables me to invest in my startup company. We might buy if rent increases, home prices drop 35%, or if we decide to upgrade to something nicer that costs more per year.
The most critical point here was "if you downsize, you can only do it once". This is an important thing to mention, which doesn't get much coverage. I guess you could go LA > rustbelt > south-east-asia. But yeah, when you cash out, it will be hard to upscale again.
I buy but another thing to consider is taxes. They go up and down too impacting your monthly expenses. Utilities are the same but you have the issues in most cases with renting.
There's less responsibility renting than buying imo. You get rent free weeks and sometimes you can negotiate your rent if your a good tenant or even shop about for the best area and rent rates you can't do that with a mortgage.
we currently rent, and it's for the exact reasons you listed.. market is too high right now for us to make a purchase and know that we will have equity in the home in the short term.. we will buy when it is low, and sell when it is high.. continue renting for now
That's a gamble but then I would deem a bit of a calculated risk. What you say is reasonable but it could also just slowly rise rather than a dramatic dip.
It's a tough choice, especially if you're not exactly tied down to one area. But paying into something where you won't see a return or build equity isn't ideal.
Great video Beatthebush!! I like how you compared buying a home to the length of time you plan to stay there. I am a renter for that exact scenario. I plan to move quite a bit in the future and when I retire (low cost of living areas and foreign countries). If you don't have a secure job/business that you can guarantee yourself that you will have 15 to 30 years from now, I personally won't buy. I have no doubt that you can find a job easily beatthebush; you are an engineer, and possess a diverse set of skills that are not common compared to the average person buying a home that may not be as flexibile as you. I think people to should think really depp before committing to buy with questions like, do i have the 20% down payment, do I possess talents and skills that will provide me a job in the event the one i have doesn't work out, is the house im buying over priced, is the neighborhood/city growing and gaining businesses, will taxes be higher, natural disaster risk, is this a good location, etc.. lots of thinking and research needs to be done. Overall, thanks for all you do and the informative videos, loving these topics you are sharing!👍🏼👍🏼
It is indeed very complex to say if you buy or not. Of course, this is all looking to maximize networth in the long term. Even for buying long term, you can maximize it even more by buying in a dip.
There is also the maintenance cost that is typically taken as 1% per year, so add that to the payment cost. Also, renting allows you to live closer to work, thus reducing your commute time/costs and in my case, allows me to have lunch at home every day. You make your profit on the buy, so buy low, i.e. wait for the next crash.
I would say long or short term people should buy instead of rent. You can get into a house very cheap if you get an FHA loan which pretty much everyone should qualify for. If after two or three years you no longer want to live in that Community anymore because you're moving out of city or out-of-state then you can very easily just rent out the property and have someone else pay your mortgage for you and build up your equity. Rents in most areas are usually pretty comprable to the mortgage so the tenant will end up paying anywhere from about 85 to 115% of the mortgage for you, resulting in either a little bit extra that you have to put in yourself or a little bit extra that you can set aside every month to pay for other expenses like property tax and insurance. At the end of 30 years you have yourself a property that someone else paid for (mostly or entirely) and that has probably appreciated in value considerably.
It really depends. 95% of the time I'd say its better to buy. That few instances is when the market is overly heated, your money leveraged 4x or more, then the housing market plummets. Even longer term holding of the home will cause incredible stress knowing your money temporarily went down the drain in the short term.
you have to keep in mind the fact that you need a house if you are over 65 years old, how can a senior citizen pay more than 1000 dollars per month on rent for a studio apartment? keep working till the body holds up to pay rent + food +medical care?
As someone who got burned buying in 2008, I would not buy in this high price hot market. I’m waiting for the supply to free up in the next several years. Salaries have not increased as much as housing price have and that eventually leads to a correction. Rents are not cheap either but buying at the wrong time can cost more than wasting money on rent.
Only those who has been through things will realize that no matter how a sure bet it seems, things might not always stay that way. It's good to stay cautious but not so cautious to avoid investing at all.
So I've never made a huge salary but set myself the goal of buying a place at 40. Beat that by four years by working two jobs and saving every penny I could for the down payment. At the time it was a (small) stretch for the mortgage payments (about $250 more a month than I had been paying to rent a MIL) but now I am so, so happy as I would have been priced out of Seattle by now if I were still renting. So while you're young, it pays to sacrifice, is the TL;DR.
Judging from house prices the last hundred years the expected return less inflation is pretty much zero. Adjusting for renovations the expected return from owning is negative.
My time is valuable to me, and that's why I rent. I would prefer doing things I enjoy rather than dealing with house repairs. With the landlord, I can often get a repair done while I am at work and I never have to deal with the hassle of meeting a contractor or doing the repair myself. However, I repair my own vehicle because I rarely have good experiences with mechanics.
It's not cut an dry like that I think. If you buy and sell strategically and earn a huge sum from doing so, you could be saving many years of your time working, all for the cost of buying in and dealing with the home. A possibility but not a sure thing of course.
Good video, I appreciate the ending especially. One thing I might add is that real estate is not like an exchange traded product, you can’t sell it at the push of a button or a phone call unless one’s a single without much stuff. For a family man or woman, to sell a house and move to a rental is a major life event.
Recently bought a townhouse in Canada and rented 3 bedrooms to students. Mortgage 3200, rent income 2000. Total monthly cost 1700. Gained equity is around 800. Its a net loss of 900 per month. But breaks even if I move out and rent the entire place. If you can handle doing extra work and having roommates, it might be a good way to own a home.
I have a friend that rented a huge place and subleased the other parts to many people and actually reduced it even more... to the tune of half the going rate for a similar place. So you can push it further if people will pay it.
I own my own home. When I mortgaged it I wanted to have it paid off in just a few years. While doing that I managed to also buy three other homes to rent and make income from. Now that I am retired all the rentals have been sold, except for one, and I will probably eventually sell that one, also, as I am getting older. Would I do it again? Most definitely!
First of all , it depends on where you live. Every market is different . The appreciation that has happened over the last nine years is not normal. That happened because we were coming out of the Great Recession ( Real Estate Bubble ). Normal housing appreciation is about 3 or 4 % per year. Second , the interest deduction is not what it seems, most people do not qualify. And starting this year the standard deduction is twice what it used to be, so that means even fewer people will qualify. When you rent you don`t have all the expenses of repairs and remodeling and upkeep. So I guess it also depends on the individual.
Really depends on where you live. The rents in Atlanta are insane right now. Even 20-30 miles outside the city, which puts you at an hour to hour and a half drive to work, you are looking at baseline $1000 for a 700 sq. ft. 1 BR. You can easily find housing in the same areas for much cheaper mortgage payment. Obviously there are some things that come along with a house that could add to the expenses, but it makes a lot more sense to buy here. It just seems renting is more popular here so the rents have all skyrocketed over 100% in the last 6-7 years. I used to manage an apartment complex here in town and moved up north for 5 years. A 1BR there used to be in the $600s and it was a nice place. Now you can't get one under $1200-1300/mo. so it has more than doubled in most places. That's before you add in any utilities, cable, etc.
On your buy or rent video you don’t mention the downfall of buying a house which is lifestyle inflation, over remodeling, there are many things that completely kill you financially when you own a home, that you are immune to when you rent. I know three people that are suing their home inspectors because they got stuck with thousands of dollars worth of repairs six months after closing.
