Here's that free calculator: 🏡 Rent Vs. Buying Free Calculator: beacons.ai/humphreytalks/freedownloads Also did you love the new Outro? Lmk your thoughts!
@adambachmann2633
Жыл бұрын
You're not separating out principle from the interest. You talked about it later... Maybe show that calculation as well. Even your first payment has principle.
@militanthd6484
Жыл бұрын
What about property insurance cost?
@DaveOHern
Жыл бұрын
The problem with your opportunity cost calculation is that the whole value of the home grows 2% over inflation, not just the down payment. Then there's the fact that the mortgage interest payment goes down every year as the loan is paid off. So this 5% cost of capital should be even a bit lower if you factor that in. According to bankrate's mortgage calculator, the total interest over 30 years on a $500,000 home with 20% downpayment and a fixed 7% interest rate is $558,216. $558,216 divided by 30 years is $18,607 per year. So the cost of capital is really... Opportunity Cost of down payment: $100,000 x 0.07 = $7,000 Mortgage Interest: $19,000 per year on average, rounded Less growth in home value: $500,000 x 0.02 = ($10,000) $19k + $7k - $10k = $16k $16,000 / $500,000 equals 3.2%, not the 6.6% you conclude Then we should add in insurance which is typically around 0.75% So... 1.11% for property taxes + 1.00% for maintenance + 0.75% for insurance + 3.20% for cost of capital = 6.06%
@andrewthomas4976
Жыл бұрын
How does the calculation get affected by paying less than the assessed value? We have a right to purchase agreement on our rental, which means we may purchase the house for a set price and pocket the extra equity. Since we moved in, our house is worth 25% more than the purchase price, so even with a miniscule down payment, we would not owe PMI. How then would the opportunity cost work?
@marianbuga1173
Жыл бұрын
Also, what about if i do not have a house and i need to pay the rental, in that case i think is better to minus the rental cost from total cost of capital.
@ChristopherAbelman
8 күн бұрын
This is the summary of the rent vs buy decision I’ve been trying to figure out for years. The rental income vs mortgage payment calculation never made sense to me. But this is much more logical and makes far more sense. Thank you for simplifying this!
@HildaBennet
8 күн бұрын
Most people are unable to handle a fall since they are accustomed to bull markets, but if you know where to look and how to get around, you can profit handsomely. It depends on your entry and exit strategy.
@bartlyAD
8 күн бұрын
The fact that the US stock market had been on its longest bull run ever makes the widespread worry and enthusiasm understandable given that we are not used to such unstable markets. As you pointed out, it wasn't tough for me to earn over $780k in the last 10 months, so there are chances if you know where to go. I hired a portfolio advisor since I was aware that I needed a solid and trusted plan to survive these trying times.
@FinnBraylon
8 күн бұрын
I tried looking into new strategies to profit in the current market because my portfolio has been in the dumps for the entire year, but everything I tried just seemed to miss the point. Please let us know who your asset manager is by name.
@bartlyAD
8 күн бұрын
Her name is Rebecca Noblett Roberts. Hope that helps
@FinnBraylon
8 күн бұрын
Just copied and pasted her on my browser and her page popped up immediately, thank you for saving me hours of researching.
@sirheisenberg4459
14 күн бұрын
Asking a real estate agent whether you should buy a home right now is like to asking an alcoholic whether they think you should have a drink lol. Homes in my neighbourhood that cost around $450k in sales in 2019 are now going for $800 to $950k. Every seller in my neighbourhood is currently making a $350k profit. Simply unreal. In all honesty, deflation is what we require. The only other option is for many people to go bankrupt, which would also be bad for the economy. That is the only way to return to normal.
@Tanner-c2m
14 күн бұрын
Home prices will come down eventually, but for now; its best to offset some of your real estate investments and get into the financial markets or gold. The new mortgage rates are crazy, add to that the recession and the fact that mortgage guidelines are getting more difficult. Home prices will need to fall by a minimum of 40% (more like 50%) before the market normalizes. If you are in cross roads or need sincere advise on the best moves to take now its best you seek an independent advisor who knows about the financial markets.
@NorthCarolinaForward
14 күн бұрын
indeed the mkt & economy has gone berserk, price of great assets like real estate, dividend paying stocks, or gold never comes down easily, in my humble opinion, buy what you can afford today, and working with a financial advisor certainly helps
@mariahudson9939
14 күн бұрын
I require suggestions on how to restore my portfolio and create more effective strategies in light of the huge declines. Where can I locate this instructor?
@NorthCarolinaForward
14 күн бұрын
Her name is “Rebecca Nassar Dunne’” can't divulge much. Most likely, the internet should have her basic info, you can research if you like
@PremSteve-yg4de
14 күн бұрын
I just googled her and I'm really impressed with her credentials; I reached out to her since I need all the assistance I can get. I just scheduled a caII.
@bernadofelix
Ай бұрын
In my opinion, a housing market crash is imminent due to the high number of individuals who purchased homes above the asking price despite the low interest rates. These buyers find themselves in precarious situations as housing prices decline, leaving them without any equity. If they become unable to afford their homes, foreclosure becomes a likely outcome. Even attempting to sell would not yield any profits. This scenario is expected to impact a significant number of people, particularly in light of the anticipated surge in layoffs and the rapid increase in the cost of living.
@berniceburgos-
Ай бұрын
I suggest you offset your real estate and get into stocks, A recession as bad it can be, provides good buying opportunities in the markets if you’re careful and it can also create volatility giving great short time buy and sell opportunities too.
@HectorWhitney
Ай бұрын
That’s actually an incentive for them to just stay where they are as long as they can make the payments. They’re stuck of they’re upside down.
@PaulKatrina.
Ай бұрын
You are right! I have diversified my 450K portfolio across various market with the aid of an investment coach, I have been able to generate a little bit above $830k in net profit across high dividend yield stocks, ETF and bonds.
@ScottKindle-bk3hx
Ай бұрын
@PaulKatrina.
Ай бұрын
Finding financial advisors like Melissa Terri Swayne who can assist you shape your portfolio would be a very creative option. There will be difficult times ahead, and prudent personal money management will be essential to navigating them.
@friedhotwings
10 ай бұрын
We really need to stop assuming the average buyer is putting 20% down. More realistic number is 3.5-10%
@SBqwerty
26 күн бұрын
First time home buyers 8 percent, others 19 percent. Googleable information
@frozenpride8713
21 күн бұрын
What about the people who dont qualify? @@SBqwerty
@JOHN-um2
18 күн бұрын
20% should be the norm. Why? People need to grow up.
@waylorudd1128
5 күн бұрын
@@JOHN-um2grow up by increasing your opportunity cost?
@ProfessorHattington
Жыл бұрын
Don't forget closing costs (~4%) and home insurance (varies by area), that's money you'll never see again.
@chekcalbe
Жыл бұрын
Add 40% if you live in FL,LA,CA…😢
@AwkwardHandshaking
Жыл бұрын
And HOA, which cost has been skyrocketing
@MrNemitri
Жыл бұрын
Also the PMI if using a FHA, using a conventiona is more expesnive, and they botched it in favor of people with lower scores.....
@jonesreviewsandinfo140
Жыл бұрын
Insurance shouldn't be included or both Home and Renter insurance should be in the equation. You should be paying renters insurance. Renter insurance is usually cheaper, but also only covers losses.
@flashbang217
Жыл бұрын
@@chekcalbe add TX to that list. My home insurance is well over $4,000 year
@haloe3
Жыл бұрын
I want to point out the fact that when you purchase a home with a mortgage it becomes a leveraged asset. That 100k down payment/ investment on a 500k home would have a higher return then 2% its actualy closer to 10%. The reason is because the whole asset of 500k is appreciating at 2% not just the 100k.
@taon4835
Жыл бұрын
I came here to say this exact thing. It changes the calculations dramatically.
