For most people that had to start from 0 (as in their parents never owned a thing and never saved money) renting should be only a short term thing but at least in my area (Spain) rent is usually at least 50% more expensive than mortgage payments, the problem lies with getting the down-payment to be able to get a mortgage after paying rent since rent is so high that it can be more than 50% of your monthly salary since wages stagnated since early 2000 and we haven't kept up with the rest of Europe so we end up in the cycle of having to rent because we have to live paycheck to paycheck without being able to save money for small investments so for most people (usually millenials and in the future gen z) owning is unattainable unless sudden luck appears in their life.
My most pressing question would simply be how long will renting remain an economical option long-term? At least in the United States, many people are being priced out of their rentals. Even by using the opportunity cost of not buying a home to invest your income, that doesn’t take into account things like wage stagnation and inflation. You may be forced to move before you ever realize a significant enough profit to stay afloat. This video only truly applies to individuals with enough wealth to feasibly afford either expense and just want to make a preference.
In germany there are extremely strict regulations on rents. You can only raise rent by 11% every couple of years and only until your rent reaches the average rent in your area. Meanwhile house prices are rising by 10%+ each year. That's why I prefer living in a rental (I also got lucky and pay around 30% less than my neighbours)
One thing you didn't mention was with renting a furnished place, psychologically you don't feel like the place is yours because you don't own much of the stuff in the place you're living. So if you don't like the couch/bed at the rental property, it's normally really hard to change it but with your own place/unfurnished rental property then it's a lot easier to change
@@7oeseven793 yes but then if you love and have some furniture you have to always think about it when renting. You have to find the space to put it. What if you don't find the space? Where will you store it? And is it good for the furniture to be carried so much when you have to move? It's not that simple. I don't know how old you are, but some people are really attached to the things they own(I'm not saying they have a clutter. You cand still have few things and deeply appreciate them). Not having them feels like you don't belong there. It's not that easy to stay in rent. That's why everyone after they have enough money buys a place. Let's be real. If it's a family the kids will have to always change their bedroom, their studying place and you cannot negate they will feel unfulfilld. You can't explain to a child that they have to move because the prices are too high.
@@7oeseven793 maybe some people have always rented a furnished house and cannot afford to rent an unfurnished house and buy all new furniture to be able to live normally in it.
You make really good points but I think you miss out the massive uncertainty that comes with renting (especially if you don't want to move every 2 years). Our landlord has just upped the rent by 11% because the market is crazy at the moment and they can. We live on a yearly contract so I don't know if I can afford to live here next year if the landlords increase rent again. The UK doesn't offer much security to renters so it's more predictable to calculate your mortgage versus rent actually
I think the same, I live in Sydney, luckily we bought our house 4 years ago, with 2 kids I prefer buy rather than rent, I have more peace of mind knowing that no one can kick me out , specially when you live in a city that keeps changing.
I guess one frustrating thing about UK renting is how the BTL market essentially sets the price of renting. If you buy, you're paying upkeep fees like Service charges and ground rent (for leasehold), but those costs are absolutely factored straight into the rent price. A £1200 PCM property can have a mortgage of £400 a month for the owner, but they are getting so much yield because they can get away with passing all the additional costs onto the tenant. That's why I don't want to rent. The rental market just isn't priced sensibly for as long as UK homeowners see their property as an investment opportunity outside of it's property value.
If landlords pass excessive costs onto tenants, market forces will inevitably push back, renters may opt to buy properties themselves. That’s the beauty of markets: they self-correct as both sides want to maximize their money.
I'm in Vancouver Canada, and this buy vs rent topic has swung so hard to the rent side by force. This is because of the huge housing bubble that exists. Sadly, I know many that have bought and took on a huge mortgage for FOMO. I think Ali covered the topic really well. The psychological aspect of buying vs renting is a factor everyone really needs to consider. Life is more than just wealth.
I do agree that's a complicated question but for average joes including myself, I tell everyone to buy as soon as they can. There is a reason real estate is called a real estate in my view. Plus the psychological burden of renting is huge in long term. Once you pay off a good portion of your mortgage and you have a much higher income since you started, you find a pleasant peace of mind in truly owning a living place and not being owned by it. Renting is easier, and you can rent a nicer place with the same monthly payment with no long-term commitment, but buying is always better in my view.
'buying is always better' isn't just simplistic, it is a very ignorant thing to say. Every person has different circumstances and preferences. You can't say buying is better for every single person.
This is such a good reference video! The psychological aspect of buying vs renting is no joke! We moved across the country to buy a home because the mortgage was substantially less than rent where we were previously living. 1 year into the experience I've discovered I much prefer my wings, and the stress of dealing with home repair coordination was actually so bad that I ended up with a horrible case of shingles lol Now we're just waiting for that 2 year mark to decide if we want to sell or just keep the house as a rental and move along LOL
Another point in favor of buying. Repairs. When you buy, you are responsible for your own repairs and maintenance, so they actually get done. I used to hate fighting with landlords to take care of basic repair and maintenance.
Amazing video. It's also really great to see everything written down with all of the factors no one ever thinks about. I used to hate when people would tell me to get a house because it's "equity" and that renting is "throwing money away" when all together it's really not that simple.
As someone still navigating financial literacy videos like this are beyond helpful I used to thinking buying was better but I’m definitely open to new ideas so thank you! 🙏🏽
Everyone needs an extra cash flow apart from a daily job, anything that can help get a little extra dough each month is important to be beat the tide. I’m mainly focused in channeling funds into investments that yield returns without constant intervention.
@@carmatatom8546 indeed this is right on target, I have put a couple of resources into stocks, got some altcoins, and I and seeing myself making my initial million. the market is progressively recuperating.
I have two account - one for trading and one for investing. The one mistake I make in BOTH accounts is going all in because my conviction is so high. Now with the recent market crash, I had to sit on the sidelines instead of being able to buy some of my favorite stocks at a discount.
@@silvaconceicao7130 The market has been killing me so much lately. Too much FUD going around, buying at the top and selling at the bottom. I can't afford to be on the losing side any more. I need a professional who will be my eyes and guide my hands in this market.
Emotional Quotient is one of the most important factors for the majority for having this tangible asset. The sense of security a house provides is outstanding.
Living in France I bought a house later last year and I am happy with it. It is my investement in my future. And I can do whatever I want with it. Sell, change, renovate, rent, etc. Yes, in the begining you pay a lot of charges and taxes but it is "yours" and in the far future you will be free from the credit payments. Rent a house for the whole life... well it is also a choice but you invest in someone's pocket. I have a lot of friends living in rental houses and they are happy with that. But also I know families that bought their house in 80s and now they are free from credits and they are living their happy life.
Yes, buying is an investment, but don't forget that if it's your primary home, you cannot just sell and use that money. You will need to buy another place, which will have also gone up in value.
Not necessarily, plenty of people keep their home until retirement and then sell it off while traveling or renting in a restricted community for seniors (much much cheaper than normal renting). And even more so you definitely can just sell your home and use a portion of that on a new downpayment and use the rest for something else. That is why that most important reason to buy instead of rent is: you're generating equity. Not just relying on appreciation in value as an investment. Even if your house's value goes down you are still benefiting immensely from owning your home instead of renting. This is because every mortgage payment you make is basically just paying yourself in the future, rather than rent which is just lost forever.