Gina Martindale hi just my 2 cents. BeatTheBush might chime in and provide something much more thorough. RV living etc. allows for possibly much lower overhead so if that works for you then it may be worth it while allowing for additional savings in the bank, and additional life benefits such as living where you choose especially if the area is considered high price for a house/condo, or if you are starting out or whatever but financially it is difficult to rent a place or buy so at least you have a home. But the thing to keep in mind is that it is not an appreciable asset, rather a depreciating one like a car. So for the long haul, IMHO buy/own an appreciable asset would be better off.
I've heard this before that it's cheaper to buy a home. Similar to the debate about leasing or buying a car. The only thing about buying a home is the additional costs: personal property taxes, maintenance (i.e. roof replacement), and home insurance. Renter's insurance is usually cheaper then buying home insurance. Some insurance companies will actually do unannounced home inspections on your home and will drop you on renewal if certain items aren't fixed. I just recently heard about somebody selling their home, and a home inspection was done. An additional $10,000 had to be allocated to add a radon gas release machine to the home because they discovered high levels in the basement
Nothing like leasing or buying a car at all, as all cars depreciate over the time of the lease or ownership (assuming you didn't buy a rare, high demand vehicle). If you trash your house, it will depreciate no matter what, if you take care of it it usually wont, unless your in a bad market anyway.
My pro for me owning my own home is my income dropped and I couldn't afford to pay rent at all.. Especially a home big enough for 9 kids.. I say buy but I mean buy not mortgage.. Out my home 10k 5 bedroom 3 bath with very very minor replaces needed.. So in totally spent 15k for a house that is now valued at 98k but just going to live in it for a long while..
If possible it is better in the long term to buy a house. Free accommodation when retired could make the difference between a good retirement or just getting buy.
Hi, I just wanted to say I have been doing nearly everything you have been saying in your videos. And I have saved my goal amount for this year!!! I am keeping at it!! Thanks!!
Oh yeah? Ha! You still got 2.5 months left. Well... how about keep going? =D You must've set it so the savings is automatic so just let it keep going. =D
The one question I always ask myself is whether I would buy the house I want to live in as an investment property where somebody else would pay me rent. If the answer is no, it will be better for me to use my downpayment for a better deal (maybe in an area where I don‘t live in) and just rent a place instead.
The problem with me is that I don't want to rent, I want to own 😂 2nd, its gon be hard to find the ideal house too, but I see the pros & cons of both that you explained in this video, much thanks! 🤟🏿💯
That bit at the end about realtors, who will rush to sell your home, but on average, will keep their home on the market 9.5 days longer per Freakonomics.
A bit of conflict of interest here. They are incentive's to sell your home for higher to get more commission but there is an optimal point of effort and additional gains.
Would love to buy a house someday, but home prices are high and it's not fun trying to outbid multiple offers. Price levels seem unsustainable, income doesn't match home prices and low interest rates have over inflated homes. What happens to market if interest rates get back to 6% and 7%? If people are over extending their wages on homes, it comes with opportunity cost. Something must give.
I move every 2-3 years. I buy every single time but I make sure there's cash flow going thru. Look at the average rent in that area and look at the mortgage. EZPZ
I can't help thinking this: If we are benefiting from your brilliant brain, smartness, creativeness, intuition, insights, ........... so much, what might be the engineering world losing by not having you work as an engineer. I feel said for it. I would like both: your making videos for us and also your letting the engineering world benefit from your genius brain. I wish you could do both. It would be too tiring for you, I bet, though. Maybe some from each. You are very smart!!
If you buy a 500k home and it goes down to 400k you lost 100k but if you keep living in it and then a year later the market recovers and your home is now worth 550k you made your money back and more, so buying a home is always a good idea, whether you live in it or rent, remember the market will fluctuate, you just gotta be patient.
I bought and worked for me as allowed me to quit the rat race and join the temp community giving me more freedom. My mortgage costs halved over time so I didn't need to earn as much to meet my fixed costs. I have since re-joined the rat race so if I needed to move I could but I have saved a lot on rent v buy and I took advantage of that by only choosing contracts which would fill gaps on my CV. It was a good move but I could not have made those decisions if the mortgage costs had not reduced.
I love the idea of having room mates - when I first started out on my personal finance journey - I had multiple room mates in the home I bought - which resulted in my being paid to live in my own home!. (5 bed 2 bath home, I lived in one room and collected 1600mo in rent, and total costs were 1500) 🤑
In the UK we can take equity out of a house and take out a lifetime mortgage, which is paid on moving or death. Main problem is interest accrued over the years.
But when an average-sized apartment (500sq feet) in HK already cost $1 million USD, is it worth buying? It's not only expensive, but is this price even reasonable at all? So now i'm stuck renting $2000/month.
Yea according to a recent article, HK and Singapore are the most expensive cities to live. Other major cities like NY, Vancouver, Sydney, etc are not cheap either. You really need around $1 million USD to buy a "somewhat decent" home. And it's by no means a luxury home at all....$1 million is like the bare minimum for a lot of expensive major cities.
greentealatte Price is relative. Incomes are higher and taxes are very low in HK. Mortgage rates under the government mortgage protection insurance is also very low. My mortgage rate when I bought a condo eight years ago was 0.67% and after several rate increases in the past year it is now 1.67%. Even with the rate hikes my mortgage is still well below rental rates. People that bought in 2004 had mortgage rates as low as 0.45% and the value of their condos have since quadrupled. The only downside with this system is I can't borrow off my property to invest in another property until after I have paid off my residence completely. This is a great program for end users. Just need the downpayment and stamp duty, pass the stress test and you're off.
I bought a house when the market crashed for 92k brand new It's currently worth 156k i don't really care about that what i like is im beating the rental market i pay 689 a month for 3 bedrooms 2 bath home if i refinance now my payments would be in the 400's because I have paid it down to 65k can't go wrong when the market crash
The video dilemma is exactly what I'm experiencing. I have over 100K saved for a 320K home. If the market dips I could have wasted all of this 100k. BeatTheBush: does having the mindset of using this first house as a rental property a way to dampen the possible market fluctuation? I think I could pay this home off in 4 years. Your thoughts??
When you buy in is very important. But you cannot wait forever. If you rent it out then sure, it can seem like you extend the period at which you keep it. It's something you have to predict the future of yourself.
I think if you purchase your first home with the exit strategy of turning it into a rental - I think that's great! (assuming the numbers support the rental use of the property). The biggest problem I have with people buying a mcmansion in the suburbs is your exit strategies are very limited. (It will likely only make financial sense to sell) where if you buy a property that works as a rental, or maybe has a basement/granny suite etc - provides more flexibility and options. Options are so important (particularly when your young). I actually did a rent vs buy video on Monday where I discussed the main exit strategies people should consider.
Buy a house with at least 3 bedrooms and 2 full baths. Then rent out 2 of the bedrooms to housemates and also split utility cost. You would then be paying about the same as rental rates, yet you would own the house.
It might be worth it because as a first time home buyer you can get 3% down payment! Don't sink all your money in it and at 3% you can outperform the market....esp. if you rent it. However if you can't even diy like change a doorknob, you'll get eaten up by maintenance contractors. Lots of RUclips diy videos.
Rent and housing prices move with wages. It'll crash if wages can no longer support. Best to do a rent to buy ratio and analysis. NYT has a good calculator. There's no one right answer as it is very dependent on the person, their lifestyle and where they are living.
BeatTheBush It's meant to serve as a guide overall. Too many variables involved to give a precise answer. I think we are also too bullish about the real estate market in the Bay Area.