@Black70Fastback
Жыл бұрын
It turns the cost of opportunity calculation completely on its head
@hoihoi8
Жыл бұрын
@@Black70Fastback You also pay 45-50% of the home value in interest, so drop that baby down to 5% it doesn't look so good
@GoldenAura32
Жыл бұрын
@@hoihoi8interest is tax deductible on mortgages
@TodayInTheShop
Жыл бұрын
He blew it on this one item. Rate of return on house value. Not rate of return on down payment.
@barbarar5869
Жыл бұрын
The non financial reasons for owning are what made me buy a property (currently in the closing stage). As long as I pay my mortgage, no one will be able to evict me and I can finally have a pet. Those 2 things alone are worth all the sacrifices I have made to save my deposit as a single buyer. And I can finally live alone and not share a house because my mortgage on a 2bed is cheaper than renting a one bedroom apartment
@AJourneyOfYourSoul
Жыл бұрын
Congratulations. Enjoy your new house.
@jeremyhall7495
Жыл бұрын
Great points!
@renehinojosa1962
Жыл бұрын
I thought the same thing and everything changed when the job opportunities plummeted near me. Found myself driving 2 1/2 hours each way to my job and home, and just couldn't sustain that. Eventually I realized my home wasn't ever going to be where the jobs would be. So, I sold my home and now I rent near where my job is, where I have no worries If I need to pick up and move again.
@littlelady12
Жыл бұрын
I immediately tuned out after you said downpayment of $100,000
@Realfisch70
Жыл бұрын
And when you get old and retired, you are going to have your home, this is why US have a lot of homeless, one of the reasons, they cant pay the rent, your home is yours, just pay the mortage ASAP enjoy!
@O8Zen
Жыл бұрын
The three main unknowns are: - future interest rates (as the mortgage can be bought back) - property price evolution - rent evolution This calculation is useful to compare the cost on the day you buy but without those unknown values it's impossible to know if buying will end up being profitable.
@DarthRadical
Жыл бұрын
You forgot about the leverage that the mortgage gives you. The 80% of the home that you DIDN'T pay for with your downpayment will also appreciate 2% each year. A quick/dirty way to deal with that is to lower your mortgage interest rate by 2% in your calculations for rent vs. mortgage.
@wscottwalters74
Жыл бұрын
Here in Phoenix, the average price to rent has gone up 64% in the last five years. My home equity has similarly risen (67%) while my monthly mortgage has stayed fixed. That expense for a 2,100 sqft home is 22% lower than the median cost to rent a 2-br apartment, and it will stay relatively fixed even as rental costs continue to soar. It’s safe to say I’m comfortable with my decision to own.
@Matt90541
Жыл бұрын
Totally different in the rust belt, property taxes are extremely high and homes barely appreciate over time. I'd have about 400k more dollars if I chose to rent instead of buy if I just spent the money I put in a down payment into the S&P 500.
@ljr3061
Жыл бұрын
For someone not lucky to have been a homeowner in Phoenix prior to the inflation, it is cheaper for me to rent my 4/3 house than buy. (By about $1k a month)
@wscottwalters74
Жыл бұрын
@@ljr3061 I feel that. I’m glad we got in a few years before the madness. And refinanced right before the rate hikes.
@ChickenIandlEggs
Жыл бұрын
I’m in a similar spot in Boston.. average rent nearby is about $3,000 and we locked in at $2,000 only 3 years ago
@pnc1358
9 ай бұрын
Great for you but you don't compare apple to apple here. No one knows the future. You look at the back mirror and found that yours was fine. But for someone who is exactly at the point of making the decision, they can't be certain about the future of theirs
@superwoke9166
Жыл бұрын
This is a good video and I actually made an in depth calculator for myself back in college. I would change a few things. 1. I would add insurance to cost of home you can divide it by 12 to get monthly cost your rent has this build in already. 2. HOA is becoming more and more common and these prices are not set, increasing a lot like, especially in condos, these also restrict your freedom on your house and could have fines. 3. Utilities there are some Utilities the owner has to pay no matter what, usually sewer/trash has to stay in owners name.
@cherishgp
7 ай бұрын
Utilities payments also need to be paid when you rent. Your landlord doesn’t cover utilities. You also pay renter’s insurance.
@AstaKristjan
Жыл бұрын
What happened to SVB is really scary, and goes to show that no corporation, however big, is immune to collapse. I have always had a deep-seated mistrust for corporations. I have plans to pull out most of my money, but don't know what to do with $350k sitting idly. I'd like to go into the stock market, maybe. Any ideas?
@Erinmills98
Жыл бұрын
All big corps are just a cohort of centralised system working together, and any damage to one can have a dangerous ripple effect on every other one. I learned a long time ago to not trust corporations. Most of my money is in the stock market and my businesses. I keep only what I need to spend in my checking account.
@simonbad
Жыл бұрын
@@Erinmills98 Ironically, these are the conditions in which life-changing money is made by those who remain calm, patient, and take controlled risks. Volatility goes both ways. The banks are in a big crisis. The market looks very shaky. The bigger the red candles, the bigger the green ones. I have made over $280k in the last 4 months by investing through my FA.
@IrenaDolinsek
Жыл бұрын
@@simonbad Wow. I've heard similar success story from people who work with advisors. How do I get in touch with yours, please?
@simonbad
Жыл бұрын
@@IrenaDolinsek Oh, I'm not really in the business of giving financial advisor, so you are responsible for your decisions. But I have been working with Kathleen Yanelli Carole, so you could check her out and contact her, if you want.
@IrenaDolinsek
Жыл бұрын
@@simonbad I appreciate so much mate! I will look up her page..
@jon6309
Жыл бұрын
My parents are landlords and own their properties without a mortgage. According to them there are a lot of burdens associated with being a homeowner most people don't take into consideration. People feel like rent is throwing money away but owning a property even without a mortgage payment can have hidden costs that makes it feel like throwing money away like rent. When property values soar, homeowners are normally happy since their net worth on paper looks larger but the catch no one really thinks about is property taxes will also go up since they are based on an assessed value. Most homeowners who experience higher property values continue to live in their homes so they end up paying a higher tax bill year after year. Another thing is home insurance, depending on variables the likelihood of a house burning down or getting severely damage is not as high as we would normally think but is one of those things that is important to have and needs to be paid for in case the probability turns out unfavorable for you. Imagine those homes that have stood the test of time and are close to a hundred years old, all those years of home insurance payments are now sunk cost like rent since nothing happened to them for the home insurance to be utilized. There are also non financial things to consider. Owning a home requires your commitment and if you end up with a crazy neighbor you can't stand it's very difficult to get out of that situation and you would be lucky if the crazy neighbor moves or someone is willing to buy your property during that time. At least with renting you are not committed as much and you can easily move out for any situation whether it's a crazy neighbor or losing your job which will require you to adapt to a new financial situation. It's kind of hard for people who have a mortgage and lost their jobs who now faces the risk of forclosure. Overall when buying a home you should never treat it as an asset for wealth building but to enjoy the most autonomy of being a homeowner who has some control over the stability of living in one place versus being at the mercy of a landlord who has the right to sell their property even if you have settled in well.
@xombiii
Жыл бұрын
I owned a home and the value went up, yay. However the property taxes caused the payment to go up too.
@jessecunningham6460
Жыл бұрын
@@xombiii Not in CA. Prop 13 only appreciates the tax basis 2% per year. People with $1M properties pay less than $1k in Property tax, while the new neighbor who bought (and got re-assesed) pays $10k. yr. It has locked up inventory (no one moves) and been a constraint on the market imo. Funny part is when $1M house guy moves to TX cause he OD'd on Rogan, and buys a $1M McMansion and his taxes go up $19k/ yr. Yes he saves on the income tax, but I wonder how it all comes out. If they make $100k the Texas taxes are more. Of course there is cost of living and other political factors, but bottom line is that the tax man cometh.