I bought my house during the recession when the housing value was significantly declining. At the time I bought it for $210000 and sold it a few months ago for $670000. I recently moved back to the condo I bought 6 years ago. I am planning to buy a house when the price drops and I will definitely will sell it when the housing market is on a fast-paced upward trajectory. We are know amid rising inflation and geopolitical uncertainty that will probably throw the economy back into recession.
Tbh in my experience, and my friends experiences, buying would always be better. At least where I live, most landlords are terrible terrible people. Myself and my friends have had several very dangerous problems with our apartments, and the landlords have just sat around and took their time to sort them out. For example, I had a leak above my electric heater for 6 weeks. I messaged the maintenance team and the landlord several times over that period, and it took 6 weeks for them to bother to get a builder to show up. Several other issues like this occurred, and that’s just in one of the apartments I rented. I would do quite literally anything to avoid renting ever again. It’s never worth it. When I moved out, I got charged 230 out of my deposit for damage that was already there when I moved in. I had to threaten legal action for them to drop the charges, which they eventually did. That being said, I’m sure there are a few good ones. But overwhelmingly, in my experiences and my friends, they’ve almost always been horrible.
Subtle, to the point and just accurate, these kinda videos need to be published every week. For me, I reckon renting could be a better financing option for most people nowadays just because there's tons of investment opportunities which weren't available in the first place.
Ya'll tripping or lying on purpose at this point cause you want to rent out your homes. Most of the time Mortgages are lower than rent, so you rent it out and keep the difference with the bonus of OWNING THE HOUSE, while the renter pays more than the owner and gets NOTHING
No you forget house appreciates. The mortgage will stay the same for 30 years while the house value keeps increasing. Rent could be double 10 years from now and who know what
@@tedlovejesus yeah you pay interest for the loan but at least money will come back to you when you sell the property and gain more due to the property’s appreciation unlike renting where money is just lost.
I'm a real estate appraiser and I can't tell you how many horror stories I've heard about people spending $10k+ in one-off maintenance (roof, foundation, siding, etc) just because something broke down. Not even for expensive houses, either. Some of them sell for $150-250k and demand $15-40k of maintenance over 30 years. When calculating the opportunity cost of renting vs. buying, think about it like this: the S&P 500 does its own maintenance. The businesses that underperform are removed and replaced with businesses that are growing. Your house does not.
I really feel like I’m growing up along with this channel. I first discovered Ali as I searched for tips on how to effectively study while in college, and now I’m learning information I could use as I prepare myself for purchasing a house.
Agree its about the opportunity costs involved and also more importantly everyones situation is unique and we have to get used to thinking for ourselves based around our lifestyle, choices wishes and wants.
I rent at a crazy prices in Munich where whilst a potential mortgage would be similar monthly outlay (not accounting for property price appreciation which cannot be realised until sale), the actual cost initial cost of purchase is just CRAZY!! And the total costs for 20yrs is more if I purchase (again not accounting for equity gained). BUT, the stress of being locked into a huge mortgage, the costs of maintaining etc is just going to leave me with empty pockets and stressed mind.
Someone buying a million dollar home would not be paying $2k in rent for that same area. Just not possible. I live in Hawaii and buying saves me a massive amount of money as rent is way higher than my mortgage and all taxes and fees.
The difficult thing for me with renting is that renters pay the mortgage of the landlord on the property and they give the landlord profit too. There's a reason why property is a good business lol.
If the rent you pay came from dividends of your stocks, you are essentially living for free. While you are paying the rent, the landlord are not living in your room, so you are practically owning the place for the duration.
But that's offset by economies of scale. I only have one wall and the floor facing outside in the winter that I have to heat, if I owned a house I would have four walls and a roof all leaking heat. Same with property taxes--yes, some of my rent payment is undoubtedly paying for the landlord's property taxes, but I have like 10 other people splitting that cost whereas if I had a house I'd be responsible for all of it myself.
I have always been in favour of buying a home, especially in my country Ghana where rent is so so expensive. But I am beginning to understand and appreciate why sometimes, renting could be a better option. Thanks for the informative video Ali!
thank you! i bought my home at age 28. i moved away and i now rent it out while i rent someone else's home in my current city. i miss living in the home i own but not the city it's in.
I previously rented an apartment in a small city in England for work. Had I owned the apartment I’d have never jumped at a new opportunity in London, from which I’m now making a lot more money.
Your brother's company needs to add a few variables to their equation. Primarily, if the cost of a monthly mortgage payment is cheaper and only lasts 15 years, how much excess money could you invest at the same [-2 to 8%] rate over the same timeframe. It changes the outcome dramatically.
I'm confused. The underlying assumption here is that mortgage payment is higher than rental, and the surplus in renting over buying is used to invest in the stock market. What happens if the mortgage is lower than rent? Is it a no brainer to buy then?
Depends how much equity you have in the house. Little equity: you must have either found an amazing undervalued property, or the places to rent you're looking at are actually higher end than the property to buy. If you have a lot of equity on the house then of course the morgage payment can be lower, you're also borring way less money. But the opportunity cost is also then significantly higher.
I think the assumption is a comparable house. You could in theory buy a cheaper house outside of London. But now you live outside of London and deal with that. So if you’re willing to down size on your living for a house you then could also down size on your rent and it’s a moot point.
I'm so thankful that I bought a house. It was so worth it. It seems like a struggle at first, with house payments, repairs etc. But after a few years, with inflation, you're paying out way less than the renters. When I first bought, I laid awake nights wondering how I was going to manage. Fifteen years later, the cost seemed miniscule. At that point I was ready to just pay it off. Buying, best decision ever.
Great video! Finding your channel is one of the best things to ever happen to me, it motivated me to change careers, join the tech industry and start my own Tech RUclips channel. That's it ,just thank you!
Great video although there is one big point of error on the rental estimate, you are putting an interval range for stock market returns annually that goes from -2% to just 8%(the average). If you are using an interval you would need to put a much higher percentage as the stock market consistantly has years that return well over the average! Other solution would be just to use the average annual return of 7% and don't provide a lower range. Hope that helps!
Well done. I’ve debated with peers about this very topic. The most important counter argument for “renting is money down the drain” is … having a roof over your head is never a waste of money. And what you covered are additional points that people fail to consider. Living in nyc, a lot of my peers have bought homes in the out skirts of the city. So now they own a home, but they commute upto 2 hours ONE WAY to get to work. That’s a total of 20 hours lost to commuting and most likely a miserable 820hours to spend per week. I personally think it makes sense to continue saving until you have the funds to purchase a more expensive home because of location. The alternative is to purchase an apartment for the time being before upgrading to a home that’s in a good location.
The only time you should be waiting on buying a home is in that very specific situation of not being able to afford one that is reasonable to live in. Those situations are extremely rare though, almost everyone should be buying instead of renting. Buying a house is literally the first step of buying your next house because leveraging the equity of your first property for your next one and continuing that climb is literally the first rule of generating wealth without even trying.
I agree with the having a place to live isn’t money down the drain.I too have been told that many times. However,we are now stuck with a house we hate and don’t want and are planning a relocation. We aren’t planning another home buy.For our specific situations-renting makes more sense.