One addition to this is even if the rent and mortgage are similar in cost the owner would have to foot any repair bills and therefore they are at risk of higher cost compared to the renter. Thanks for the video and good day to you :)
Correct. But with time, the rent will outpace your mortgage since your mortgage will stay constant. There are just too many factors that works against each other.
True ideally i'd say owning is best but only if one has enough capital and safety room, once financially set and free then owning is better, and that in-between is a conversation among many :)
I'm not sure if I can give an accurate opinion on that because I haven't done it myself. I do think about it though. Sometimes having one stable spot is comforting.
I recently ask my friend how much he's paying monthly for his house not including utilities. Btw his mortgage is paid off long ago. He said "$1,300" a month for hoa, insurance, and taxes. Holly crap!!!!!! That's a death row!!!!!!!
Or is it high because interest rates are low? Lots of factors drive the price. A recovering economy and a restriction on home supply could also drive home prices high.
agreed, many factors. too many people want to live here, compared to the easily/economically available space. the "new" tech boom in sf is definitely creating an influx of high income earners to migrate here.
I am currently on Level 2 on the financial rockstar scale. Once I graduate, I will be looking to buy something of my own. What price range(as in percent of income) would you say is most convenient. I am unsure if it would be best to buy something I could pay off relativly quick (3-5 years), or invest in something larger? I don't want to bite off more than I can chew, or pay a household in interest. Also, I think if I invest in something more affordable, once it is paid off. That property would become a source of income if I rent it. Am I thinking correctly? I would appreciate some advice on the matter. Thanks again, keep up the great work.
for me, buying always beats snp 500 if you live cities near the coast like sfo,socal seattle. here in vegas 240k can get you 3 bedroom in a good neighborhood. But home prices here still on the rise i just don't think it appreciate significantly like the cities above. but who knows! I guess we need more job opportunities besides casinos. LOL!
I just bought a beautiful 1880 colonial for 75k. Needed a 10k roof but otherwise great deal. And I have a second bedroom I can rent out to help with the mortgage.
My main problem with buying rental or investment property is the amount needed as a down payment. The only way I got around it was buying a duplex as my living in home and using an fha loan, but I don't want to move again for a long while. Do you have a rental property vs stocks video?
Buy. Always buy. Buy below your means. I have 150k in equity now and would have never had that had I rented. Renting is no different than glorified camping.
All of this could be true, but do the math on your down payment, closing costs, and maintenance....if you invested all that money in the S and P, would you be ahead?
Buying below your means is sooo important to your financial well being! I think what you're referring to is the forced savings plan that buying your house does (principal repayment) - I agree that often that force saving plan is great, but if a person was diligent and rented there is a strong argument they could be just as well off - depending on the exact assumptions or historical data used to forecast the future. Owning though does come with certain time commitment, that if used in other productive matters, could again strengthen the argument for renting. (I recently did a long video discussing why buying RE could be a bad idea) = particularly if you don't buy below your means.
not to mention equity is difficult to tap into. And don't forget realtor fees when you sell, 6% of selling price typically. I think most Americans advocate buying because they are bad savers. Purchasing a home forces you to save. There is a great blog of someone who is financially independent and advocates renting. I find his argument compelling. www.gocurrycracker.com/renters-for-life/
That means you bought it at a low price. Don't forget adjustable mortgage interest rates and property taxes. Not to mention all of your maintenance fees are covered as a renter, while they aren't as an owner.
Average monthly cost of home maintenance in America, is $1,200. That’s not including any mortgage payments. You can find apartments cheaper than that. Add in a 30 year mortgage on a half a million dollar home, plus 30 years of maintenance costs, and that’s well over a million! You could rent for far much less than that, save the difference that you would’ve paid on a mortgage+maintenance, and invest the rest into the market, or just rent until you can buy a home in cash. Don’t buy in a high housing market (like now). Rent low, make, and save, as much as you can. Only buy homes at low prices, in cash! DO NOT take the mortgage death pledge.
John Smith ...and you think landlords are happily forgetting that cost when they rent to you? You are comparing the price of renting a grape to buying an orange. It’s not the same number. Of course saving up and buying with cash is ideal but that little apartment you are renting includes the cost of maintenance+mortgage payment to the landlord.
@MarkS: The number quoted includes everything including insurance, property taxes, utilities and actual repairs. It is a bit misleading.
You could assume the same shared cost if you lived in a house you bought with your spouse or add in your parents or kids. The cost will technically be divided up as well.
People make the mistake of comparing the cost to rent an apartment with buying house to support their biases. If you compare the cost of renting an apartment with buying one, it often comes out as a wash. Buying a house tends to do a bit better than renting.
As BtB mentioned, it depends on what you want to do with the home. How long you're living there etc.
That's per year not month. lol.
1200 is WAY too high maybe 1200 per year.
No. That's the national average per month for a single family home. That includes property taxes, home insurance, utilities bills(gas/oil/electricity) and actual maintenance.
www.gobankingrates.com/investing/heres-costs-1126-month-maintain-average-american-home/
I'm happy renting. My rent is £385 a month, about $507 for a one bedroom apartment. I live alone which I love. I'm self employed so my earnings differ dramatically each year, this year has been very bad for me. I have no dependants, so even if I struggled with a mortgage I'd have no one to leave the property to anyway after I'm gone. I'd need to get a lodger to help pay the mortgage and I don't want to share with anyone, so my situation suits me. I'm nearly 50 and have rented all my life
It's hard to beat $507 a month. I wonder how much an equivalent place costs if you buy it in that same area. It's a lot of money that increases how much you have to earn every month to sustain yourself.
TimelordUk i googled my street addy into Google Earth and found the same street and house number in Manchester UK.
"You do need somewhere to live sometimes" 😂😂😂
Yup... and not under the bridge. =D
BeatTheBush I know I'm pulling your leg but great video.
Greatest Of These is Love one of the many beat the bush-isms.
He's wise and funny,
And talks like yoda sometimes
I aspire to only own the possessions that I can keep in a bindle so I can lead a life of freedom riding the rails! :D
Ha ha
What most people forget, and what he failed to mention is, if your single, and you own your own home, and you lose your job, it's harder to sell your house than to move to another apartment down the street. That's why I prefer to rent rather than own, because it's so much easier to get up and move, than sell your home. I mean, it could take months or years!! It's like having your Emergency Fund in the stock market.
Gentrification is why I moved out my last place. I was paying $1100 a month. Landlord wanted to increase it to $1200/month on the new lease due to new development in the area. I dipped. Found a $800/month place just 7 miles away. There are loopholes in the renting game.
Sometime it not easy to fund cheaper, specially for families.
Since I quit work back in 2000. I wanted to move around and see the country. My main income plan was the stock market. Mostly to buy low after market meltdowns like in 2003 and 2008 and am getting very annoyed with the no recent meltdown in 8 yrs..grr I would sell my house now if the market was down 30 or 40% like before and pour all the money in the market.
Of course you gotta have money to make money in the market so I moved around to places that were cheap to check them out for a while. An area not too cold and not too hot without dangerous weather.
Had a house in Big Spring TX for $14K.
Rented an apt in Roswell New Mexico for $300 per mo.
Over the past 13 yrs had 3 houses in W Virginia. One for $19K, #2 for $39K and #3 for $52K. All done with cash.
The house I bought for $19K was in a flood zone and the state bought me out for $82K. Talk about hitting the RE jackpot with that house....that was sweet going to the bank with that check.