@pajarothebird9842
Жыл бұрын
I just lost my home because the landlord jacked the rent 17%, after 10% last year. I'd deal with a crazy neighbor if it meant that I wouldn't loose my home due to corporate greed.
@jon6309
Жыл бұрын
@@pajarothebird9842 were you able to find a new home within your budget? As a renter you have more options as a home owner on the verge of foreclosure you can lose a lot of your savings on the downpayment of your home and have nothing to start with!
@Dbb27
Жыл бұрын
@@jon6309most people don’t get foreclosed on.
@Richmind-ir5zi
2 ай бұрын
The housing market is inflated and oversaturated with homes being on the market with astronomical price tags just stagnant for months. It is very clear that or generation will be likely one of the most devastating bubble pops in modern history. Seeking best possible ways to grow 250k into $1m+ and get a good house for retirement, I'm 48.
@Mitch10bands
2 ай бұрын
I don't think here is the place for personalized investment guidance. However, I suggest consulting with a reliable advisor like Azul to ensure appropriate retirement planning.
@Marianela-r3v
2 ай бұрын
I’m closing in on retirement, and I have benefitted much from using a financial advisor. I didn’t really start early, so I knew the compound interest of index fund investing would not work for me. Funny how I pulled in over 80% profit than some of my peers who have been investing for many years. Maybe you should consider this too
@TylerofSc004
2 ай бұрын
I've been considering getting one, but haven't been proactive about it. Can you recommend your advisor? I could really use some assistance.
@Marianela-r3v
2 ай бұрын
'Kristin Amber Landis' is the licensed advisor I use. Just research the name. You’d find necessary details to work with to set up an appointment.
@TylerofSc004
2 ай бұрын
Thanks for sharing. I curiously searched for her full name and her website popped up immediately. I looked through her credentials and did my due diligence before contacting her.
@RaceBannonChannel
Жыл бұрын
I've watched a bunch of renting versus owning videos and read a bunch of articles on the topic and this is by far one of the best I've seen.
@phxrazdan
10 ай бұрын
8:43 that much interest adds to ability to do itemized tax deduction. So there is a tax benefit that renting does not provide.
@TechTimeWithEric
11 ай бұрын
What happened with me is I ended up going through a divorce at the worst possible time in the housing market. It made way more sense for me to buy a $60K mobile home than to rent a tiny apartment for around $2K per month
@MadisonFalcoFoods
Жыл бұрын
I think something people don’t often think about when thinking about buying a home instead of renting is the difference in cost of electricity. Air conditioning a 1800sqft home is significantly higher than a 900sqft apartment and should be considered as well. Especially if you don’t have shade on your home or if your home is facing west where the sun is going to set everyday
@Proffesor_Z
Жыл бұрын
you can buy a 900sqft condo🤷♂️
@MadisonFalcoFoods
Жыл бұрын
@@Proffesor_Z a condo is not a house :)
@alecgalbraith5604
Жыл бұрын
You’re comparing apples to oranges though. To get an accurate assessment on the rent vs. buy situation, you should be comparing equally sized homes. Otherwise, the comparison can be highly skewed. For example, if taken to the extreme, you could say buying is never worth it because a mansion’s property taxes and utilities alone is more than it costs to rent a one bedroom apartment.
@MadisonFalcoFoods
Жыл бұрын
@@alecgalbraith5604 In my state, usually when people go from an apartment to a home, they are not going to buy a home that is the same sqft as their apartment. I can’t speak to how it is in other states. 900sqft homes don’t really exist here.
@Proffesor_Z
Жыл бұрын
@@MadisonFalcoFoods Good observation, neither is an apartment. Point is, a 900sqft apartment is comparable to a 900sqft condo in terms of electricity in the context of your original comment
@Soxandnicole
Жыл бұрын
Thanks for your very informative video. I never realized how much money we saved in interest by physically building our own home. We paid has we went. We never had a mortgage. While building the house we lived in a school bus converted into an RV. We paid only $75/month for the RV slot. It was a lot of work but so worth it.
@mamalovesthebeach437
Жыл бұрын
Good for you! My ex-husband and I did this as well. In 1989 we bought 5 1/2 acres and lived in a 27 foot travel trailer for four years while building. Unfortunately we divorced. It cost us 240k to build our home. 10 years later when I bought my husband out the house was appraised at $1.1 million. I was only able to hang on to it for a few years then had to sell. I’m now in my 60s and renting. Take good care of one another and cherish your marriage.💜💜
@ji-inroh495
Жыл бұрын
In your example, the 2% home price appreciation would be based on $500,000 or $10,000 a year. Also, you can refi when rates go down. Based on my experience, rent goes up every year, especially with Wall St. owning more SFHs. Just some other things to consider.
@GuitarsAndSynths
Жыл бұрын
not for my friend who has rented same apartment for 20 years and they only raised his rent a tiny amount. He was paying 500 now paying 1k a month compared to new tenants paying 1500/month downtown Sacramento, CA area.
@ji-inroh495
Жыл бұрын
@@GuitarsAndSynths That's great. And your friend is stuck as a renter for the rest of his/her life? Perfect for property owners.
@andyyoo2948
Жыл бұрын
This. Great video but fails to take into account the rate at which avg Rent rises per year
@saurabhbhalla90
Жыл бұрын
homeownership also has some tax benefits. But then also a lot of sunken costs
@vloetjl
Жыл бұрын
@@andyyoo2948 I think that is a great point. However, each individual's situation varies greatly. You could have a landlord that owns only one or two properties or a company who owns thousands. The individual owner may value occupancy over greater profit margins like the company because they want to decrease their risk. This could mean lower increases over time for a renter like the commenter above. To your point, it may be beneficial to include an average rent increase so the average consumer benefits from being more aware. But I do think he roundaboutly addresses this by noting the fixed price benefit of a mortgage vs. the surprise/unknown timing of a rent increase.
@gregmotyka4
Жыл бұрын
Property tax and home insurance has gone up dramatically (ie. Florida) in many areas. Like rent, you can't always predict those rate swings. But with renting, you can always get out after your lease ends.
@markg-jw2hx
Жыл бұрын
Your rent pays for property tax and insurance. If property tax and home insurance goes up, so does your rent !!! There is no way you can escape it: renting or owning.
@saeedhossain6099
Жыл бұрын
@@markg-jw2hx agreed in principle, however if you're renting, you can downgrade to save money if renting, most people don't and it's not easy, but it's a doable option if you're money minded like that.
@jth_printed_designs
Жыл бұрын
@@saeedhossain6099 You can "downgrade" when buying too. Just because you can afford a $400k house, doesn't mean you cant buy and live in a $150k house
@pskfry
Жыл бұрын
and you can always be kicked out by your landlord
@saeedhossain6099
Жыл бұрын
@@jth_printed_designs true, but there are a lot of friction costs to selling. renting, at most you're out your deposit
@brandoncurrie1825
Жыл бұрын
Love the video @humphrey as a CFP I do this exercise with clients all the time. Just one thing to remember when looking at the opportunity cost for the downpayment you can't use the historical average of the S&P 500 as it is an index of 500 stocks. The vast majority of ppl would never qualify under KYC rules in a portfolio or ETF of 100% stocks, they don't have the risk profile to do so. Most are a moderate/balanced investor which would be a 60/40 or a 70/30 split between stocks and bonds. That therefore would yield a lower historical average return than 100% stocks. Even Warren Buffett averages a 90/10 split. Otherwise great video!
@marklechadores5574
Жыл бұрын
I rent a house all to myself for $1000/month and I'm happy in my current situation despite not having the most modern home in Grande Prairie, AB, Canada. I want to avoid lifestyle inflation and money status as you mentioned in your previous videos so I will not go into greater debt. Canada currently has a mortgage and debt problem where the country's GDP is lower than the nation's debt, due to housing debt as well as vehicle loans.