Important caveat about stock investments mentioned around the 9:50 mark: That 7% return average on S&P 500 is over the lifetime of the stock market. One year the S&P can be down by 30% and the next year up by 37%. Your return on stocks is dependent on when you need to withdraw money. While housing markets can crash, they tend to swing less than the Stockmarket. For example, if you invested in the S&P last year on this date, you would have lost 15% of your investment.
To me buying will be better because even if you are buying the house and you have to be paying small small you will eventually finish paying one day and you will became a house owner. But if you pay rent it is not easy because rent might likely increase every year or there about. Great content Ali.
You can't compare linear rent growth to a percentage of asset growth - over time the percent returns will compound exponentially. In my area of the US, rent typically increases by 5-6.5% per year historically. The relation of rent to mortgage prices is inverse where at the beginning of the mortgage it is very 'expensive' compared to rent, but in 20 years that mortgage is still the same (outside of taxes) in dollar amount whereas the rent has compounded to a dollar amount far more 'expensive' than the mortgage.
Good thoughts and good to start this debate. I do feel this video doesn't tackle the idea that the Landlord has every right to remove you from the property at anytime should they want to reclaim the house / flat - it is alluded to here but it quickly brushed away without pointing it out as a significant factor. This video is also kind of making the assumption (in the financial section) that the opportunity costs are going to always be positive with other investments - this is subject to so many factors and the appreciation of property assets is so much more stable that those of stocks, bitcoin etc. It also assumes the locations of the properties or the level of property you can afford are preferable in the case of renting. Usually you are paying a landlord's rent, property fees and giving a top up within your payments to make it profitable for them which makes the incremental financials beyond the initial payments more expensive. There is another point which is not for the individual but more of a societal impact which is that, the more people rent, the more attractive this prospect is for the older and more established generations who will then retain their smaller properties when up-sizing or purchase additional properties with the intention of buying to let. This in tern (especially in the UK), reduces the supply of available houses and drives up the value of houses, making it harder for subsequent people to buy houses - thus making it a vicious cycle where it tips the balance into renting being the only option for prospective 1st time buyers.
I think the only thing Ali missed is that Governments in almost every country wants people to buy their first house, thus why it is the cheapest loan you can get for periods up to 30 years. In the US for example, you having a decent credit you can get a mortgage for 5% down. The opportunity cost is really mortgage vs other loans (cars, personnal, etc) and in that matter the interest on the mortgage repayment is not really 'money down the drain' as Ali is saying, it is actually the cost you have in order to get access to the equity gains overtime. In your first simulation, assuming a 1-2% increase in basically a 'bad buy', and for sure would never be a good decision... something a good realtor can help finding a house in a somewhat ok location, that is not falling apart, etc.
The psychological stress is real! I became a homeowner at 22 and no one was honest about the stress it comes with. Then there’s such pressure not to sell along with the sunk cost fallacy that keeps you from being flexible about where you’ll live.
This video pops up at the perfect time I've been thinking about whether to buy it rent because I'm moving to a new city. The psychological benefits definitely make me lean towards renting. And the opportunity costs! Didn't even think about that.
The real estate market is in constant flux. This is a terrible time to buy but anyone who wants to just needs to wait for the next crash, and in the meantime, be stashing away that down payment money.
An important factor for me is the idea of utilising current financial stability to own fully a home in the future, which if - let’s say - can be repaid in 10/15y time, can alleviate a lot of financial pressure coming from constantly renting. Investing in the stock market might return ~7% per year, but in 10 years time you’ll just have more money in your hands; for some maybe not even enough to buy a home at the time. Also owing your home for me can cultivate further psychological stability; you have freedom to create a home as you like it. Plus, if the value of the property goes up, you can sell it and have a decent ROI. Constantly renting has been ok for me but has been making feel a) that I help repay someone else’s mortgage, b) that I don’t have the independence and sense of home I’d like.
The biggest myth about renting is that you're throwing away money every month. This is not true. After all, you need a place to live, and that always costs money in one way or another. While it's true that you aren't building equity with monthly rent payments, not all of the costs of homeownership always go toward building equity. When you rent, you know exactly your housing costs each month. This amount is indicated on your lease so you can plan accordingly. In some cases, your landlord may also include other costs within that amount, such as utilities, storage, and homeowner association (HOA) fees if you live in a condominium. As a renter, you may face rent increases each time your lease is up for renewal. These rent increases can be even steeper if you live in certain parts of town. This may not be the case if you live in an area with rent ceilings and rent control, which limit how much a landlord can increase the rent, if at all. Renting means you're able to move whenever your lease ends. However, it also means you could have to move suddenly if your landlord decides to sell the property or turn your apartment complex into condos. Less dramatically, they could just bump up the rent to more than you can afford.
Thank you so much for this video! I’ve had a long-standing fear of financial topics and avoided them purely because I felt like I couldn’t understand them. Ali is a wizard at explaining complex concepts simply 🧙♂️, this video was so clear and easy to understand- thank you!
I’m in the U.K. An 80 year old in my area has just been made homeless because the owner wanted to sell the house. Her husband, herself and little dog ended up living in a car and it was too much for him (along with other problems)so he took his own life. All she has is her little dog and she can’t find accommodation that will take them both. The rental market has gone stupid with people renting houses as Air b n B so finding something she can afford is not on the cards. The local paper published her story in the hope someone might step forward to help her out.....if you rent it’s not good if you have to move in old age.
Nice analysis as always but you missed a point! Both principal and interest paid towards home loan can be evaded from tax. So if my taxable income is 1000$ in 30% bracket, then i need to pay 300$ to government but if I pay 500 towards house loan, interest and principal component, i need to pay only 30% of 500$ as tax, paying 6% interest towards home loan is much better than paying 30% of your income as tax and it gets better if the mortgage is for longer period, say 20 or 30 years!
I never earned enough to itemize (or pay much in taxes) but there have still been massive advantages to buying a home, especially as a minimum wage earner. Inflation alone is a reason to buy. My housing costs me $200 a month. This includes taxes, insurance, maintenance and repairs. The identical house next door rents for $850.
What country lets you deduct the principal? Also in the USA deductions are pretty advanced, since the standard deduction is $12,500 per person meaning you would need to have greater than that amount for it to be worthwhile to itemize. (With some exceptions) Basically if you're watching this instead of "tossing a few thousand" at a professional to take care of it you probably aren't rich enough for deductions to be useful.
I m from India and here we can exempt both Principal and Interest towards housing loan upto 1.5 lakhs Indian rupees for tax deduction and if our income is more than 10 lakhs, we need to pay 30% of our income as tax
Great video, like how you cover all aspects beside the financial ones ! Also just stumbled upon your channel and subscribed ! Thanks for speeding up the video (or speaking fast) so I don't have to :) !
Renting is still paying someone else's mortgage + property taxes....and in many cases landlords will set rent at an amount that lets them aside money for maintenance...And if you have constant maintenance issues, guess what - rent increases when it's time to renew the contract....
True, plus sometimes the rent is (or will be in the future) more expensive than the mortgage. So you will have around the same money to invest in stocks plus the property after the mortgage is paid off.
Great points to consider! For me "not being able to get kicked out of my home" is the number one reason to buy an apartment as soon as I can (as a foreigner living in Stockholm I can only get second-hand rentals and have lived in 6 places within the past 3 years lol)
Ah, a fellow Stockholmer! I'd be heartbroken if the Stockholm situation wasn't voiced in a video such as this. It's "Rent after 10 years of homelessness in a queue" vs "Buy risking capital in an over inflated market"
Renting makes you a serf forever. Under the control of a landlord. You can be evicted, rent can be doubled., you have no control over the quality of your environment. Once your house is paid off you have total control.