And haven't bothered to work in a "job" in 17 yrs. This yr I retired at 62...hehe
And so far I have refused to live in a motor home, van or car to save even more money like so many people are doing now days with the high cost of housing.
Do you have a family?
I got divorced a few years before I quit my job. I do have a daughter that was married but now is also divorced. I just have to make a road trip to visit her in the big city.
When you buy with a mortgage you are effectively renting house from the bank, but you have to pay for upkeep and repair of property PLUS you’re stuck with hassle and cost of selling if you need to move AND the risk of property prices fluctuations. My recommendation is to rent until you can afford to buy a property mortgage free, unless this is unviable for you (accepting that it is in some countries) or you have very strong motivation to “own” with mortgage.
That is likely incredibly hard or impossible if you live in a large city.
Places,, in your country must be hight salaries , cheap real state, to be able to save $500k to buy a house in the united states will take a regular american 50 years ,,lol ,,
Erika Erika High salary, highest property prices - London, UK. Entirely possible but takes time, in my case 14 years saving. Shorter than most mortgage terms though 😎👍❤️
BeatTheBush It is hard and for low earners certainly impossible, but if you can do it it’s worth it 😎👍❤️
This is what we are doing. We also rent an apt (dependent upon the winter weather in area) and own an RV which we enjoy living in (if we are in a place with consistently good weather) while saving for a mortgage free home. We never stay in one place for more that 2-3 years so it works for us. We are in the US.
I rent in slums, cheap rent, I pay for service. Cost of living is for everyone, okay, you can't escape it. You either wasting your money on some interest and bills related to own house or on rent and landlord who pays all these important bills. I rent studio apartment for 417 € a month w/ bedroom. My yard is mowed, free snow removal, my water is paid... also cable and garbage fees included to the rent. And I am not even talking about not paying any other bills. If something is broken, I just call someone, and it gets fixed as soon as possible. Just one call.
This may not be for everyone, but all house owners in Finland seem to be more of the same: I have too much bills. Then when someone is buying house and you walk there, they say let me give you a tour. I always ask are you selling it to me or what? Minimalism is the cure, you rent in slums, and you save money for something more important. Your money are not inside a thing. Because let's face it, homes are in dreams, they are just houses supposed to rust with you. Why to invest in something that could be gone tomorrow? I don't know.
Now if you have a house in slums, these are not like your suburbian houses, but you can live. You can live just fine.
Cost of living is for everyone, you can't escape food, housing, electricity and other bills. But you can save on that.
Super informative - I personally prefer to rent as it gives me location flexibility but I agree with your point on buying as a better long-term option.
Great Video. I am going to add that You should buy a home, ONLY after you have done below things:
1) Have 6-9 months of solid Emergency funds (liquid cash).
2) Have paid all Bad Debts (credit cards,loans). NO Bad Debts.
3) Have saved at 20% down payment.
4) Have invested in 401K to company match, and/or IRA.
5) Plan to live in same house for next 10 years. 5 years in too uncertain.
6) Fee that job and/or business income is reliable or safe.
7) Have general knowledge about house maintenance, upkeep, fixes, taxes, refinance process, and in general real estate market.
There is nothing worse than buying a house in hurry and going through foreclosure. Rent until you have above list completed. Only then you are ready to Buy a house. Also, have a plan to pay off mortgage early.
I think most people wont be able to do that but it does make it much safer and paying it off early really helps with early retirement.
Unfortunately, I'd have to disagree with some of the info presented here. The value of the house is only relevant to you when you buy it or sell it (or pay taxes). Just because the house prices appreciated 20% percent, it does not mean that you suddenly acquired 20% more wealth--it only means that IF you were to sell it RIGHT NOW you'd probably get 20% more cash than a few years ago. Since you live in your house, you can't call it an "investment," as in "thing that produces you money" unless you rent out rooms, or something. A rental property would be an investment.
Of course, owning a house is a great vehicle to save money, budget, and overall improve your financial situation. But the existence of a house does not always equal "investment." Not by the very definition of the word.
It is an investment, think of it as a retirement fund (passive investment). It is a long one around 10 years or a lifetime if you refuse to move or you buy in cities like SF. Of course, if you buy in a hot area and sell every 2 years for profit, it will feel more like an investment.
I would argue that it is kind of like an investment it's just not that obvious. And it is because you *have* to live somewhere, if you don't buy a house, you have to pay rent. Here is my situation (I'm just gonna mention percentages because I live overseas in a completely different market): I bought my apartment 5 years ago with cash and if I add up all the costs of renovation, furniture, taxes, insurance and other costs that only a home owner pays then divide it by the number of months I lived here that is aprox. 23% of the rent I would pay if I rented a similar place. And that number will hopefully go down because I don't expect to have to buy for ex another bed for a looong time but let's just go with this number. So my investment in this apartment saves me 77% of rent or to put it another way every year it saves me 4.16% of the initial investment. I don't receive this money from anyone in particular but it's still money that I don't have to spend so I can use it for something else.
I said exactly those things within the video pertaining to this is unrealized gains and you only realize it when you sell.
to me.....the value is not only relevant when you buy or sell it. What about all the rent increases you would face if you stayed there for many years....
I'm taking a personal finance elective and we were working on rent vs buy scenarios. Exactly like what you said it's always cheaper to buy and then rent in the end. A lot of the stuff in the class is familiar to me because I watched your videos! They're very informative and interesting. Thanks for making these great videos!
Personal finance class? Cool! I never took that but just learned it as I go. Glad you are pre-absorbing the material. =D
I think renting is better if you're not a generally handy sort of person. A lot of people really overlook the service aspect of renting. With a house there is upkeep, and when you live in an apartment or rented house, you don't notice all the time maintenance comes down, the landlord does something, etc. Your fridge breaks, apartment, get a new one in a week, included in the bill. Owning a house, need to figure out $400 for a new fridge somehow. Going even further, even aside from basic plumbing like sink traps/etc ($50-100 for a plumber to come out) there's things that aren't very reasonably DIY like roofs that need to be replaced. Our house needed a new roof and it's a small house and cost about $10K. $10K over a few years pretty much makes the difference in renting nothing. And of course as well, just wear and tear stuff from living in one spot for so long, like painting, carpets/flooring etc, add up (especially again, if you're not doing them yourself) whereas renting you might stay for 3-4 years, go to another place, and get those "new" again. Renting is a good service, and I think it's better for someone that doesn't want to be handy/can't be handy (my mom is disabled and elderly and can do basically no home repair stuff...) to just rent, as houses like cars, inevitably have problems, and this is one reason I don't believe houses are just an automatic investment.
Of course, if you don't know how to fix your own things you'll have an added cost to buying which should be factored in.
I just think people tend to really really underfactor it, though. :/
I Agree. Although people may argue that landlords will also pass down the costs of the maintenance, large apartment complexes often benefit from the economy of scale. The costs of replacing one thing yourself vs. the apartment complex replacing them in bulk can be very different.
Why do these days people keep talking negative about buying and renting is way better? You're one of the only few videos that gives really good information...Thx!
Here's what a lot of people don't understand (and gets lost with everyone patting themselves on the back).
A mortgage is an obligation. Not only that, it's a 30 year obligation. It limits your job and living options.
You also have to buy surplus room in case you get married or have kids. The extra room is not free, there's a cost associated with that. When you rent, you only rent the EXACT space that you need. Sure you can rent a room out, but now you're not living alone. The opportunity costs for not being able to put extra money in a retirement fund because you have to pay for the extra space you're not using but might somewhere down the road is enormous.
