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NYC BUY VS RENT CALCULATOR: https://www.nytimes.com/interactive/2024/upshot/buy-rent-calculator.html
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BUYING VS RENTING A HOME IN 2024:
-Down Payment
In most situations, lenders will require you to put down 10-20% of the purchase price to get approved.
-Mortgage Interest Rate
Today, that cost is the highest in more than 20 years, at just over 7%.
-Potential PMI
This stands for “private mortgage insurance,” and it’s an extra cost – on top of your interest rate – that you pay to protect the lender in the event you stop making your payments.
-Property Taxes
This is generally based on a percentage of the home’s appraised value, adjusted annually.
-Insurance
According to Bankrate, the average home insurance costs $1428 per year for a $250,000 home – but, when 66% of homes are said to be UNDERINSURED – expect to pay more like $2200 for a proper policy (on average).
-Repairs and Maintenance
Over the long term, it’s recommended that you budget 1-2% of the property’s value, every year, for doing normal repairs.
Home Appreciation:
Even though home values have generally increased every year, most of that increase is simply the result of inflation – and, once you adjust for this – you’ll be able to see that home prices stayed relatively flat for nearly 100 years, and didn’t meaningfully start to rise until 2001, when interest rates began to decline and improve home affordability.
WHEN RENTING IS ‘BETTER’
-If you don’t intend to stay in your home longer than at least 10-13 years.
That’s because you won’t need to come out of pocket for closing costs, escrow charges, commissions, and many other miscellaneous charges that quickly begin to add up.
-If you can make a higher return from your down payment.
For example, if you’re running a business – where, tying up $40,000 results in a lot less income – that could be a case against buying.
-If you believe the market is going down or will stay flat.
This means you’ll have a larger opportunity cost for tying up capital, paying for repairs, and being tied to one property.
-If you want very little responsibility or upfront cost.
Outside of fixing items that you directly damage, the landlord will be responsible for all property tax and insurance increases, all major repairs, and anything else that goes “wrong” with the home.
-If you value flexibility.
With renting, you can leave as soon as your agreement is over. You can upgrade as much – or as little – as you want.
WHEN BUYING IS BETTER:
-Long term, over 20+ years, owning still tends to be the better choice.
Over a long period of time, housing has been shown to be a rather resilient investment – so, the longer you wait – the more likely you are to come out ahead.
-Locking in your monthly cost until your home is paid off.
Now, even though property taxes, insurance rates, and repairs can fluctuate and will likely continue going higher, your fixed monthly costs will remain the same throughout the duration of ownership.
-The psychological benefit that it’s “yours.”
There’s a sense of freedom that comes along with owning your home, being able to do whatever you’d like with it, and not being at the beck and call of a landlord.
TL;DR
There is something to be said about the fact that a mortgage forces you to save through your monthly payments. For many people, extra money is spent – not saved – and, under those circumstances, buying a home is a way to build equity.
But, unless you’re certain you want to be tied down to a single property, long enough to save money – short term, renting and investing the difference could lead to a better outcome.
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Than you for this
But you don’t think House hacking with short term will beat the saving and investing strategy? And also better if you are in your 40s
Now do multi units
Graham your videos barely show up on my feed. I’ve been a subscriber for a few years
I think this is probably bad advice for most. It may look good on paper, but reality plays out differently. Look at the boomer generation, where is most of their wealth, it’s in their homes. If people have access to money, they will spend it on something. When it gets locked up in the purchase of a house, it gets saved. Why is this, well it would appear that many view investment accounts as just another checking or savings account. When they need money, they pull it out & spend it. Sure you could say the homeowner can do something similar with a home equity loan, but it takes additional work & isn’t as quick. Sure, if you’re disciplined, his advice holds true, but most people aren’t. That’s why buying is probably the best option for most.