I think people often forget that when you get to to 65, you will want to retire and your pension will most definitely not be enough to rent (imagine living in the south of England and trying to rent a 1 bed plus bills). You will be forced to move somewhere much cheaper and away from family. There is not enough social housing to go round. And I think people subconsciously know they’ll inherit their parents houses so don’t feel the need to buy.
IMPORTANT THING MISSING - CAPITAL GAINS TAXES, everyone beware that your returns have to factor in taxes paid (so even though the stock market goes up 8 % a year, after taxes its more like 5-6%). For selling your primary residence however there are no capital gains taxes.
yeah the vid is pretty simplified. I don't think you should become a buy to let landlord in this environment but owning your primary residence is a must! No capital gains and leverage is a great combo for long term wealth building
Ali is the only good "productivity" RUclipsr left, who constantly ups his game every year. 🍀 Matt D'Avella has become complacent and lost his touch whereas Thomas Frank doesn't upload for an eternity. Ali's videos are not just corny self-help but real practical knowledge. He doesn't feel like a know-it-all guru but rather a guide, friend and an elder brother. Love your work Ali. ❤️
Great video to explain a very complicated problem! Other considerations not mentioned are tax implications, e.g. primary residence exemption (capital gains) upon selling of home; in some countries mortgage interest is tax deductible; interest on investment loan is tax deductible if borrowing to invest; leverage in general; interest rate risk; diversification.
Damn! This video is exactly my thoughts I was trying to explain to my parents! My parents have been breathing down my neck to buy a place for 5 years, but I'd rather spend money on stocks than tying myself down to a place when I still want to move around. They didn't get it as their values are different from mine.
I would only agree if you plan to move every 3-5 years. If you plan to get a home and live there for 20 years, those fees are one-off except for the mortgage product fee when in the grand scheme is far less. Mortgages can sometimes be half of rental costs per month and baring in mind, that mortgage payment is an investment to repay the loan you took out on your property. Everyone should aspire to own property by late life for security (when your income reduces to pension) and also legacy for your children/granchildren if you have them. You could rent properties for 50 years and end up a pensioner with nothing but whatever savings you were able to scrape together and your pension - miss a rental payment and end up homeless. I understand this video is aimed at situational but 9/10, you will benefit from owning a property.
Renting makes sense if you are working with large numbers, such as in this example you've used-> buying a $1m house with $250k downpayment. I did the calculator for someone who is making lower-middle class income - trying to buy a $250k house with a $50k downpayment - you will see that being a buyer will yield you significantly more wealth than being a renter for 30 years.
Love that you have chosen this topic. I am just 21. My situations are different, like all of us. This helps put some clarity in my mind with regards to my future.
the point is. there aren't much people that after the house is even worth 5x more, wants to move and sell the house, because you have to move somewhere, and the solution can be way worse than where you where originaly, renting gives you the freedom of upgrading your housing without loosing value, and if you invest and hit gold, you can then buy and rent houses for yourself and make the money to buy your dreamhouse as a passive income. Renting is better for low income people, that wnat to diversify and make extra income on the side
buying a house still out weighs renting. Why cant a home owner just put money into the markets themselves also? Win win. Im not wasting money on rent and now I'm putting money into stocks? Ordinary people don't have much disposable income after rent food etc
Great video! But I think you missed one point: You can buy and rent at the same time. This way, you get rent but you also pay rent. The way to think about this financially, is like you are renting a house and using your money to buy a house as an investment (instead of e.g. investing it in the stock market). Claim: Renting is not worse than buying. Proof: Let's say you would buy a house of type A to live in, and this house would gain f_A(n) money where n is the year. Instead, you could buy A but also rent another house of type A, and you will pay exactly the rent you are given. So financially, this is equivalent (assuming no taxes on rent, and you can easily find a renter that pays). Claim: Renting is better than buying. Proof: You could use the same method as above, except you will be living in A, and buying a house that is likely to return not less than f_A(n). To achieve this, you could just buy a house of type A, but you could also buy a house B that you would not want to live in (e.g. because it's too far away, too small, too ugly, etc.) and is better as an investment. To sum up, financially renting is always better than buying. The only reason to buy is psychological.
For most people that had to start from 0 (as in their parents never owned a thing and never saved money) renting should be only a short term thing but at least in my area (Spain) rent is usually at least 50% more expensive than mortgage payments, the problem lies with getting the down-payment to be able to get a mortgage after paying rent since rent is so high that it can be more than 50% of your monthly salary since wages stagnated since early 2000 and we haven't kept up with the rest of Europe so we end up in the cycle of having to rent because we have to live paycheck to paycheck without being able to save money for small investments so for most people (usually millenials and in the future gen z) owning is unattainable unless sudden luck appears in their life.
Time for revolution.
My most pressing question would simply be how long will renting remain an economical option long-term? At least in the United States, many people are being priced out of their rentals. Even by using the opportunity cost of not buying a home to invest your income, that doesn’t take into account things like wage stagnation and inflation. You may be forced to move before you ever realize a significant enough profit to stay afloat.
This video only truly applies to individuals with enough wealth to feasibly afford either expense and just want to make a preference.
In germany there are extremely strict regulations on rents. You can only raise rent by 11% every couple of years and only until your rent reaches the average rent in your area. Meanwhile house prices are rising by 10%+ each year. That's why I prefer living in a rental (I also got lucky and pay around 30% less than my neighbours)
@@konradhausmann6359 Very Interesting. Here in my apartment in college the rent increased by 10% every year lol.
it's the same here in Ireland, I can't believe what the world has come to, it's scary!
@Ali Abdaal ㊉①④①④③⑥⑦⑦②⓪⑦ Fake
If you rent long-term, you’re basically forced into using those “wings” by shopping around for better rentals or increasing income with job changes.
One thing you didn't mention was with renting a furnished place, psychologically you don't feel like the place is yours because you don't own much of the stuff in the place you're living. So if you don't like the couch/bed at the rental property, it's normally really hard to change it but with your own place/unfurnished rental property then it's a lot easier to change
yes. i feel the same.
That’s why I rent unfurnished
If you don’t like the furniture don’t rent it…? You’re not forced
@@7oeseven793 yes but then if you love and have some furniture you have to always think about it when renting. You have to find the space to put it. What if you don't find the space? Where will you store it?
And is it good for the furniture to be carried so much when you have to move? It's not that simple. I don't know how old you are, but some people are really attached to the things they own(I'm not saying they have a clutter. You cand still have few things and deeply appreciate them). Not having them feels like you don't belong there. It's not that easy to stay in rent. That's why everyone after they have enough money buys a place. Let's be real. If it's a family the kids will have to always change their bedroom, their studying place and you cannot negate they will feel unfulfilld. You can't explain to a child that they have to move because the prices are too high.
@@7oeseven793 maybe some people have always rented a furnished house and cannot afford to rent an unfurnished house and buy all new furniture to be able to live normally in it.