On top of that there's property taxes. Sure they are deductible, but it's not a credit. Huge difference.
The truth of the matter is that buying a home is a FANTASTIC investment... for the bank.
If bought at the right time and if you sell to realize the gains, it can beat any other assets you keep easily.
BeatTheBush If you bought at the bottom of the 2008 crash, you would've tripled your money in the stock market. You would only have doubled your money if you had bought a house.
If you lose your job or your financial situation changes, you still have to pay the mortgage on the 3 bedroom house when you only really need one. Whereas if you rent you only have to finish the lease then move someplace cheaper.
The fact of the matter is that there are opportunity costs associated with buying a house and people tend to downplay the maintenance and insurance. A better indicator of whether or not a house would be a good investment is to look at the P/R ratio ($320k house / $16k annual rent = 20 ). A P/R of less than 15 is a good buy indicator and anything above 20 is not.
Who can buy at the bottom?
BeatTheBush It's an example of opportunity costs.
Rent is forever while mortgages stop when it's paid. You can also vary the downpayment to lessen interest charges. Leveraging is also better in RE as you will never match the amount invested in a house (using mostly the Bank's money) versus stocks (which is mainly your money) unless you do very heavy margin trading which is risky. I've rented for a long time and now I own and owning easily beats renting.
The housing market is a big game and it's so predictable. We are in a bubble now and the prices are getting scary high. If you have a house I would sell now and go live in a rental for a few years while you wait for the crash. When the housing market crashes hard it's time to buy a house at auction. At the last market crash I've seen really nice homes that were around $150k in value sell for $30k at auction. You can get insane deals and really grow your net worth 3x-5x over ~10 years without actually having to work. I hope to have $100k in cash the next round of the housing market so I can grab a few homes. Put them in rentals. And wait patiently for the bubble. If you miss the bubble it's no big problem, just wait another 10 years and those houses will be in the bubble again.
Ahhh so I see you are in the camp that it is way overpriced. I do think its a bit high but I also think there is a chance it might just stay flat for a long time rather than a big crash. Very unpredictable.
I don't think the crash will be as bad as it was last time.
The majority of homes that were sold way under value were investment properties which people had the minimum amount invested into. Now most people are weary of buying an investment properties with a low deposits.
So most homes are occupied by owners who are happy to pay their mortgage as it is cheaper to the equivalent rent after a few ears anyway.
Waiting another 10 years for another bubble is a problem. We don't live forever.
🧐🧐2020 housing crash?
Edluis Rivera jr If it doesn’t crash now then we’re even more screwed. People need to lose their debt and prices need to drop.
For those that say you don't have mobility when you have a mortgage. Buy a property that you can easily rent out then use that rent to pay off the mortgage and property taxes. This to me is total freedom with an appreciating asset.
You made a good point. I think it is a good plan to buy during recession. Mr. Kiyosaki said it is like everything is on sale. I plan to sell when the economy is doing very good like now. This is all in the future because i am still in college.
Everything is NOT on sale right now. That I am sure. Hence that means it's either fairly priced or too expensive.
BeatTheBush agreed
I'm a renter because house prices are insanely high in Australia. 500k or more for a house that would sell for 100k. Our people are debt saturated as well but we all carry on as if we're okay. I want to own but not without a major downtirn in prices.
One day, that might possibly come.
So currently, we sold out moved across the country, income has went up, now we currently rent at a rate that is less then the property tax and utilities costs. So we are only staying here long enough to get the last of the kids through college. And then we are hitting the road . Our current projection is 33k, in liquid assets per year I to savings,.. The housing market has peaked here so it is better to rent especially for where we are at and the low cost.
That's great if your income moved up even though you move to a lower cost of living area.
Because in Soviet Australia real estate sale tax and agency fees are high normally you have to stay in a place for 5-10 years to make purchasing worth it.
I hear things like that in other countries. Some countries taxes are so high that makes something twice the cost of what you will pay in the US! O_O
in Australia Sydney home price increasing at 10-20% per year and rent costs are always rising so buying is a much better option
You can only say that comparing to history but going forwards is a bit more uncertain.
Depends entirely where you live, where you want to live, and how you want to live, and how long you'll be there.
Yes, a 1 bedroom apt is really cheap compared to a 4 bedroom 3 bath 3000 square foot home. But that apartment is nothing like living in a really nice house. A single guy or gal doesn't need a really nice house, but if you are married with a kid or two, a single bedroom apt isn't going to cut it.
I've only been in my house for a year, and local adjusters added 10k to its value. Also added hardwood floors and fixing up things to the way I like it, but not in a custom way that it won't add value or need to fit a particular buyer. Yes it costs more, but all of it adds even more value to the home. Having closely followed my market (which is pretty tight, so its a sellers market) I would wager that my house market value is already 25000 more than it was only a year ago.
So if you are smart about how you live and treat the place you live with care and invest in it, then you should buy a home. If you don't care about where you rest your head or are just lazy and rather not think about how to take care of things, rent.
Dumb assessment I care about where I live you could argue you dont really own that house bud since it could be tooken away sooo stop being a dick head
Beathebush, the problem with buying for many people is that
1. Many people have so much debt (credit cards, student loans etc) and have poor credit that they arent financially able to buy a home at this time.
2. Need $$$ for a down payment.....I read somewhere that a large number of americans have less than a few thousand in savings and a large percentage are living paycheck to paycheck.
While buying is great, to a good majority of people this is not possible.
Buying a house 25 years ago and paying it off in 10 years is the best financial decision I ever made. Was able to afford to send my kids the best schools money can buy and was able to retire early, real early. Buying a house NOW is an entirely different issue.
It costs many times more than median income now than before. How did this happen?
Just bought my first home, I'm 30 years old. The house I bought is 18 years old. I really wanted to buy a new construction, but was $20K short. Not in cash of course, I was approved for $20 less than the new home is. I would like to sell this house in about 8-10 years and hopefully by than I will have a righter income, and make some positive equity and will be able to afford to build a new house. I'm not looking to make crazy cash, I hate moving, I just want to own a brand new home.
Good topic. I am renting in Florida by choice. I found an apartment that costs 30% less than nearby similar options, and is close to my partner's job. By my math, it costs us less to live in this large apartment than it would to own a modest house of similar size, once maintenance, interest, realtor fees (5 yr amortization), taxes, and commute costs are added up. The increase in liquidity enables me to invest in my startup company.
We might buy if rent increases, home prices drop 35%, or if we decide to upgrade to something nicer that costs more per year.
The most critical point here was
"if you downsize, you can only do it once". This is an important thing to mention, which doesn't get much coverage.
I guess you could go LA > rustbelt > south-east-asia. But yeah, when you cash out, it will be hard to upscale again.
It's a one way street.
I buy but another thing to consider is taxes. They go up and down too impacting your monthly expenses. Utilities are the same but you have the issues in most cases with renting.
Taxes go up and down? It goes up gradually by
There's less responsibility renting than buying imo. You get rent free weeks and sometimes you can negotiate your rent if your a good tenant or even shop about for the best area and rent rates you can't do that with a mortgage.
we currently rent, and it's for the exact reasons you listed.. market is too high right now for us to make a purchase and know that we will have equity in the home in the short term.. we will buy when it is low, and sell when it is high.. continue renting for now
That's a gamble but then I would deem a bit of a calculated risk. What you say is reasonable but it could also just slowly rise rather than a dramatic dip.
It's a tough choice, especially if you're not exactly tied down to one area. But paying into something where you won't see a return or build equity isn't ideal.