@basilman121
Жыл бұрын
Bought a home with my fiance almost 2 years ago. It has been a great experience. Those maintenance costs are real though. We spent north of 12k on improvements. But it's ours, and at 3% interest, our payment is MUCH better now compared to the rent rates in our area and we never have to worry about moving.
@binyam11
Жыл бұрын
Keep her as a fiancé of u want to keep that house lol
@ji-inroh495
Жыл бұрын
A fixed-rate long-term mortgage payment is the ultimate form of "rent control."
@endxofxeternity
Жыл бұрын
@@binyam11 this is so unnecessary to comment
@Dbb27
Жыл бұрын
Congrats on your new home! Now work at getting the principal paid down.
@basilman121
Жыл бұрын
@@binyam11 getting married in 2 weeks, that's the plan :D
@SpencerJohnsonOfficial
Жыл бұрын
That spreadsheet is super nice to tinker with. Considering I'm someone who is still at the stage of their life where renting is all that really makes sense, this video is more of a helpful tool when it comes to road mapping my future plans rather than any current decisions I'm making, but it's super important nonetheless! Great video Humphrey!
@Monkey-oy1us
2 ай бұрын
I love that Humphrey addresses the emotional component of the avg individual. A few things that finance ppl don’t address are: ability to renew lease is in most part dependent landlords renewing. Even if you are a wonderful tenant, your landlord may still need to sell and unable to renew your lease. Time/emotional/financial cost of looking for rentals, financial/time cost of moving every 2-3 years.
@OlleyThorpe
Жыл бұрын
Just bought my first house. Loving it so far, but deffo see the benefits of just renting.
@humphrey
Жыл бұрын
thanks Olley - what do you like about owning though? Lmk
@itskelvinn
Жыл бұрын
Lol
@thomasriehl4554
Жыл бұрын
@@humphrey 1) Intangible happiness and satisfaction of owning/being fully responsible where you live. 2) Greater freedom in planning and designing updates/renovations/etc. 3) You're going to be paying to live somewhere anyway, so you might as well keep in equity some of the money you spend. If you can afford it or it's feasible of course. You're still paying property taxes, updates, utilities, etc in your rent, it's just hidden and not your direct responsibility.
@kiaracodes5166
Жыл бұрын
I love home ownership too! But when people ask me about it I make sure they're aware it's really not for everyone.
@OlleyThorpe
Жыл бұрын
@@kiaracodes5166 deffo!
@barbmelle3136
Жыл бұрын
From Leo: Home ownership effectiveness also depends on the building repair skills and work ethic of the owner. An owner that replaces his own roof, services his own plumbing and HVAC and does his own painting and landscape maintenance is easily better off owning. If someone with no skills or motivation buys a home and has to hire contractors for all those things, the added maintenance costs lean heavily against home ownership. Just like a mechanic may drive all year and spend less than one car payment for an unskilled person.
@HarshColby
Жыл бұрын
The landlord is going to charge for roof repair at competitive rates, so it's a wash. As a renter, if you're skilled in repairs, you can negotiate with the landlord for a reduction in rent for any repairs the renter performs.
@BeardedCarBuddy
Жыл бұрын
Love the video and a great starting point rule. I did choose to buy even though more expensive because of forced savings and knowing mortgage payment does not change, both of which you mention.
@selenagamya1612
Жыл бұрын
Simply seeing the listing for a 2 bed/2 bath house set at half a million dollars made me realize moving away from the west coast was probably the single smartest thing I've ever done in my life.
@iamkailong
8 ай бұрын
Now imagine even smaller flat for even more money, in a city that median household income after tax is only half of the US. That's what we got in HK:)
@mikeydude750
7 ай бұрын
half million? hahaha try a million dollars.
@mikeydude750
7 ай бұрын
That listing is a /mobile home/. It's not even a house! It's on a lot you need to pay rent for!
@primadonna82
7 ай бұрын
Half million? That's a bargain. In desirable cities, 2bd condos are $1million and up
@jacqueslee2592
2 ай бұрын
There are pros and cons. I would want to live cheaper but in danger due to natural disasters each year that happen in the Mid West and East Coast. West coast, California, pays a weather tax since there are rarely no natural disasters that are catastrophic like elsewhere.
@VirusVescichetta
Жыл бұрын
I can only imagine being part of a generation where home ownership wasn't only for the exceedingly privileged or lucky. It sucks how many people have basically no choice but to rent until they die.
@slyde734
Жыл бұрын
Basically, you are talking about the United States prior to 1945.
@Fishfood007
Жыл бұрын
You could just move to an area in the US that you can afford to buy a home…
@VirusVescichetta
Жыл бұрын
@@Fishfood007 Firstly, I don't live in the US. Housing prices are in a horrific state all over the world; the US isn't special on that front. Secondly, "just move" is such a grossly oversimplified solution it isn't worth considering. There are dozens of reasons for moving to not be an option for a lot of people. Don't be dense for the sake of being dense. It's a bad look for anyone.
@arh1234
Жыл бұрын
@@VirusVescichetta Might not be trying to be dense. If other things are more important to you than home ownership, great! Lots of people through world history have moved for COL/opportunity reasons, sometimes leaving family behind forever. It's worth at least considering.
@mostmost1
Жыл бұрын
Interest rates in the 80s were 20%! Most couldn't afford the loan.
@peejaydandoy2889
Жыл бұрын
All signs suggest that 2023 will be a year of severe economic pain, I was really hopeful of my investments this year, but I followed some stocks suggestions that didn't go so well, I've been studying the stock market and I realized some investors made millions from the recent recession and I was wondering if such success rate could be achieved in this present market. and the Federal Reserve taking a more hawkish approach to interest rates.
@AzinwiNeba
Жыл бұрын
If you go long against the market you'd make such success.
@JuneroseCarcina
Жыл бұрын
hrow it into AI stocks / Hold some in gold. I feel exceptionally lucky I started investing in my early 40s and consistently compounded my income to create more cash flow. I built a 7 figure well-diversified portfolio just by following my F.A Trisha Jean Webb's recommendations and having exposure to different prolific investments mainly blue chip stocks, an allocation fund, S&P500 and coins.
@peejaydandoy2889
Жыл бұрын
@@JuneroseCarcina Did a quick web search, she has a pretty decent bio, I wrote her and I'm waiting on her reply
@benno291980
Жыл бұрын
@@JuneroseCarcina go tf away with your bullshit
@benno291980
Жыл бұрын
@@peejaydandoy2889 oh you're in on the scam too?
@damolaakinsowon2224
Жыл бұрын
In the long run is mostly always to own home. In the initial years when interest payments are high, rental costs may be higher, but after a few years, the cost of owning will likely be lower as your loan amortizes and interest payment reduces. Also, you are shielded from inflation ‘cost’ particularly for fixed rate mortgage. By year 30, you are paying very little in interest. However, rental costs will escalate almost annually at least by inflation rate, which will make rental cost in 30 years much higher.
@HQSCJIPZ
Жыл бұрын
I agree, if you’re going to stay in one place for 30+ years it’s almost always better to purchase a home. That being said the cost of equity associated home ownership also increases with inflation since as your home’s value increases, so does the opportunity cost of home ownership
@joenunez938
Жыл бұрын
@@HQSCJIPZeven if you move around every few years it's still usually better to buy
@carissafisher7514
11 ай бұрын
You need to consider the fact that your rent will increase!! How are you going to find a place that won’t increase your rent in 30 years? The problem is people keep refinancing their loans. The very best is a 15 year loan, because the interest is lower. The ban k did offer me a 40 year loan....I only have 13 years left on my mortgage! A 40 year loan is real. The sad truth is most people never pay off their homes, and that is the REAL problem. Home ownership is the biggest difference in the haves vs. the have nots. When I first moved into my place, the place I was renting was $1,000/month, now those apartments are 2,500/month. So with buying I have a bigger place and I pay $1000 less than what I would be paying in rent.