Just don’t put your saved money into a Yotta account
Another thing – you don’t know the situation 30 years from now. We sold my mother’s home. She owned it for 30 years and was close to paying it off. But the neighborhood had been turning for the past 7. I moved her out of there when a kid had a gun and was standing behind her car. You simply don’t know what 30 years will bring. Her home did increase in price, but not as much because of the quality of people around it. We sold it while the market was hot. But in 30 years, we spent 70k in repairs and improvements.
renting is good but not long term. I caught myself renting for 12 years before my first purchase. $174000 in 12 years renting 😬
You would’ve spent that or more in 12 years in interest payments taxes insurance and repairs tho. Only if you’re going to live in the home for 20 years plus does it make sense. But you’re tied down
The main benefit to owning a home is that you can somewhat keep your mortgage predictable, but only to the extent of rising property taxes. With mortgage rates the way they are – you’ll have to refinance and thats usually a 2% of your home value in closing costs. Housing is a money pit.
So both options are for people making more than enough either to keep a home or to have investment money. In reality most people can barely pay rent. Investing the difference lol what is there to invest??? It is like when rich people made money from inventing in the pandemic and coming out of it with their investment multiplied while most people were just trying to survive during these times.
Graham,
Coincidentally Rent Vs Own is a trending keyword. So no wonder you make a video about the subject.
I have heard your arguments hundreds of times when I consulted clients over the years. I started thinking these arguments you make were even valid so I had a special Rent Vs Own calculator made to discover the truth.
Bottom line is, yes, rent is cheaper than a mortgage, BUT ONLY if you save the difference and invest in another appreciating asset with a rate of return equal or greater to that of the real estate appreciation.
I have only seen one person this disciplined in 19 years of being a loan officer. Your average viewer who won’t even comprehend what I’m typing here is better off owning, and you know it. The irony is you own rentals all the while knocking rentals.
But we all need tenants, so let them listen to your cermons. I’m up ~200K on average on every one of my rentals and the truth is my tenants aren’t. They’re the masses listening to you, a half informed, half concerned click baiter…
Does this mean rent will just increase to even it out again or home prices will crash though?
Fewer landlord = higher rent. More renter = higher rent. Higher cost to landlord = higher rent. Everything is point to higher rent right now. people cant afford to buy house. Rent will most likely will go up. So the rent will continue to rise.
This is real time talk. I have friends that have been with local landlords for many years. They cause no issues, have laundry in the unit, and pay on time. Rent increases are minimal in the current market. I work in real estate and talk about buying and the credit value you gain by owning. At the end of the day, it’s not worth buying. Problems like storage and other easy stuff is cheap to remedy.
I think Graham has this right and I hate it.
In Washington DC for existing tenants, rent has been going up by $200+ every renewal. In fact, there’s been a lawsuit issued out to rental companies by our attorney general for price fixing.
Any consideration to the possibility that a lot of renters will want to buy eventually? Breaking even at year 29 seems better than renting for 10 years and breaking even at year 39+. Or maybe it’s also a pro because your money is compounding in the market?
Great info!!
We’re all renters, you rent space or the banks money and you rent the land perpetually from the government
Does anyone have insight with the possibility of purchasing a home to house hack in a single family home? Would this be feasible in this marketplace and snowball the same blueprint?
No matter who tells you what, buying your house is better than renting. Renting/hiring/subscription is a narrative the rich and elites promote very heavily these days because it concentrates more power and money into their grip while you end up with nothing.
When you rent that money just goes from your account. It’s lost forever. But if you pay the mortgage, it might be a little bit more, but remember all that money is being saved. Years later if you have an emergency and you need cash, you can simply sell your house and get your cash. But no landlord would ever return a single penny of rents you paid them years ago!
Think about it.
YOUR NOT ACCOUNTING FOR IF YOU DO A REFINANCE TO GET A LOWER RATE! THAT MONTHLY MORTGAGE PAYMENT WILL SIGNIFICANTLY DECREASE WITH A LOWER INTEREST RATE.