Correct, the current prices make it seem like it will flat line for a long time without appreciation.
Great video Beatthebush!! I like how you compared buying a home to the length of time you plan to stay there. I am a renter for that exact scenario. I plan to move quite a bit in the future and when I retire (low cost of living areas and foreign countries). If you don't have a secure job/business that you can guarantee yourself that you will have 15 to 30 years from now, I personally won't buy. I have no doubt that you can find a job easily beatthebush; you are an engineer, and possess a diverse set of skills that are not common compared to the average person buying a home that may not be as flexibile as you. I think people to should think really depp before committing to buy with questions like, do i have the 20% down payment, do I possess talents and skills that will provide me a job in the event the one i have doesn't work out, is the house im buying over priced, is the neighborhood/city growing and gaining businesses, will taxes be higher, natural disaster risk, is this a good location, etc.. lots of thinking and research needs to be done.
Overall, thanks for all you do and the informative videos, loving these topics you are sharing!👍🏼👍🏼
It is indeed very complex to say if you buy or not. Of course, this is all looking to maximize networth in the long term. Even for buying long term, you can maximize it even more by buying in a dip.
BeatTheBush Exactly, thanks for the reply! I may think about just taking that approach (buying in the dip).
There is also the maintenance cost that is typically taken as 1% per year, so add that to the payment cost. Also, renting allows you to live closer to work, thus reducing your commute time/costs and in my case, allows me to have lunch at home every day. You make your profit on the buy, so buy low, i.e. wait for the next crash.
Maintenance will cost a certain amount on average per year. Roof, fence, doors, toilets, etc.
I would say long or short term people should buy instead of rent. You can get into a house very cheap if you get an FHA loan which pretty much everyone should qualify for.
If after two or three years you no longer want to live in that Community anymore because you're moving out of city or out-of-state then you can very easily just rent out the property and have someone else pay your mortgage for you and build up your equity. Rents in most areas are usually pretty comprable to the mortgage so the tenant will end up paying anywhere from about 85 to 115% of the mortgage for you, resulting in either a little bit extra that you have to put in yourself or a little bit extra that you can set aside every month to pay for other expenses like property tax and insurance.
At the end of 30 years you have yourself a property that someone else paid for (mostly or entirely) and that has probably appreciated in value considerably.
It really depends. 95% of the time I'd say its better to buy. That few instances is when the market is overly heated, your money leveraged 4x or more, then the housing market plummets. Even longer term holding of the home will cause incredible stress knowing your money temporarily went down the drain in the short term.
I have never rented. My first home was deeded to me by mother. Later on I sold it and purchased my 2nd home which I now own free and clear.
pretty bullet most people aren’t that lucky
Great video! I bought my home in 2016. Rent prices are sky high right now! It made me sick to think I wasn't building equity.
The market is really wild right now. It's unlivable for most.
you have to keep in mind the fact that you need a house if you are over 65 years old, how can a senior citizen pay more than 1000 dollars per month on rent for a studio apartment? keep working till the body holds up to pay rent + food +medical care?
You are correct. It could be done though if you live in a cheap apartment in a cheaper area. $500/month?
As someone who got burned buying in 2008, I would not buy in this high price hot market. I’m waiting for the supply to free up in the next several years. Salaries have not increased as much as housing price have and that eventually leads to a correction. Rents are not cheap either but buying at the wrong time can cost more than wasting money on rent.
Only those who has been through things will realize that no matter how a sure bet it seems, things might not always stay that way. It's good to stay cautious but not so cautious to avoid investing at all.
So I've never made a huge salary but set myself the goal of buying a place at 40. Beat that by four years by working two jobs and saving every penny I could for the down payment. At the time it was a (small) stretch for the mortgage payments (about $250 more a month than I had been paying to rent a MIL) but now I am so, so happy as I would have been priced out of Seattle by now if I were still renting. So while you're young, it pays to sacrifice, is the TL;DR.
Nice one.. yup... being priced out is very real if you are in one of the big cities.
Judging from house prices the last hundred years the expected return less inflation is pretty much zero. Adjusting for renovations the expected return from owning is negative.
Maybe we can look at 50 years instead? At least the property is a nice hedge to keep you assets from going to zero with inflation.
My time is valuable to me, and that's why I rent. I would prefer doing things I enjoy rather than dealing with house repairs. With the landlord, I can often get a repair done while I am at work and I never have to deal with the hassle of meeting a contractor or doing the repair myself. However, I repair my own vehicle because I rarely have good experiences with mechanics.
It's not cut an dry like that I think. If you buy and sell strategically and earn a huge sum from doing so, you could be saving many years of your time working, all for the cost of buying in and dealing with the home. A possibility but not a sure thing of course.
Good video, I appreciate the ending especially. One thing I might add is that real estate is not like an exchange traded product, you can’t sell it at the push of a button or a phone call unless one’s a single without much stuff. For a family man or woman, to sell a house and move to a rental is a major life event.
I agree.
I really want to know which home compounded more than 25% for 7 years!
Recently bought a townhouse in Canada and rented 3 bedrooms to students. Mortgage 3200, rent income 2000. Total monthly cost 1700. Gained equity is around 800. Its a net loss of 900 per month. But breaks even if I move out and rent the entire place. If you can handle doing extra work and having roommates, it might be a good way to own a home.
I have a friend that rented a huge place and subleased the other parts to many people and actually reduced it even more... to the tune of half the going rate for a similar place. So you can push it further if people will pay it.
I own my own home. When I mortgaged it I wanted to have it paid off in just a few years. While doing that I managed to also buy three other homes to rent and make income from. Now that I am retired all the rentals have been sold, except for one, and I will probably eventually sell that one, also, as I am getting older. Would I do it again? Most definitely!
=D Nice!
First of all , it depends on where you live. Every market is different . The appreciation that has happened over the last nine years is not normal. That happened because we were coming out of the Great Recession ( Real Estate Bubble ). Normal housing appreciation is about 3 or 4 % per year. Second , the interest deduction is not what it seems, most people do not qualify. And starting this year the standard deduction is twice what it used to be, so that means even fewer people will qualify. When you rent you don`t have all the expenses of repairs and remodeling and upkeep. So I guess it also depends on the individual.
Yup. Hence this video is about how much it is to Rent vs. Buying.
Really depends on where you live. The rents in Atlanta are insane right now. Even 20-30 miles outside the city, which puts you at an hour to hour and a half drive to work, you are looking at baseline $1000 for a 700 sq. ft. 1 BR. You can easily find housing in the same areas for much cheaper mortgage payment. Obviously there are some things that come along with a house that could add to the expenses, but it makes a lot more sense to buy here. It just seems renting is more popular here so the rents have all skyrocketed over 100% in the last 6-7 years. I used to manage an apartment complex here in town and moved up north for 5 years. A 1BR there used to be in the $600s and it was a nice place. Now you can't get one under $1200-1300/mo. so it has more than doubled in most places. That's before you add in any utilities, cable, etc.
And also in many other large cities. Rent really outpaces a mortgage that is held constant. For that fact alone, might be worth your down payment.
On your buy or rent video you don’t mention the downfall of buying a house which is lifestyle inflation, over remodeling, there are many things that completely kill you financially when you own a home, that you are immune to when you rent. I know three people that are suing their home inspectors because they got stuck with thousands of dollars worth of repairs six months after closing.
BeatTheBush I would like to know your thoughts on living full-time in a RV, tiny home (movable or not) or in a converted van or school bus?