@ThePetesBeat
10 ай бұрын
Not with house prices today (at least in South FL)
@JimmyHuynhdesign
Жыл бұрын
Another factor many don't account for is rental inflation over 15/30 years where a mortgage stays flat assume its a fixed rate which it should be. After the mortgage is paid off (which it will eventually), rental payments will always continue. Simple way to think of it, short term/mid term, pros and cons for each will vary, however in the long term, you save more buying.
@danzarlengo7127
Жыл бұрын
Another point to mention is that if you sell a house in less than 4 or 5 years, you take a huge loss because the loan origination costs, purchase taxes and other upfront costs don't get averaged out (amortized) over many years.
@Black70Fastback
Жыл бұрын
As well as sales commission if a realtor is used
@CharlotteSoccerHighlights
10 ай бұрын
What? I bought a house in 2019 for $250K, worth $450K now four years later so your statement is not accurate.
@objc
10 ай бұрын
@@CharlotteSoccerHighlightsthe original statement is generally true but you bought at one of the best times, values shot up, so, congratulations! Just keep this in mind in the future, prices will stabilize and if you buy during a flat or down market those costs may not be recouped easily.
@RAZTubin
Жыл бұрын
Good video. I consider maintenance fees the cost of things that break down, like the AC or refrigerator, roof leaks, plumbing leaks, etc. . So I suggest you also add other required home costs. Those include home insurance, HOA fees, pest control and lawn maintenance fees. Yes, keeping the lawn green to keep up with the neighbor's lawn is several thousands per year. If you have a pool, add that also.
@dfs-comedy
8 ай бұрын
PSA: Don't buy a home in an area with a HOA. I realize that might be tough in the USA, but luckily in Canada HOAs are still pretty uncommon. HOA rules can be draconian and can really scr3w you.
@PrincessGunther
Жыл бұрын
Your explanation is realistic and straight to the point. l watch several video's on how to trade in the market but haven't made any headstart because they are either taIking some gibberish or sharing their story of how they made it. And l don't want to make mistakes by taking risks on my own
@angelasoWA
Жыл бұрын
Your spreadsheet should add the average rent increases per year. Time the person plans to live there, say 5,10, 15 etc…then the total cost rent vs buy after you sell your home after some time.
@jhford1234
Жыл бұрын
Bought our home for $310k in KS in early 2019...it is now worth close to $500k and our rate is 2.375%. If we had decided to wait buy a house today, our payment would have went from $1550 on a 15-year note to about $2900ish house payment on a 30-year fixed. 🤯
@keliu9112
Жыл бұрын
That 30-year fixed is no different from robbery to me...
@ThisMichaelBrown
5 ай бұрын
Brilliant, I always suspected this.....once property tax, homeowners, flood and interest rates get high enough, renting makes a bunch of sense...Thanks for the vid
@mandorlap8091
Жыл бұрын
Also, I think you can rent a place for less than what you would pay for mortgage for that specific place you want to live in etc… but of course both have pros and cons:)
@Dbb27
Жыл бұрын
Not in my area.
@moparjr89
Жыл бұрын
Not even😂 my mortgage is cheaper then rent and in 30 years I will have property and not paid for some rich assholes mortgage
@brian2973
Жыл бұрын
Great content. I also first heard of this concept from Ben Felix and I have been wanting him to put out an updated version to reflect current realities (I also live in Canada). Thanks for adding to the conversation. Side note, it's funny how many times I've tried to explain this concept to friends or relatives whenever people ask me when I'm planning on buying a house. I'd say 99% of the time it's met with a blank stare and I get told I'm crazy for thinking renting is better than buying in my case because it's "dead money". I'll usually explain the math and the concept another time and again get met with resistance. The takeaway is in Canada (likely most places in the world) the idea that buying a home is better 100% of the time is so ingrained in our minds it is hard for people to seriously consider this idea objectively. FWIW I live in a very luxury market and rent my place for $900 all costs accounted for. If I were to buy in this area my monthly costs according to your percentage rule would be around $3000 a month. Cheers.
@annewhitney8809
Жыл бұрын
Agreed. I owned houses in the past and now rent. I live in Ontario in a very expensive area. Much cheaper to rent.
@mdkhalidrahman2832
Жыл бұрын
Think from the emotional side... Owning a house is a big accomplishment. It provides a sense of achievement in life, as well as a free space of your own, a sanctuary. Go for it if you can afford it. Worth it.
@jlgibbens89
2 ай бұрын
Humphrey love the content, please keep the great videos going. I did want to give a slight correction when you are discussing the opportunity loss you mention stocks return 7%, while Residential real estate returns 2%. I cannot comment on this aspect, as I live in a different country. However the formula for that would be 7% x $100,000 (The deposit for the home, or money you would have invested) = $7000 vs 2% x $500,000 (value of home, as the increase in home prices is not based on deposit) = $10,000. Which although this gain is not necessarily liquid it is actually not a loss in opportunity cost. Hope this helps clarify. Especially if considered real estate as an investment vehicle.
@Better_Car_Control
Жыл бұрын
Technically your primary residence is not an investment, it is a liability, as it takes money out of your pocket, not into it. A better comparison would be a rental property vs the stock market. Make sure to factor in the tax benefits of a rental property and how that can offset W2 income
@IrisP989
Жыл бұрын
You still acquire equity in your primary residence. You don't see it but it is there.
@hamartian_7979
Жыл бұрын
And you're technically wrong. A primary residence is an Asset because it provides a useful function. The paid mortgage principal goes into Equity because you now own that part outright, the paid mortgage interest and other fees that you'll never get the money back out of are Liabilities. Just because something has recurring expenses or costs more to maintain than it's worth over the course of a lifetime doesn't turn an asset into a liability in terms of accounting / finance, because if it still has use it's an asset with offsets of liabilities and equity. Now, depending on tax breaks, etc, it may be better strategy to have a rental property due to other benefits like you said, but you're simply wrong about the liability part. Might as well recommend depreciating land next and see where that gets you
@Better_Car_Control
Жыл бұрын
@@hamartian_7979 those are valid points, but the main premise of my statement was more around the framework of comparing assets that actually give you a positive ROI, like what paper financial assets i.e. dividend stocks, bonds, etc provide vs a rental property etc. While I agree there is some equity you build, your primary residence does not provide a NET positive ROI on a monthly basis, so in reality it is a technically a liability. As such, the comparison between a primary residence and index and paper equities is flawed. If you are not getting positive cash flow on a monthly basis, it’s a liability. That is universal, it doesn’t matter what it is, regardless of the function you get out of it.
@markg-jw2hx
Жыл бұрын
It's like saying a car isn't an investment but a liability. How are you get to work then? Walk? If you have a car, suddenly a lot of money making opportunities open up compared to walking. So, then it becomes an investment. Similarly, you have to spend money for housing. The choices are rent or buy. Comparing to rent, a house is an investment.
@Better_Car_Control
Жыл бұрын
@@markg-jw2hx spoken from a car guy with multiple cars, cars are liabilities 99% of the time. Unless you are really savvy and know what cars will be sought after and in short supply in the future, and can actually sell at a profit ( including deducting maintenance from your profit). Function does not make something an asset, Cash flow does. That is my main point. You guys are focusing on the leaves and missing the forest
@MetalMilitia072583
Жыл бұрын
Ben Felix and the Rational Reminder Podcast is an amazing, insightful, evidence based approach to learning more about personal finance and financial markets/products. Would definately recommend! Keep in mind the target audience is usually for folks with foundational understanding of these topics, although they have some wonderful intro topics like how to choose a financial planner.
@bryan_witha_whyy
Жыл бұрын
I bought an older home (1956). The previous owner tried to do everything themselves so lots of things are held together with gum. We’re spending about $500-1,000 a month fixing things. On the long run it’ll pay off but in the short, owning is DEFINITELY not cheaper than renting. Don’t go in thinking that or you will lose your shirt.