Save and pay cash. Got it
Also, with your debate on stock market return… please account for capital gain taxes on stocks and options sold. On the contrary rental income through depreciation, interest rate cost deductions, property management deductions, cost segregation, etc. that there is no taxes in real estate. However this is only if you choose to rent out your home in the future, different from ownership.
13:38 am I tripping or was that a fart?
Well if you can afford the monthly payment, shorter term is the way to go. I have a 12 year note on my house and I pay significantly more principal than interest and will obviously own it much sooner than someone with a 30 year. There is the consideration of opportunity costs but I will feel much better with a paid off home in a few years than I would with a larger brokerage balance and paying rent. I’m only paying 2.6 so maybe I should just shut up 🤐
An idea popped into my head while watching this video. One of the things buyers say which supports the buy camp is “if you rent, you’re paying off somebody else’s mortgage”.
In fact, if interest rates are higher than a few years ago, and the owner had refinanced to get a really low interest rate, then yes…their mortgage is cheaper to pay off so I want to pay their mortgage and not my own at a (potentially significantly) higher interest rate!
The San Francisco comparison is halfway across town. Why is the difference of owning and renting so big now?
Well, Happy I got a 1.6% interest rate
You never own your home. Even if you pay it off, taxes NEVER GO AWAY AND ONLY GO UP! Can’t afford your taxes, your home can/will eventually be taken away for nonpayment!
I’m an advocate for renting. My wife isn’t. I hate doing maintenance and dealing with the money pit.
I was lucky enough to buy my house for 210,000. 7yrs Later its worth 450,000. Now I’m fixing it up and after that I’m guessing it would be worth 700,000+
Very hard to save with HIGH RENT
I don’t agree, most people who pay less in rent, won’t invest the rest, they’ll spend it. This is bad advice for young people. Especially from someone who made millions in Real Estate, you should know better.
What I gathered – you’re discouraging rather than encouraging and provide strategy to pay off the mortgage? So how do you track the same pattern/path as the wealthy?
Nice video – what about if you’re in a market (ex: Boston) where properties have consistently appreciated by 4-6% per year? With a low down payment (higher leverage), the value from equity gain could be worth well more than $ saved via renting
A family member is renting a house for $2550 per month, that is $30,600 annually, 10 years of renting at that price if rent doesn’t increase the price tag = $306,000, Wow I hope folks enjoy the convenience of renting, the only time it makes sense to me is for a short time period while saving up to buy a home!
“You will own nothing and be happy” Klaus Schwab, lol
I did the math on a condo in the building I rent in already. Renting is better for the next 30 years. I have no problem investing the difference as it is already invested. After 30 years, I could buy the rental and the condo nest door with the money I made in the market. If rent does get too high, I have an option of moving into cheaper place and then back. Moving costs are not much as I would get rid of my Ikea crap.
I live in Washinton, DC, and you cannot rent a $1,000,000 home for $3,900/month. My friend lives in an owner – occupied home and in renting out a basement for $2,100 per month here in DC.
And if you can buy a $600k house cash, is it even worth it then, with the ROR if you invested it while renting instead? Makes me wonder if owning is ever a good thing anymore because of all the expenses dumped into it over the life of a house.
So many of these videos, and I understand this is a finance channel, yet who is actually choosing their living situation based on investment strategy?!
15 year loan changes everything, especially if you add money each month. renting a room out.
Sure. From a pure numbers perspective renting is better. But emotions are a very powerful
Your idea is right, but for the US market, i think you should make that clear, in Bulgaria the mortgage interest is 2,4% , the down pament is much less and you have a once a year property tax witch is like 500$ per 100sq. m , Americans are greedy and they have ruined there economy, such a shame.
Could it be that people who own a lot of property loves renters? Owners need renters. Truth is liquid money gets spent. And stocks are pretty liquid. Buying property beats in the end because its illiquid .
People should really think this through. If you think that you’ll be staying in the same place for 7-10 years then buying is the way to go.
I’ve been a renter all my adult life until we bought a condo in 2023. Even with high home price and interest rates, my total out of pocket with the condo purchase is only $400 more a month compared to what the increase in my rent would be.