Gina Martindale hi just my 2 cents. BeatTheBush might chime in and provide something much more thorough. RV living etc. allows for possibly much lower overhead so if that works for you then it may be worth it while allowing for additional savings in the bank, and additional life benefits such as living where you choose especially if the area is considered high price for a house/condo, or if you are starting out or whatever but financially it is difficult to rent a place or buy so at least you have a home. But the thing to keep in mind is that it is not an appreciable asset, rather a depreciating one like a car. So for the long haul, IMHO buy/own an appreciable asset would be better off.
Lots of videos about living in a vehicle here on RUclips. There’s lots of issues to consider like security and health. Look there first.
I've heard this before that it's cheaper to buy a home. Similar to the debate about leasing or buying a car. The only thing about buying a home is the additional costs: personal property taxes, maintenance (i.e. roof replacement), and home insurance. Renter's insurance is usually cheaper then buying home insurance. Some insurance companies will actually do unannounced home inspections on your home and will drop you on renewal if certain items aren't fixed. I just recently heard about somebody selling their home, and a home inspection was done. An additional $10,000 had to be allocated to add a radon gas release machine to the home because they discovered high levels in the basement
Nothing like leasing or buying a car at all, as all cars depreciate over the time of the lease or ownership (assuming you didn't buy a rare, high demand vehicle). If you trash your house, it will depreciate no matter what, if you take care of it it usually wont, unless your in a bad market anyway.
I rather have a condo, but I don't know how it compares cost wise. Probably similar to apartments.
You should buy if you plan to stay in a place for a long time, but not everyone can get a mortgage or pay cash
My pro for me owning my own home is my income dropped and I couldn't afford to pay rent at all.. Especially a home big enough for 9 kids.. I say buy but I mean buy not mortgage.. Out my home 10k 5 bedroom 3 bath with very very minor replaces needed.. So in totally spent 15k for a house that is now valued at 98k but just going to live in it for a long while..
9 Kids!?!? omg. It's great you own your home and this puts you in a much better position than let the rent keep on catching up to you.
my mother was one of 13 kids during the great depression
If possible it is better in the long term to buy a house. Free accommodation when retired could make the difference between a good retirement or just getting buy.
I totally agree. This point is lost with more renting advocates.
Hi, I just wanted to say I have been doing nearly everything you have been saying in your videos. And I have saved my goal amount for this year!!! I am keeping at it!! Thanks!!
Oh yeah? Ha! You still got 2.5 months left. Well... how about keep going? =D You must've set it so the savings is automatic so just let it keep going. =D
4:06 don’t forget property tax going up too
Our first home was by far our best investment. We bought in 2007 and sold 5 years later for double what we bought it for. I would never rent...
I think so too. Generally it builds wealth greatly for longish terms.
The one question I always ask myself is whether I would buy the house I want to live in as an investment property where somebody else would pay me rent. If the answer is no, it will be better for me to use my downpayment for a better deal (maybe in an area where I don‘t live in) and just rent a place instead.
Really comes down to future price appreciation or depreciation as that can dramatically affect the decision too.
The problem with me is that I don't want to rent, I want to own 😂 2nd, its gon be hard to find the ideal house too, but I see the pros & cons of both that you explained in this video, much thanks! 🤟🏿💯
The best way to rent is to get a floor in a house and sublet a room or two so you pay little or nothing
That bit at the end about realtors, who will rush to sell your home, but on average, will keep their home on the market 9.5 days longer per Freakonomics.
A bit of conflict of interest here. They are incentive's to sell your home for higher to get more commission but there is an optimal point of effort and additional gains.
Would love to buy a house someday, but home prices are high and it's not fun trying to outbid multiple offers. Price levels seem unsustainable, income doesn't match home prices and low interest rates have over inflated homes. What happens to market if interest rates get back to 6% and 7%? If people are over extending their wages on homes, it comes with opportunity cost. Something must give.
But then this environment may last for many years to come just as it is. Who knows.
I move every 2-3 years. I buy every single time but I make sure there's cash flow going thru. Look at the average rent in that area and look at the mortgage. EZPZ
A significant advantage property has over investing the potential for leverage via a mortgage.
Agreed. But it's and advantage and disadvantage sometimes.
I can't help thinking this: If we are benefiting from your brilliant brain, smartness, creativeness, intuition, insights, ........... so much, what might be the engineering world losing by not having you work as an engineer. I feel said for it. I would like both: your making videos for us and also your letting the engineering world benefit from your genius brain. I wish you could do both. It would be too tiring for you, I bet, though. Maybe some from each. You are very smart!!
If you buy a 500k home and it goes down to 400k you lost 100k but if you keep living in it and then a year later the market recovers and your home is now worth 550k you made your money back and more, so buying a home is always a good idea, whether you live in it or rent, remember the market will fluctuate, you just gotta be patient.
I bought and worked for me as allowed me to quit the rat race and join the temp community giving me more freedom. My mortgage costs halved over time so I didn't need to earn as much to meet my fixed costs. I have since re-joined the rat race so if I needed to move I could but I have saved a lot on rent v buy and I took advantage of that by only choosing contracts which would fill gaps on my CV. It was a good move but I could not have made those decisions if the mortgage costs had not reduced.
How did you reduce your mortgage cost? Refinanced to a lower interest rate?
If you get a roommate your roommate would pay the interest and then you are just putting money in a savings account
True, but you trade freedom/stress for money there.
I love the idea of having room mates - when I first started out on my personal finance journey - I had multiple room mates in the home I bought - which resulted in my being paid to live in my own home!. (5 bed 2 bath home, I lived in one room and collected 1600mo in rent, and total costs were 1500) 🤑
Well... you still have to compensate for the down payment. In any case, still a really good way to structure things.
What about taxes and HOA expenses when you own a home? They could equal to a monthly rent.
I LOVE YOUR VIDEOS !!!!
Thanks! I appreciate it! =D
In the UK we can take equity out of a house and take out a lifetime mortgage, which is paid on moving or death. Main problem is interest accrued over the years.
You can also do that here using a home equity line of credit or reverse mortgages. Second is a bit sketchy.
But when an average-sized apartment (500sq feet) in HK already cost $1 million USD, is it worth buying?
It's not only expensive, but is this price even reasonable at all?
So now i'm stuck renting $2000/month.
it's a lot. Here in texas, rent is like $800 a month average.
Yea according to a recent article, HK and Singapore are the most expensive cities to live.
Other major cities like NY, Vancouver, Sydney, etc are not cheap either.
You really need around $1 million USD to buy a "somewhat decent" home.
And it's by no means a luxury home at all....$1 million is like the bare minimum for a lot of expensive major cities.
greentealatte Price is relative. Incomes are higher and taxes are very low in HK. Mortgage rates under the government mortgage protection insurance is also very low. My mortgage rate when I bought a condo eight years ago was 0.67% and after several rate increases in the past year it is now 1.67%. Even with the rate hikes my mortgage is still well below rental rates. People that bought in 2004 had mortgage rates as low as 0.45% and the value of their condos have since quadrupled. The only downside with this system is I can't borrow off my property to invest in another property until after I have paid off my residence completely. This is a great program for end users. Just need the downpayment and stamp duty, pass the stress test and you're off.
Buying is best when possible but lots of hidden fees,bills etc which adds up 2k month for a roof
2k/month? Noooo. A $10k roof will last 30 years. So it averages about $300/year
What about buying land, specifically land patents?