@jacqueslee2592
2 ай бұрын
Do they just break on their own? Maybe it is because you are overusing your home appliances? Showering and watering too long, leaving electricity on when not needed, flushing the toilet too much. Maybe opt for a grass-free garden, change your landscape to natural native plants that are drought resistant. Live a minimalist lifestyle. Why do you incur high costs with fixing things?
@bryan_witha_whyy
2 ай бұрын
@@jacqueslee2592 Well when you don’t maintain things or repair them properly for years it adds up to a lot.
@jacqueslee2592
2 ай бұрын
@@bryan_witha_whyy Well, I rather buy nothing for this reason. I still do not understand how things just break down. Maintenance and having things are a headache because they become part of your life. Hence, why I always hear my damn neighbors everyday just working on their homes. The noise of machinery for me is sickening when I was in the US. Do you live in a high maintenance home? I try to avoid those when I will buy a home. In Japan, homes do not break down but we also live minimally and smaller homes.
@bryan_witha_whyy
2 ай бұрын
@@jacqueslee2592 Things break, mechanicals need parts. A house takes a beating. It takes work and money to keep it up. That’s why I think most people should just rent.
@michaelfoley915
Жыл бұрын
Good share. Just need to consider the average real estate return on the total property value given the impact of leverage. Cost of debt is all there and accounted for on the 80% mortgage, but on the $500k home price, the return of 2% is $10k pa (10% return on equity) which is exceeding the 7% pa with stocks by just investing the forgone $100k deposit/cash. If using the 2% real estate return and an 80% mortgage, then just need to divide that return by 20% in the spreadsheet to make up for the impact of leverage on real estate. Easy fix. Only problem is you have to sell to access the capital uplift, but same goes for stocks I supposed. As is the calculator is great for a cashflow comparison of rent vs buy.
@KendraTimm
Жыл бұрын
The biggest reason I chose to buy a home was because although my rent was very cheap for my area, my landlords would not fix anything. I got tired of not having a light in my bedroom because the wiring did not work same with the screen on my window. I am now paying a monthly mortgage payment that is the same as the rent for a similar space. So far I am really enjoying owning a home, but it has only been 3 months.
@charleslavoie5402
Жыл бұрын
This is my problem. I rent from my wife’s father who doesn’t want to fix anything in this run down house. He won’t sell it to us but yet expects me to repair everything at no cost. ( I’m family right ). Can’t wait to buy a house of our own. Anyways, Bol with the house and hope you enjoy it. I can’t imagine that feeling.
@Combat_Medic
Жыл бұрын
Wait till you have to replace your roof.
@pskfry
Жыл бұрын
@@Combat_Medic then you'll replace it instead of having leaking ceilings and a drafty house. and guess what, unless ur house is massive it's like 5 - 8 grand
@Openwrt2023
Жыл бұрын
This is one reason why people buy homes instead of renting.
@Iamonepercent
10 ай бұрын
@@Combat_Medic Once in 20 year event, so horrible.
@captoshuragnarok7444
Жыл бұрын
Don't forget HOA (~200+ per month), Home Insurance (~40+ per month), and/or Land Lease (~1,000+ per month).
@timdefor8858
Жыл бұрын
Solid informative video. Did you include the appreciation on the whole $500k value of the property and not just on the $100k down payment? 2% of the remaining $400k would bring an additional return of $8k. So the number would be $35.5k and not $43.5. This would make it 7.1% and not 8.71%. That would be $2,367 instead of $2,903. I may not have fully grasped the concept, but it did seem to leave out the appreciation of the entire home value.
@jimrudd1250
Жыл бұрын
I noticed this point also and agree with your modified analysis.
@minigol91
11 ай бұрын
I own now and I have rented before but I personally prefer renting, life seems to be more fun when you rent, it's usually in a better area and you get to have a gym,pool etc.. don't have to worry about maintenance and you have the freedom to pick up and go anytime you want, also owning means most or all of your money is in the house, if rent prices wouldn't go up and was like a mortgage fixed for many years I would 100% rent.
@OksanaRastuk
Жыл бұрын
I was stuck on deciding if to continue investing or start paying for a house. I ended up selling my positions and the home turned out to be a fixer upper more than I imagined. I don’t know how long I can keep this up for.
@Dbb27
Жыл бұрын
Oh my. A fixer upper is never a good decision for a first home. I have been a landlord and property investor/agent all my life. Please consider making a list of everything that needs to be done. Then list the priorities. Priority items are only those that are required to maintain the integrity of the structure. Like roofs, septic, HVAC; the expensive stuff you can’t show off to your friends. From there look at your wants and save for those items. If you can’t cash flow it don’t do it. One doesn’t need a Bosch dishwasher. It doesn’t work any different and has poor repair history yet people will pay triple what they need to. It’s an ego thing. I made the mistake early on of spending too much money on what really amounted to decorative items. Now I set a budget and don’t do something unless I have the cash. Take a breath and do nothing for six months. You’re just weary. You’ll be fine. The goal in the end is to have a paid for house so you can afford to retire. And stay off HGTV! 😂🥰
@foley2k2
Жыл бұрын
If you've made progress, re-list the property accounting for that and pick a project that you can handle. Sometimes 2 or 3 people try to rehab the same property.
@Dbb27
Жыл бұрын
@@foley2k2 you’re so spot on with fixer uppers. I worked heavily in the foreclosure market. Probably 30% of the listings we had were homes that were partially rehabbed. Sadly, 30-40% were from medical care. People couldn’t afford to pay for care along with their housing.
@bukki07
Жыл бұрын
@@alexeytartinov It is already too late for that kinda suggestion don’t you think?
@irenatrulove
Жыл бұрын
I was tempted to sell just like you having lost a lot, which is over 50% of my portfolio I am seeking more effective investment approaches to scale up with in these times as I have read of investors making gains in a bear market.
@narbwow8168
5 ай бұрын
I'm glad you mentioned the amortization curve. In theory you could take your total interest payment and the total investment in the house and run a weighted average cost of capital calculation. I think an even better way (something I'm working on) is to spreadsheet out and simulate the year-by-year cash flows, including taxes, and providing a year-over-year picture of what your portfolio would look like along with your net worth.
@benjamingrass3643
Жыл бұрын
Sorry Humphrey, Even if Median home price apreciation is 2%. By using a mortgage you are leveraging the return 5x. Meaning your return on investment is 10% not 2%. This changes everything. Canada also offers first time home buyer program where you need only a 5% downpayment. Effectively giving you 40% ROI. Not to mention there are ways to buy a house without a downpayment like having a parent or friend co-sign.
@phillipsouthard8285
Жыл бұрын
Closing costs, HOAs, home insurance is higher than renters insurance (by a lot), and changing property tax rates all make the cost even higher for a home. In our area, a standard 3bed/2bath house is 375-400k. We rent a small apartment for 1400 (1bed/1bath, which is enough for my wife and I and the dog). Renting definitely makes more sense right now. Obviously rents can go up, but in the last 3 years, our rent has only gone up by $150.
@mikeweller2124
Жыл бұрын
Good starting point. Items to consider to improve true costs: You left out the cost of home owner's insurance. Closing costs should be amortized over the life of home ownership. It wasn't clear if the price appreciation was after inflation, which doesn't seem likely. You can actually lose money on home ownership. I basically broke even on 4 properties owned over 30 years. The real ownership plus for me was I was able to modify home to meet my needs as family needs changed.
@Dbb27
Жыл бұрын
If you rented you wouldn’t have broke even.
@joenunez938
Жыл бұрын
How did you only break even on homes you owned for 30 years?
@Dbb27
Жыл бұрын
@@joenunez938 my property I bought for 200k is now worth 900k in 23 years. Not sure how breaking even works over 30 years. I guess it’s the new math being taught? 🥹🤓
@RoyMach1ne
2 ай бұрын
In my province, the maximum duration of a mortgage is 25 years; and it can only be fixed for five years. You need to regenociate your rate every five years.