You make really good points but I think you miss out the massive uncertainty that comes with renting (especially if you don't want to move every 2 years). Our landlord has just upped the rent by 11% because the market is crazy at the moment and they can. We live on a yearly contract so I don't know if I can afford to live here next year if the landlords increase rent again. The UK doesn't offer much security to renters so it's more predictable to calculate your mortgage versus rent actually
And banks can increase interest rates which also cause uncertainty since they were at a record low
Some can't afford the payments
Exactly
"The UK doesn't offer much security to renters" reading that i am sure you either dont live in the uk or you dont know the laws
@@DR-M-K or I live in the UK but come from a country where there are actual laws to protect tenants.
I think the same, I live in Sydney, luckily we bought our house 4 years ago, with 2 kids I prefer buy rather than rent, I have more peace of mind knowing that no one can kick me out , specially when you live in a city that keeps changing.
I guess one frustrating thing about UK renting is how the BTL market essentially sets the price of renting. If you buy, you're paying upkeep fees like Service charges and ground rent (for leasehold), but those costs are absolutely factored straight into the rent price. A £1200 PCM property can have a mortgage of £400 a month for the owner, but they are getting so much yield because they can get away with passing all the additional costs onto the tenant.
That's why I don't want to rent. The rental market just isn't priced sensibly for as long as UK homeowners see their property as an investment opportunity outside of it's property value.
If landlords pass excessive costs onto tenants, market forces will inevitably push back, renters may opt to buy properties themselves. That’s the beauty of markets: they self-correct as both sides want to maximize their money.
Rent a house to live, buy houses to have. The best of the two worlds.
Lol so u can afford 2 houses now
Unpopular opinion but this culture of prospering for a property portfolio is ruining the market
Amen!
Retweet, Canada’s housing market is ruined from investors
Yep 100%. I resent the obsession with buy-to-let’s in the UK. But that’s poorer people just doing what the wealthy class do.
I'm in Vancouver Canada, and this buy vs rent topic has swung so hard to the rent side by force. This is because of the huge housing bubble that exists. Sadly, I know many that have bought and took on a huge mortgage for FOMO. I think Ali covered the topic really well. The psychological aspect of buying vs renting is a factor everyone really needs to consider. Life is more than just wealth.
Not unpopular at all! Housing should never be a commodity and if it is, should be regulated l
I do agree that's a complicated question but for average joes including myself, I tell everyone to buy as soon as they can. There is a reason real estate is called a real estate in my view. Plus the psychological burden of renting is huge in long term. Once you pay off a good portion of your mortgage and you have a much higher income since you started, you find a pleasant peace of mind in truly owning a living place and not being owned by it. Renting is easier, and you can rent a nicer place with the same monthly payment with no long-term commitment, but buying is always better in my view.
'buying is always better' is far too simplistic
'buying is always better' isn't just simplistic, it is a very ignorant thing to say. Every person has different circumstances and preferences. You can't say buying is better for every single person.
This is such a good reference video! The psychological aspect of buying vs renting is no joke! We moved across the country to buy a home because the mortgage was substantially less than rent where we were previously living. 1 year into the experience I've discovered I much prefer my wings, and the stress of dealing with home repair coordination was actually so bad that I ended up with a horrible case of shingles lol Now we're just waiting for that 2 year mark to decide if we want to sell or just keep the house as a rental and move along LOL
Such a good point -there is so much psychology and emotion in home buying!
Another point in favor of buying. Repairs. When you buy, you are responsible for your own repairs and maintenance, so they actually get done. I used to hate fighting with landlords to take care of basic repair and maintenance.
Amazing video. It's also really great to see everything written down with all of the factors no one ever thinks about. I used to hate when people would tell me to get a house because it's "equity" and that renting is "throwing money away" when all together it's really not that simple.
As someone still navigating financial literacy videos like this are beyond helpful I used to thinking buying was better but I’m definitely open to new ideas so thank you! 🙏🏽
Everyone needs an extra cash flow apart from a daily job, anything that can help get a little extra dough each month is important to be beat the tide. I’m mainly focused in channeling funds into investments that yield returns without constant intervention.
Some passive income ideas like investing in stocks sure take some work to get up and running, but has eventually earn me money while asleep
The reason why rich people are still rich today is because they buy assets, invest their income in other to generate more
@@carmatatom8546 indeed this is right on target, I have put a couple of resources into stocks, got some altcoins, and I and seeing myself making my initial million. the market is progressively recuperating.
I have two account - one for trading and one for investing. The one mistake I make in BOTH accounts is going all in because my conviction is so high. Now with the recent market crash, I had to sit on the sidelines instead of being able to buy some of my favorite stocks at a discount.
@@silvaconceicao7130 The market has been killing me so much lately. Too much FUD going around, buying at the top and selling at the bottom. I can't afford to be on the losing side any more. I need a professional who will be my eyes and guide my hands in this market.
Emotional Quotient is one of the most important factors for the majority for having this tangible asset.
The sense of security a house provides is outstanding.
I'd sooner have a widebeem boat, if you dont like your neighbours you can soon move .
Living in France I bought a house later last year and I am happy with it. It is my investement in my future. And I can do whatever I want with it. Sell, change, renovate, rent, etc. Yes, in the begining you pay a lot of charges and taxes but it is "yours" and in the far future you will be free from the credit payments. Rent a house for the whole life... well it is also a choice but you invest in someone's pocket. I have a lot of friends living in rental houses and they are happy with that. But also I know families that bought their house in 80s and now they are free from credits and they are living their happy life.
You're sooo right, this 'own nothing and be happy' strategy is suspicious since all the rich guys buy a lot of property and land.
Yes, buying is an investment, but don't forget that if it's your primary home, you cannot just sell and use that money. You will need to buy another place, which will have also gone up in value.
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Not necessarily, plenty of people keep their home until retirement and then sell it off while traveling or renting in a restricted community for seniors (much much cheaper than normal renting). And even more so you definitely can just sell your home and use a portion of that on a new downpayment and use the rest for something else.
That is why that most important reason to buy instead of rent is: you're generating equity. Not just relying on appreciation in value as an investment. Even if your house's value goes down you are still benefiting immensely from owning your home instead of renting. This is because every mortgage payment you make is basically just paying yourself in the future, rather than rent which is just lost forever.
I bought my house during the recession when the housing value was significantly declining. At the time I bought it for $210000 and sold it a few months ago for $670000. I recently moved back to the condo I bought 6 years ago. I am planning to buy a house when the price drops and I will definitely will sell it when the housing market is on a fast-paced upward trajectory. We are know amid rising inflation and geopolitical uncertainty that will probably throw the economy back into recession.
Wʜᴀᴛsᴀᴘᴘ ᴍᴇ 👆👆
Tbh in my experience, and my friends experiences, buying would always be better. At least where I live, most landlords are terrible terrible people. Myself and my friends have had several very dangerous problems with our apartments, and the landlords have just sat around and took their time to sort them out.
For example, I had a leak above my electric heater for 6 weeks. I messaged the maintenance team and the landlord several times over that period, and it took 6 weeks for them to bother to get a builder to show up. Several other issues like this occurred, and that’s just in one of the apartments I rented.
I would do quite literally anything to avoid renting ever again. It’s never worth it. When I moved out, I got charged 230 out of my deposit for damage that was already there when I moved in. I had to threaten legal action for them to drop the charges, which they eventually did.
That being said, I’m sure there are a few good ones. But overwhelmingly, in my experiences and my friends, they’ve almost always been horrible.