I'm not familiar with that.
love your common sense approach its so refreshing
=D
If you are not planning to move out of your house, it actually BETTER when your house goes down in price- less real estate tax!!!
Huh... never thought of it that way but then it does make it very slightly cheaper.
I bought a house when the market crashed for 92k brand new It's currently worth 156k i don't really care about that what i like is im beating the rental market i pay 689 a month for 3 bedrooms 2 bath home if i refinance now my payments would be in the 400's because I have paid it down to 65k can't go wrong when the market crash
Mr. 90k getting closer to 100k subscribers; I am guessing that you will do a Special video once you hit 100k :). Thank you for this video
The video dilemma is exactly what I'm experiencing. I have over 100K saved for a 320K home. If the market dips I could have wasted all of this 100k. BeatTheBush: does having the mindset of using this first house as a rental property a way to dampen the possible market fluctuation? I think I could pay this home off in 4 years. Your thoughts??
When you buy in is very important. But you cannot wait forever. If you rent it out then sure, it can seem like you extend the period at which you keep it. It's something you have to predict the future of yourself.
I think if you purchase your first home with the exit strategy of turning it into a rental - I think that's great! (assuming the numbers support the rental use of the property). The biggest problem I have with people buying a mcmansion in the suburbs is your exit strategies are very limited. (It will likely only make financial sense to sell) where if you buy a property that works as a rental, or maybe has a basement/granny suite etc - provides more flexibility and options. Options are so important (particularly when your young). I actually did a rent vs buy video on Monday where I discussed the main exit strategies people should consider.
Sometimes, if you buy too big, it become hard to sell... or even impossible to sell sometimes.
Buy a house with at least 3 bedrooms and 2 full baths. Then rent out 2 of the bedrooms to housemates and also split utility cost. You would then be paying about the same as rental rates, yet you would own the house.
It might be worth it because as a first time home buyer you can get 3% down payment! Don't sink all your money in it and at 3% you can outperform the market....esp. if you rent it. However if you can't even diy like change a doorknob, you'll get eaten up by maintenance contractors. Lots of RUclips diy videos.
You should have mentioned that the stock market investment is Liquid and explain the benefit of a liquid vs non liquid (house).
Rent and housing prices move with wages. It'll crash if wages can no longer support. Best to do a rent to buy ratio and analysis. NYT has a good calculator. There's no one right answer as it is very dependent on the person, their lifestyle and where they are living.
Having a calculator means you need accurate assumptions. Now no one can put all the inputs so accurately.
BeatTheBush It's meant to serve as a guide overall. Too many variables involved to give a precise answer. I think we are also too bullish about the real estate market in the Bay Area.
Up up and away!
One addition to this is even if the rent and mortgage are similar in cost the owner would have to foot any repair bills and therefore they are at risk of higher cost compared to the renter. Thanks for the video and good day to you :)
Correct. But with time, the rent will outpace your mortgage since your mortgage will stay constant. There are just too many factors that works against each other.
True ideally i'd say owning is best but only if one has enough capital and safety room, once financially set and free then owning is better, and that in-between is a conversation among many :)
Thanks for adding the point of view for nomads.I would like to hear your opinion on buying a tiny house and fulltime RV living. thanks!
I'm not sure if I can give an accurate opinion on that because I haven't done it myself. I do think about it though. Sometimes having one stable spot is comforting.
I recently ask my friend how much he's paying monthly for his house not including utilities. Btw his mortgage is paid off long ago. He said "$1,300" a month for hoa, insurance, and taxes. Holly crap!!!!!! That's a death row!!!!!!!
Hang Nguyen is that a condo
renter! yes, I know interest rates are low, but housing prices are quite high. I guess this also depends on where you live- like the SF bay area.
Or is it high because interest rates are low? Lots of factors drive the price. A recovering economy and a restriction on home supply could also drive home prices high.
agreed, many factors. too many people want to live here, compared to the easily/economically available space. the "new" tech boom in sf is definitely creating an influx of high income earners to migrate here.
gentrification it is.
BeatTheBush even before the recovery, Bay Area homes sold for close to $1 million.
I am currently on Level 2 on the financial rockstar scale. Once I graduate, I will be looking to buy something of my own. What price range(as in percent of income) would you say is most convenient. I am unsure if it would be best to buy something I could pay off relativly quick (3-5 years), or invest in something larger? I don't want to bite off more than I can chew, or pay a household in interest. Also, I think if I invest in something more affordable, once it is paid off. That property would become a source of income if I rent it. Am I thinking correctly? I would appreciate some advice on the matter. Thanks again, keep up the great work.
Great advice! Thanks.
Love the finance videos, keep it up:)
Will do! =D
This may be a stupid question but what is the importance of “net worth”? I have never understood that term.
A high net worth means you saved up a lot. If you put this to work through investments, you can live only off of the returns and not work.
Awesome videos and consistent uploads! Your almost at 100k subs!
Yay! Thanks for your sub.. IF you subbed. =D
The growth in the index funds doesn’t seem so great if you had money before the crash
what if you buy a multi unit property, rent out all the rooms, and live in one and have everyone's rent pay down the mortgage on the unit?
Sure. That sounds very very good if you can afford it. Keep in mine you end up being a landlord and will take some time to do the managing.
for me, buying always beats snp 500 if you live cities near the coast like sfo,socal seattle. here in vegas 240k can get you 3 bedroom in a good neighborhood. But home prices here still on the rise i just don't think it appreciate significantly like the cities above. but who knows! I guess we need more job opportunities besides casinos. LOL!
I just bought a beautiful 1880 colonial for 75k. Needed a 10k roof but otherwise great deal. And I have a second bedroom I can rent out to help with the mortgage.
If you're okay renting it out, it does help with living costs. =D
Obviously doesn’t live in California...
Most Americans should rent. Most wont enjoy equity growth.
Not right now. It'll be crazy to see it go up another 30% from here.
Quite Possible yep
What's your thoughts on tiny home living?
I like it! Although they need to have more tiny homes for sale!
My main problem with buying rental or investment property is the amount needed as a down payment. The only way I got around it was buying a duplex as my living in home and using an fha loan, but I don't want to move again for a long while. Do you have a rental property vs stocks video?
I do have investing videos. Playlist here: ruclips.net/video/q_jZb7O6Luo/видео.html
Buy. Always buy. Buy below your means. I have 150k in equity now and would have never had that had I rented. Renting is no different than glorified camping.
All of this could be true, but do the math on your down payment, closing costs, and maintenance....if you invested all that money in the S and P, would you be ahead?
Buying below your means is sooo important to your financial well being! I think what you're referring to is the forced savings plan that buying your house does (principal repayment) - I agree that often that force saving plan is great, but if a person was diligent and rented there is a strong argument they could be just as well off - depending on the exact assumptions or historical data used to forecast the future. Owning though does come with certain time commitment, that if used in other productive matters, could again strengthen the argument for renting. (I recently did a long video discussing why buying RE could be a bad idea) = particularly if you don't buy below your means.
not to mention equity is difficult to tap into. And don't forget realtor fees when you sell, 6% of selling price typically. I think most Americans advocate buying because they are bad savers. Purchasing a home forces you to save. There is a great blog of someone who is financially independent and advocates renting. I find his argument compelling. www.gocurrycracker.com/renters-for-life/
That means you bought it at a low price. Don't forget adjustable mortgage interest rates and property taxes. Not to mention all of your maintenance fees are covered as a renter, while they aren't as an owner.
What about building your house on own on land that prefect idea.