@drpandya
Жыл бұрын
All these videos and articles almost always miss tax savings which is much higher in ownership. You missed tax savings which is mostly mortgage interest is 100% deductible.
@buynps
11 ай бұрын
The yield for the rent amount saved ($24k/yr) should also be added back. And in a high tax place, the rent saved is closer to $40k/yr as yield since rent is paid with post tax money.
@TBIhope
Жыл бұрын
I’m also including the fact that I own more of my house every month. I locked in my mortgage below 3%, so I can never move. But thank you for making this video!
@EmadElSammad
Жыл бұрын
Best video on youtube that explains rent vs buy. Thank you and really appreciate it
@lofiftyfifty9206
Жыл бұрын
One thing that’s not considered is that the locale in which your fixed investment/home can change drastically. Neighborhood preferences can shift very quickly. Once pristine neighborhoods can become “blighted” and unsafe for a retired elderly person to live in. The blighted value of the property diminishes greatly and becomes a difficult item to market.
@Mettabeshay
Ай бұрын
this is such a fantastic video. you really factored in so many things
@IvanVazquezS
Жыл бұрын
You forgot 3 really important things for the absolute cost of owning calculation: 1. The commision to the real estate agent and other paperwork needed to be done for the property. Not sure if you as a buyer need to pay some of this in your country but in some countries you need to do some papework and this can cost up to 1-1.5% extra of the price of the place at the beginning. 2. Cost of selling the property. When you sell the property, you need to do again some big remodeling sometimes and also pay the advertising, the commision to the agent and some taxes to the government. I am not sure about the ammount but of course, this cannot just be avoided. 3. Buying a home you are planning to live in means you made a commitment to live in that specific street of that specific city for many many many years, from at least 10 to 20. If you plan on buying to live only for 3-5 years and then sell, make the numbers and you will realize it's not worth it compared to investing somewhere else. Buying a home to rent, airbnb, etc. Has some other extra costs and risks, and while it may seem it gives more money, the reality is that you sometimes can't keep moving the rent up as fast as you want, and you most of the time will have a month or two where you don't have anyone renting, meaning you already lost around 10% of your yearly income. Just remember everyone: Buying a place to live in it is NOT an investment, it's a liablity.
@Drdreynotanmd
Жыл бұрын
One additional and very important cost not considered here is the Closing Costs, running at a hot 3-5% for a buyer that can really tip the scale for the first year of ownership esp.
@garysmith789
Жыл бұрын
Your analysis is very good but there are some items that are lacking. Namely income taxes and mortgage amortization as they relate to the time value of money. Overall I think you did a good job of explaining the quandary
@singu31
Жыл бұрын
There is also the annual rent increase of your apartment or house that needs to be considered. Rents have risen crazily in last 3 years and will continue as the housing demand persists. This is a big variable that is being omitted. Also need to consider cost of moving between apartments etc as not everyone stays put in same place for years together
@humphrey
Жыл бұрын
correct yeah!
@heymoe1179
Жыл бұрын
Capital Gains tax...and equity on the property are factors also needed to be considered. Rents usually increase from lease to lease.
@anonalpha1190
7 ай бұрын
Don’t forget, the entire home value appreciates, not just the down payment. So it’s much better than 2% after adjusting for that leverage.
@TB-fj7kk
Жыл бұрын
Excellent video. I wish I had watched this a couple months ago when I started to think about whether to own or rent. I ended up doing similar calculations, but this video would have made it way quicker and simpler!
@Lq32332
Жыл бұрын
@@drazapatosyour down payment could be earning money every year if you didn’t spend it on a house. So yes, your opportunity cost of the massive down payment is there every year.
@Lq32332
Жыл бұрын
@@drazapatos you are so off base. Your 100k in stocks becomes 107k, 115k, 123k… that’s assuming a 7% return. The SPY index has averaged 9.71 % over the last 30 years. That is pure profit too- no interest, taxes(until you sell), maintenance, etc. I will say his numbers are conservative. I think pure money play renting as cheap as possible and stuffing the rest in ETFs is easily the most profitable play. If you want real estate exposure you can buy REIT’s. Nothing against buying a home, but it shouldn’t be your largest asset. Your portfolio should be.
@Lq32332
Жыл бұрын
@@drazapatos you can ask a bank for a loan-they like collateral though- they don’t know if you gonna waste it all some garbage penny stock. You use margin in a brokerage account- you can borrow like 50% of your accounts worth to leverage if you like. You have to decide wether the risk is worth it though.
@MrObeesho
Жыл бұрын
Around 9:30 into video you talk about the amortization table and interest. You have a common misunderstanding of the amortization table. In fact the interest you pay each month is: (remaining principal) x (interest expressed as fraction) / 12 If you pay extra towards principal near the start of the loan you will effectively skip down the amortization table to the payment that matches the new principal remaining. In other words it is pure simple interest with no "front loading". Understanding the math goes a long way to improving the decisions you make... Especially in regards to how valuable extra payments are in the early stages on the loan.
@thyong24
Жыл бұрын
This is by far the best renting vs purchasing house video I’ve come accrossed. Humans are not rational is something that I read in psychology of money and that is so true. As I just purchased an apartment last year (in the Netherlands), knowing how much I am paying per month is a sense of security on it self, ar least for me. I also get tax benefit which I will obtain in a couple of months. It’s good that you touch all these points as well because I don’t see many addressing these.
@fzamora1777
Жыл бұрын
Great video. The big upside I exerpienced is that it cost me 288k over 15 years to live in a house but the house has 250k in equity ... so in the end I paid $211/month. Rent would have actually been at least 1000 and gone up from there during that time. It would instead have costed me over 200k to rent or 1111.11 and the rental unit would have been a lot smaller.
@fzamora1777
Жыл бұрын
plus not assets at the end of it all. I did not have to put any money down and my payment accounts for PMI.
@danw7864
Жыл бұрын
Imagine a world where buying a home wasn’t so goddam expensive
@anthonylowry9690
Жыл бұрын
The mythical time of 2012-2020. Before Covid and the world went crazy.
@markg-jw2hx
Жыл бұрын
2009-2010. Prices were 1/3 to 1/6 what they are now.
@roddin9280
Жыл бұрын
Great video, also another cost to include is that many homeowners pay HOA fees monthly or quarterly 🙏
@mamatosh05
Жыл бұрын
If I were a landlord renting out homes I'd definitely include property tax, home owners insurance & extra maintenance fees in the rent; the renters will cover those cost. I don't get why people don't get that.
@kevinmcginnis2928
Жыл бұрын
Not sure if this has been mentioned, but as far as the opportunity cost of sinking 100k into the s&p at 7% compunded over that 30 year mortgage =761k. Not to mention the "opportunity cost" of being limited on mobility i.e. better opportunities elsewhere or shopping for cheaper rents in changing needs. Moving closer to job opportunities. Freedom to relocate to lower cost areas or higher pay jobs etc. Just food for thought. I would assume a good portion of buyers wouldn't stay in the same house for 30 years to take advantage of the amortization interest curve, or be roped into a refinance after
@LamboGallardo560
Жыл бұрын
The biggest problem i see is if you rent for 30 years, youre still paying rent. Whereas after 30 years of paying a mortgage, you no longer have a mortgage. If you continue to rent, thats a cost that must be considered. If you then buy a house, you just burned 30 years of income for nothing. Retiring with rental or mortgage bills isnt realistic.
@CalmerThanYouAre1
Жыл бұрын
The example assumes you would be investing the amount the home owner is paying toward principle every month as part of his mortgage payment into the stock market at 7% returns for 30 years. The renter pays higher expenses, but gets a better return in the stock market. The home owner pays lower expenses, but gets less appreciation on their home equity.