Subtle, to the point and just accurate, these kinda videos need to be published every week. For me, I reckon renting could be a better financing option for most people nowadays just because there's tons of investment opportunities which weren't available in the first place.
Ya'll tripping or lying on purpose at this point cause you want to rent out your homes. Most of the time Mortgages are lower than rent, so you rent it out and keep the difference with the bonus of OWNING THE HOUSE, while the renter pays more than the owner and gets NOTHING
No you forget house appreciates. The mortgage will stay the same for 30 years while the house value keeps increasing. Rent could be double 10 years from now and who know what
Renting is always more expensive, all things being equal. The only exception is if you buy a money pit of a home.
Another problem with renting is that rent also increases yearly so i just bought my house and save money to invest in stocks at the same time.
@Pinned Ali Abdaal i don't wanna, one subscriber lost.
Honestly you still have to pay interests when you take out a loan,
no need to glorify it or justify it, just because you want to
@@tedlovejesus yeah you pay interest for the loan but at least money will come back to you when you sell the property and gain more due to the property’s appreciation unlike renting where money is just lost.
@@tedlovejesus The fuck are you talking about? The interest paid on a mortgage is peanuts compared to the equity and appreciation value.
@@tedlovejesus interest in much less than the rent during 60 years that I still have to live
I'm a real estate appraiser and I can't tell you how many horror stories I've heard about people spending $10k+ in one-off maintenance (roof, foundation, siding, etc) just because something broke down. Not even for expensive houses, either. Some of them sell for $150-250k and demand $15-40k of maintenance over 30 years. When calculating the opportunity cost of renting vs. buying, think about it like this: the S&P 500 does its own maintenance. The businesses that underperform are removed and replaced with businesses that are growing. Your house does not.
Truth! People underestimate the holding costs. Also, rents can reduce in times of recession.
@@method341 rents can reduce???? are you serious
@@richardnorth1881 of course. Rents are subject to supply & demand. When there is excessive housing supply relative to demand, the price will fall.
I really feel like I’m growing up along with this channel. I first discovered Ali as I searched for tips on how to effectively study while in college, and now I’m learning information I could use as I prepare myself for purchasing a house.
Agree its about the opportunity costs involved and also more importantly everyones situation is unique and we have to get used to thinking for ourselves based around our lifestyle, choices wishes and wants.
I rent at a crazy prices in Munich where whilst a potential mortgage would be similar monthly outlay (not accounting for property price appreciation which cannot be realised until sale), the actual cost initial cost of purchase is just CRAZY!! And the total costs for 20yrs is more if I purchase (again not accounting for equity gained). BUT, the stress of being locked into a huge mortgage, the costs of maintaining etc is just going to leave me with empty pockets and stressed mind.
This format is way better for you, so much more engaging!
Someone buying a million dollar home would not be paying $2k in rent for that same area. Just not possible. I live in Hawaii and buying saves me a massive amount of money as rent is way higher than my mortgage and all taxes and fees.
Working on getting my real estate license at the moment, this is the perspective and the type of content that I need. Thanks!
The difficult thing for me with renting is that renters pay the mortgage of the landlord on the property and they give the landlord profit too. There's a reason why property is a good business lol.
If the rent you pay came from dividends of your stocks, you are essentially living for free. While you are paying the rent, the landlord are not living in your room, so you are practically owning the place for the duration.
@@kaydens6964 love this comment, this is EXACTLY how I see it
Plenty of landlords actually lose money. Its not as simplistic as 'you're just paying off someone elses mortgage'
But that's offset by economies of scale. I only have one wall and the floor facing outside in the winter that I have to heat, if I owned a house I would have four walls and a roof all leaking heat. Same with property taxes--yes, some of my rent payment is undoubtedly paying for the landlord's property taxes, but I have like 10 other people splitting that cost whereas if I had a house I'd be responsible for all of it myself.
Thanks Ali I always learn so much when watching your you tube videos. Jonathan in Toronto Canada. Keep up the good work.
I have always been in favour of buying a home, especially in my country Ghana where rent is so so expensive. But I am beginning to understand and appreciate why sometimes, renting could be a better option. Thanks for the informative video Ali!
thank you! i bought my home at age 28. i moved away and i now rent it out while i rent someone else's home in my current city. i miss living in the home i own but not the city it's in.
One of your best videos till date. Well done Ali. Stay blessed
I previously rented an apartment in a small city in England for work. Had I owned the apartment I’d have never jumped at a new opportunity in London, from which I’m now making a lot more money.
Your brother's company needs to add a few variables to their equation. Primarily, if the cost of a monthly mortgage payment is cheaper and only lasts 15 years, how much excess money could you invest at the same [-2 to 8%] rate over the same timeframe. It changes the outcome dramatically.
Theeesse topics you discuss should be mandatory to learn about in school.
I'm confused. The underlying assumption here is that mortgage payment is higher than rental, and the surplus in renting over buying is used to invest in the stock market. What happens if the mortgage is lower than rent? Is it a no brainer to buy then?
That was exactly what I was thinking
@@rainebolton6495 100%
Depends how much equity you have in the house. Little equity: you must have either found an amazing undervalued property, or the places to rent you're looking at are actually higher end than the property to buy. If you have a lot of equity on the house then of course the morgage payment can be lower, you're also borring way less money. But the opportunity cost is also then significantly higher.
I think the assumption is a comparable house. You could in theory buy a cheaper house outside of London. But now you live outside of London and deal with that.
So if you’re willing to down size on your living for a house you then could also down size on your rent and it’s a moot point.
@@d-32 makes sense thanks for the reply!
I'm so thankful that I bought a house. It was so worth it. It seems like a struggle at first, with house payments, repairs etc. But after a few years, with inflation, you're paying out way less than the renters. When I first bought, I laid awake nights wondering how I was going to manage. Fifteen years later, the cost seemed miniscule. At that point I was ready to just pay it off. Buying, best decision ever.
Great video! Finding your channel is one of the best things to ever happen to me, it motivated me to change careers, join the tech industry and start my own Tech RUclips channel. That's it ,just thank you!
Your videos are so incredible. Thankyou so much for creating invaluable content xxx
Great vid mate thanks love the money club
Great video although there is one big point of error on the rental estimate, you are putting an interval range for stock market returns annually that goes from -2% to just 8%(the average). If you are using an interval you would need to put a much higher percentage as the stock market consistantly has years that return well over the average! Other solution would be just to use the average annual return of 7% and don't provide a lower range. Hope that helps!
It doesn't hurt to be conservative.
Well done. I’ve debated with peers about this very topic. The most important counter argument for “renting is money down the drain” is … having a roof over your head is never a waste of money.
And what you covered are additional points that people fail to consider. Living in nyc, a lot of my peers have bought homes in the out skirts of the city. So now they own a home, but they commute upto 2 hours ONE WAY to get to work. That’s a total of 20 hours lost to commuting and most likely a miserable 820hours to spend per week.
I personally think it makes sense to continue saving until you have the funds to purchase a more expensive home because of location. The alternative is to purchase an apartment for the time being before upgrading to a home that’s in a good location.
The only time you should be waiting on buying a home is in that very specific situation of not being able to afford one that is reasonable to live in. Those situations are extremely rare though, almost everyone should be buying instead of renting. Buying a house is literally the first step of buying your next house because leveraging the equity of your first property for your next one and continuing that climb is literally the first rule of generating wealth without even trying.
I agree with the having a place to live isn’t money down the drain.I too have been told that many times.
However,we are now stuck with a house we hate and don’t want and are planning a relocation.
We aren’t planning another home buy.For our specific situations-renting makes more sense.
Important caveat about stock investments mentioned around the 9:50 mark: That 7% return average on S&P 500 is over the lifetime of the stock market. One year the S&P can be down by 30% and the next year up by 37%. Your return on stocks is dependent on when you need to withdraw money. While housing markets can crash, they tend to swing less than the Stockmarket. For example, if you invested in the S&P last year on this date, you would have lost 15% of your investment.
Great point
To me buying will be better because even if you are buying the house and you have to be paying small small you will eventually finish paying one day and you will became a house owner. But if you pay rent it is not easy because rent might likely increase every year or there about. Great content Ali.
Hey Ali…😀 your one of my favourite RUclipsrs and congratulations for 3M subs🥳
These CLUB series, be it books or money... is superb.
Yess!
@Pinned Ali Abdaal Stop spamming, I am an aware user.
You can't compare linear rent growth to a percentage of asset growth - over time the percent returns will compound exponentially. In my area of the US, rent typically increases by 5-6.5% per year historically. The relation of rent to mortgage prices is inverse where at the beginning of the mortgage it is very 'expensive' compared to rent, but in 20 years that mortgage is still the same (outside of taxes) in dollar amount whereas the rent has compounded to a dollar amount far more 'expensive' than the mortgage.
Excellent video mate!! Great information, appreciate it!!
Good thoughts and good to start this debate. I do feel this video doesn't tackle the idea that the Landlord has every right to remove you from the property at anytime should they want to reclaim the house / flat - it is alluded to here but it quickly brushed away without pointing it out as a significant factor. This video is also kind of making the assumption (in the financial section) that the opportunity costs are going to always be positive with other investments - this is subject to so many factors and the appreciation of property assets is so much more stable that those of stocks, bitcoin etc. It also assumes the locations of the properties or the level of property you can afford are preferable in the case of renting. Usually you are paying a landlord's rent, property fees and giving a top up within your payments to make it profitable for them which makes the incremental financials beyond the initial payments more expensive.
There is another point which is not for the individual but more of a societal impact which is that, the more people rent, the more attractive this prospect is for the older and more established generations who will then retain their smaller properties when up-sizing or purchase additional properties with the intention of buying to let. This in tern (especially in the UK), reduces the supply of available houses and drives up the value of houses, making it harder for subsequent people to buy houses - thus making it a vicious cycle where it tips the balance into renting being the only option for prospective 1st time buyers.
I think the only thing Ali missed is that Governments in almost every country wants people to buy their first house, thus why it is the cheapest loan you can get for periods up to 30 years. In the US for example, you having a decent credit you can get a mortgage for 5% down. The opportunity cost is really mortgage vs other loans (cars, personnal, etc) and in that matter the interest on the mortgage repayment is not really 'money down the drain' as Ali is saying, it is actually the cost you have in order to get access to the equity gains overtime.
In your first simulation, assuming a 1-2% increase in basically a 'bad buy', and for sure would never be a good decision... something a good realtor can help finding a house in a somewhat ok location, that is not falling apart, etc.
The psychological stress is real! I became a homeowner at 22 and no one was honest about the stress it comes with. Then there’s such pressure not to sell along with the sunk cost fallacy that keeps you from being flexible about where you’ll live.
Damnn Ali you gonna hit 3 mill man … super proud and inspiring 💯 much love ❤️🔥💯
This video pops up at the perfect time I've been thinking about whether to buy it rent because I'm moving to a new city. The psychological benefits definitely make me lean towards renting. And the opportunity costs! Didn't even think about that.
Congrats on reaching 3 million❤❤
Really good analysis. It's such a complex equation!
Buy, without a question. Unfortunatelly it's almost Impossible in this times
The real estate market is in constant flux. This is a terrible time to buy but anyone who wants to just needs to wait for the next crash, and in the meantime, be stashing away that down payment money.
An important factor for me is the idea of utilising current financial stability to own fully a home in the future, which if - let’s say - can be repaid in 10/15y time, can alleviate a lot of financial pressure coming from constantly renting. Investing in the stock market might return ~7% per year, but in 10 years time you’ll just have more money in your hands; for some maybe not even enough to buy a home at the time. Also owing your home for me can cultivate further psychological stability; you have freedom to create a home as you like it. Plus, if the value of the property goes up, you can sell it and have a decent ROI. Constantly renting has been ok for me but has been making feel a) that I help repay someone else’s mortgage, b) that I don’t have the independence and sense of home I’d like.
The biggest myth about renting is that you're throwing away money every month. This is not true. After all, you need a place to live, and that always costs money in one way or another. While it's true that you aren't building equity with monthly rent payments, not all of the costs of homeownership always go toward building equity.
When you rent, you know exactly your housing costs each month. This amount is indicated on your lease so you can plan accordingly. In some cases, your landlord may also include other costs within that amount, such as utilities, storage, and homeowner association (HOA) fees if you live in a condominium.
As a renter, you may face rent increases each time your lease is up for renewal. These rent increases can be even steeper if you live in certain parts of town. This may not be the case if you live in an area with rent ceilings and rent control, which limit how much a landlord can increase the rent, if at all.
Renting means you're able to move whenever your lease ends. However, it also means you could have to move suddenly if your landlord decides to sell the property or turn your apartment complex into condos. Less dramatically, they could just bump up the rent to more than you can afford.
Thank you so much for this video! I’ve had a long-standing fear of financial topics and avoided them purely because I felt like I couldn’t understand them. Ali is a wizard at explaining complex concepts simply 🧙♂️, this video was so clear and easy to understand- thank you!
Ali you've taught me so much as always and you break it down so well! Love your videos, sooo much value!!!! Best Teacher Ever!
Interesting breakdown, I'm still on the "renting is throwing money down the drain" train, especially in a city like London
I’m in the U.K. An 80 year old in my area has just been made homeless because the owner wanted to sell the house. Her husband, herself and little dog ended up living in a car and it was too much for him (along with other problems)so he took his own life. All she has is her little dog and she can’t find accommodation that will take them both. The rental market has gone stupid with people renting houses as Air b n B so finding something she can afford is not on the cards. The local paper published her story in the hope someone might step forward to help her out.....if you rent it’s not good if you have to move in old age.
He could just have rented another place. A lot of bad and lazy decisions lead someone in the UK to end up like that. Probably immoral people.
Awesome information. Definitely left some things to think about. Thanks!
Nice analysis as always but you missed a point!
Both principal and interest paid towards home loan can be evaded from tax. So if my taxable income is 1000$ in 30% bracket, then i need to pay 300$ to government but if I pay 500 towards house loan, interest and principal component, i need to pay only 30% of 500$ as tax, paying 6% interest towards home loan is much better than paying 30% of your income as tax and it gets better if the mortgage is for longer period, say 20 or 30 years!
I never earned enough to itemize (or pay much in taxes) but there have still been massive advantages to buying a home, especially as a minimum wage earner. Inflation alone is a reason to buy. My housing costs me $200 a month. This includes taxes, insurance, maintenance and repairs. The identical house next door rents for $850.