@yuanguo6649
Жыл бұрын
in US, your home is never yours, if you do not pay the property tax, they will kick you out 😅😅
@BTrain-is8ch
Жыл бұрын
Most of your unrecoverable costs are permanent. Property taxes don't suddenly have residual value after your mortgage is paid down nor does maintenance. The opportunity cost on your original downpayment also continues to compound. The only element that goes away is the cost of debt and in normal times with normal interest rates that delta isn't exactly day and night.
@dhirajmalu2947
20 күн бұрын
4:43 you are missing the leverage in the calculations that you get with the mortgage loan. If the property appreciates by 2%, you make money on the value of the home not just on the down payment. So 2% will be $10,000 compared to 7% on S&P 500 with 100k investment.
@brandonreq
Жыл бұрын
This calculation is wrong lol. The homeowner get "1.9%" appreciation on the value of the home. In this situation 500,000 * 1.9% The stock market return gives "7.1%" in the down-payment. In this situation, 100,000. You cannot just take the spread between the percentages and apply it against the down-payment.... Man I should just start uploading finance youtube videos and get some passive income lol
@humphrey
Жыл бұрын
Well its not perfect, but in the situation you mention above with $500,000 * 1.9%, the return on equity is still $500,000 * 1.9% * 20% if you put 20% down (we still have 80% that needs to be returned to teh bank) so it is less than straight up investing in the market in say, 1 average year. But over the course of 30 years as you build equity that disparity should go down over time, but good point
@father2fatherless
Жыл бұрын
@@humphrey I can't figure out if you don't understand leverage or if you don't understand appreciation. But I can guarantee you don't understand one or both of those concepts. Not trying to be rude, but if you are going to educate folks on it, you should make sure you understand these concepts! Love the videos, keep it up!
@roknovak4155
Жыл бұрын
Awesome calculator, thank you! Would be even better if it also included length of mortgage as a variable. I see in the comments too people mentioning mortgage lengths of anywhere from 15 to 40 years, so clearly there's some variation and possibly quite a large impact on how the numbers work out?
@roknovak4155
Жыл бұрын
@HumphreyYangWhatssapAbove On second reflection, perhaps my reaction doesn't actually make sense. i.e. the calculator is based on annual expenses of both scenarios, so the total duration of your mortgage is simply captured already in the interest rate of the mortgage? The duration of the mortgage does have a bunch of other implications, of course, but beyond impacting the interest rate it's not really relevant for annual expenses.
@signaturenil6984
Жыл бұрын
I think generally the costs/benefits from a financial standpoint are negligible (if as a renter you can be diligent in saving and investing). It comes down to lifestyle. Renting is LESS stressful and less work. So if you have a busy lifestyle, work a lot, have kids and not a lot of free time, owning a home is going to be a huge burden. even if renting loses a bit of money in the long term, that amount could be worth the freedom, flexibility and less stress.
@B_Machine
Жыл бұрын
Plus, that down payment is a big hurdle.
@VulcanKick
Жыл бұрын
Something to note. The property tax valuation isn't always the same as the market value, and you can usually apply for a tax break, reducing the amount taxed. I'm really lucky, the market value of my home is $255k and my property tax value is $181k. I'm a disabled vet and get a $120k exemption.
@JackDespero
Ай бұрын
Making the calculations, in the US it is always better to have a 30 years mortgage and pay extra each month than having a 15 years mortgage. Why? Because in the US any extra payments above your required minimum go directly into the principal. Since the US uses the French style of mortgage, that means that you are paying a lot principal when you should be paying mostly interest. In summary, if you end up paying the same, let's say 1.5k+1.5k for 30 years vs 3k for 15, for 15 you are paying mostly interests, while for the 30 you are paying mostly principal. If you make the calculation, you will end up paying the 30 in almost 15 years, but the interest payments will be significantly lower. And it also gives yout he flexibility of not having a high minimum in a month in which you had financial problems, since a lo of your payment is voluntary, then that gives you some flexibility.
@notroll1279
6 күн бұрын
A lot of thought and consideration has gone into these calculations - but you can drill down even further, taking taxation into the equation. In my native Germany, for instance, all revenues from securities are taxable (with very few and complex exceptions) but the money saved from living in your own property and gains from selling a private residence outside a minimum holding period are not...
@TheSteinbitt
10 ай бұрын
I think this depends on demand for rentals where you live and interest rate. If renting is quite cheap compared to owning, there should be a drop in demand for renting out apartments and rather sell them as you loose money. This should drive rent up again to balance it all out.
@dibidow
Жыл бұрын
Helpful overall, but there was one oversight in the “cost of capital” piece. If you put a $100,000 down payment on a $500,000 house and the house goes up in value by 2% ($10,000), then your down payment has effectively yielded a 10% return year 1. As you pay down the principal your invested portion increases so effective return decreases over time, but it’s not hitting 2% for another 30 years, so don’t underrate the returns there.
@carni5064
Жыл бұрын
Plus, in the 30 years when you own the entire property, youre repayment costs go to zero which is likely better return than betting on the stockmarket.
@ISpitHotFiyaa
7 ай бұрын
You've got to include insurance too. Also, since you're not going to live there indefinitely you have to consider the closing costs and selling expenses and amortize those over your expected stay.
@Leediah
Жыл бұрын
😂 $500k mobile home in SJ ☠️
@humphrey
Жыл бұрын
hahaha yikes
@thunderb00m
Жыл бұрын
And some people will say its a bargain
@Ozymandias-r2v
3 ай бұрын
The property tax is not completely sunk. It can partially offset income tax which makes a HUGE difference in your calculations, especially for people who earn alot of money. There is also the possibility of being able to to refi at a lower interest rate in the future. Lot of moving parts here.
@dickiehooton6186
10 ай бұрын
Another thing to consider there is generally no income tax on appreciation of home value where as if you are investing your money instead of putting it in home equity that is taxable for income tax.
@tomlambert915
Жыл бұрын
property taxes just went up 400% in Chicago and renters are the ones paying it.
@roylappin4491
Жыл бұрын
If you decide to rent and change your mind later it is fairly easy to undo that but, if you buy that will be expensive to get out off (sales commissions, repairs, points on mortgages).
@Ozymandias-r2v
20 күн бұрын
The rule of thumb is dont buy unless you will stay put for at least 7 years. 10 years is better.
@IAmTheSpruceMoose
Жыл бұрын
If you are going to compare interest earned in the stock market vs value accrued in a home you need to factor in the fact that you are leveraging your money in the instance of buying a home. Yes the stock market can return 7% and a home appreciates at 2% but in the stock market you are making returns only on the 100,000 while with a home you are returning on the entire value of the home (ie 500,000 in this example). So the returns would be 7000 and 10000, respectively.
@loozer9598
6 ай бұрын
Something that you (and Ben Felix) forgot to mention is the costs of insurance and HOA fees that come with owning. Obviously these won't apply to everyone but where I live they certainly aren't a negligible cost!
@chriszavos
10 ай бұрын
If you buy an apartment in a good residential area, it will eventually increase in value over time and you will also avoid paying extra for the increases in rents that you would otherwise have to pay. If the apartment you bought is new, then you will not have serious maintenance costs for at least one decade. If you downpay your apartment and not borrow money, you will not lose money in a mortgage and you will also protect your capital from the continuous inflation. So basically that leaves you only with the property tax and possibly the insurance. Whatever investment you make with your money you pay tax, so it's not big deal to pay your property tax and live in an apartment you can upgrade in order to adjust it to your needs, instead of not upgrading it and having to put up with it if you rent it from someone else. Renting an apartment also has the risk of having to constantly move once your contract expires, having to pay for new deposits and the cost of relocations, let alone the hustle of finding new apartments.
@kw5371
10 ай бұрын
The real winning move is to live in Mom's basement for years
@YourFinancialPlaybook
2 ай бұрын
also, closing costs when purchasing & selling costs can get outrageous depending where you live (broker fees 6%, transfer tax, mansion tax, legal fees)
Пікірлер: 1,8 М.