Possibly because Ali is in the U.K. You can’t offset mortgages against your tax here.
What country lets you deduct the principal?
Also in the USA deductions are pretty advanced, since the standard deduction is $12,500 per person meaning you would need to have greater than that amount for it to be worthwhile to itemize. (With some exceptions) Basically if you're watching this instead of "tossing a few thousand" at a professional to take care of it you probably aren't rich enough for deductions to be useful.
I m from India and here we can exempt both Principal and Interest towards housing loan upto 1.5 lakhs Indian rupees for tax deduction and if our income is more than 10 lakhs, we need to pay 30% of our income as tax
@@PradeepsPointofView Nope. You can only get interest exempted. Please check facts. I work in bank itself.
Sending so much love from Bangladesh!
Great video, like how you cover all aspects beside the financial ones !
Also just stumbled upon your channel and subscribed ! Thanks for speeding up the video (or speaking fast) so I don't have to :) !
Renting is still paying someone else's mortgage + property taxes....and in many cases landlords will set rent at an amount that lets them aside money for maintenance...And if you have constant maintenance issues, guess what - rent increases when it's time to renew the contract....
All of this is predicated that you WILL be investing in the markets. If you're not, renting is just throwing money away
True, plus sometimes the rent is (or will be in the future) more expensive than the mortgage. So you will have around the same money to invest in stocks plus the property after the mortgage is paid off.
Great points to consider! For me "not being able to get kicked out of my home" is the number one reason to buy an apartment as soon as I can (as a foreigner living in Stockholm I can only get second-hand rentals and have lived in 6 places within the past 3 years lol)
Ah, a fellow Stockholmer!
I'd be heartbroken if the Stockholm situation wasn't voiced in a video such as this.
It's "Rent after 10 years of homelessness in a queue" vs "Buy risking capital in an over inflated market"
@@SathishkumarJagadeesan you sum it up perfectly 🤣
Thanks Ali, with the estimated numbers simulation is easier. Nice shirt btw
LYDIA MARKET IS NOW OPEN !
Thank u for the great video!! 😊❤
Renting makes you a serf forever. Under the control of a landlord. You can be evicted, rent can be doubled., you have no control over the quality of your environment. Once your house is paid off you have total control.
I think people often forget that when you get to to 65, you will want to retire and your pension will most definitely not be enough to rent (imagine living in the south of England and trying to rent a 1 bed plus bills).
You will be forced to move somewhere much cheaper and away from family. There is not enough social housing to go round. And I think people subconsciously know they’ll inherit their parents houses so don’t feel the need to buy.
Great video, thank you
IMPORTANT THING MISSING - CAPITAL GAINS TAXES, everyone beware that your returns have to factor in taxes paid (so even though the stock market goes up 8 % a year, after taxes its more like 5-6%). For selling your primary residence however there are no capital gains taxes.
yeah the vid is pretty simplified. I don't think you should become a buy to let landlord in this environment but owning your primary residence is a must! No capital gains and leverage is a great combo for long term wealth building
Ali is the only good "productivity" RUclipsr left, who constantly ups his game every year. 🍀
Matt D'Avella has become complacent and lost his touch whereas Thomas Frank doesn't upload for an eternity.
Ali's videos are not just corny self-help but real practical knowledge. He doesn't feel like a know-it-all guru but rather a guide, friend and an elder brother. Love your work Ali. ❤️
It was pretty knowledgeable thanks for the video
Very good!!
Great video to explain a very complicated problem! Other considerations not mentioned are tax implications, e.g. primary residence exemption (capital gains) upon selling of home; in some countries mortgage interest is tax deductible; interest on investment loan is tax deductible if borrowing to invest; leverage in general; interest rate risk; diversification.
Wow your skin is glowing these days. Is it the camera or your skin care routine?
Ali I miss your old content (2020-late 2021) so much 😭 Please bring those back!!!
congratulations Ali
am so happy for you
upon making 3million subscribers.
@cheers to you
Such a well made video 👏🏻
Damn! This video is exactly my thoughts I was trying to explain to my parents! My parents have been breathing down my neck to buy a place for 5 years, but I'd rather spend money on stocks than tying myself down to a place when I still want to move around. They didn't get it as their values are different from mine.
Our boy Ali is getting smarter with his looks!❤️🔥
Fantastic explanation
I would only agree if you plan to move every 3-5 years. If you plan to get a home and live there for 20 years, those fees are one-off except for the mortgage product fee when in the grand scheme is far less. Mortgages can sometimes be half of rental costs per month and baring in mind, that mortgage payment is an investment to repay the loan you took out on your property. Everyone should aspire to own property by late life for security (when your income reduces to pension) and also legacy for your children/granchildren if you have them. You could rent properties for 50 years and end up a pensioner with nothing but whatever savings you were able to scrape together and your pension - miss a rental payment and end up homeless. I understand this video is aimed at situational but 9/10, you will benefit from owning a property.
"Or your dog has spilled red wine all over the sofa" I wonder what your dog is up to
This brings up so many emotions for people but honestly, I am so glad you are talking about this, Ali! Fantastic points!!!
Renting makes sense if you are working with large numbers, such as in this example you've used-> buying a $1m house with $250k downpayment. I did the calculator for someone who is making lower-middle class income - trying to buy a $250k house with a $50k downpayment - you will see that being a buyer will yield you significantly more wealth than being a renter for 30 years.
Alhamdulillah Ali you will reach 3 million very soon.
“There will always be haters but their opinion aren’t more important or more accurate".”
Keep your head up
I love these episodes!
Love that you have chosen this topic. I am just 21. My situations are different, like all of us. This helps put some clarity in my mind with regards to my future.
Was the older footage of you when you were a doctor? You really had a glow up 😂 💯🔥
BUY BUY BUY BUY BUY BUY BUY........ make money and enjoy !!!
the point is. there aren't much people that after the house is even worth 5x more, wants to move and sell the house, because you have to move somewhere, and the solution can be way worse than where you where originaly, renting gives you the freedom of upgrading your housing without loosing value, and if you invest and hit gold, you can then buy and rent houses for yourself and make the money to buy your dreamhouse as a passive income. Renting is better for low income people, that wnat to diversify and make extra income on the side
buying a house still out weighs renting.
Why cant a home owner just put money into the markets themselves also?
Win win. Im not wasting money on rent and now I'm putting money into stocks? Ordinary people don't have much disposable income after rent food etc
Great video! But I think you missed one point: You can buy and rent at the same time. This way, you get rent but you also pay rent. The way to think about this financially, is like you are renting a house and using your money to buy a house as an investment (instead of e.g. investing it in the stock market).
Claim: Renting is not worse than buying. Proof: Let's say you would buy a house of type A to live in, and this house would gain f_A(n) money where n is the year. Instead, you could buy A but also rent another house of type A, and you will pay exactly the rent you are given. So financially, this is equivalent (assuming no taxes on rent, and you can easily find a renter that pays).
Claim: Renting is better than buying. Proof: You could use the same method as above, except you will be living in A, and buying a house that is likely to return not less than f_A(n). To achieve this, you could just buy a house of type A, but you could also buy a house B that you would not want to live in (e.g. because it's too far away, too small, too ugly, etc.) and is better as an investment.
To sum up, financially renting is always better than buying. The only reason to buy is psychological.
I liked the old title better. I wanted to know that this video was about buying vs renting.