We live in a better community now with great schools for our daughter. It is closer to work and cut our commute in half. We gained a ton of space as the condo has a better layout than the apartment. And we also do not have upstairs neighbors now who always woke up my baby with every move they make.
In our situation, owning is definitely a win! We are saving for potential home repairs in future.
The comment about “Money saved usually winds up as money spent” sums up the majority of financial issues people find themselves in with lifestyle creep.
You will own nothing and be happy
Bro no disrespect I don’t know where you’re getting your data from but where I live a $500k house rents for that much, a million dollar house rents for over 7k easily.
Such a fool’s bargain. Regardless of what’s cheaper, you don’t build capital/equity by renting. If you’re in a pinch and can’t afford the rent, you’re out on the streets. With a home, you can always sell the house.
This makes sense but the problem is that most people lack the discipline to invest the difference between what they would pay for a mortgage and their rent.
I love your channel and content. One of the things I find kind of ironic is the wef says you will own nothing and be happy, we can’t stand that but more and more influences are talking us out of owning. 🤔
Key point in this video: renting IS more financially smart than owning for most people IF, and big if here, the individual invests the extra funds they would be spending on a mortgage, insurance, taxes, repairs, etc.
This is some mis information. I brought a home in CT. And my mortgage is less than the rent in the Bronx
Love the summary i the video description
We almost finished paying back the mortgage that we took in 2017, now we can live for really cheap, own something and also save for something better in future! Nothing will beat that.
Graham. Serius question. Do you move that much on purpose?
@GrahamStephan great information here thank you! I am curious what your perspective on buying now would be if we assume interests rates will fall again, giving those who buy an opportunity to refinance, and assuming that house prices will continue go up. Obviously there is a lot of speculation in this scenario which would make it more risky but with the way home prices have been rising it seems like the longer one waits to buy the more unaffordable it becomes for first time home buyers.
Smart landlords in rent control areas need to increase rent yearly if it’s below market.. so CA more likely to have consistent rent increases
Don’t let landlords watch this video.
If you bought a home over the last couple years you better get comfortable
buy a house well below your means and pay it off in half the time
I live in Miami – Brickell. I was going to buy a condo but renting is a way better finical move. So a one bedroom is between $650,000-$750,000. 850 square feet. HOA are $1500 a month. Taxes $900 a month. Putting 20% down your’e paying $2,000 interest a month. That’s $4,400 a month for HOA, Taxes, and Interest. That’s not including principle (what’s actually going to pay off the Condo). So you’re throwing away $4,400 a month just for the privilege of living in a luxury high rise condo. That money doesn’t come back when you sell. Renting that same unit is around $4,000 a month. Makes no sense to buy with the inflated prices and interest rate. Only way is to buy cash with a great deal, low ball offer. But you’ll be paying that $1,500 a month HOA, which will only go up, for the rest of your life till you sell.
I dunno, I guess its where you live. My mortgage plus escrow is $2300/mo. The rental house across the street, which is smaller and not as nice as my home rents for $3000/mo. My last house was $1300/mo and the smaller rental house next door was $1800/mo and the other bigger house on the other side was $2500/mo. Your rent will always be more than the landlords costs and they increase rent based on demand. Cherry picking a time and spot doesn’t change the economics that rent lags behind purchase costs. It seems out of whack currently because the landlord bought the property when it was worth 60% less with a 3% rate. And despite that fixed cost they are increasing rent each year, increasing their profit each year and moving that rent payment closer to a mortgage payment with each year.
This show has really gone down hill,everyone now realises that Graham will do anything for extra subscribers every if he has to spread lies about the markets
So helpful, thank you! Very sad that the NYT calculator is behind a paywall, just like everything else is nowadays
A guy who got rich buying houses telling you not to buy your own house so that he can rent it to you. Seems legit…
If you listen to these online gloomers, you will miss out on some great opportunities!
I’m not going to lie. I enjoy nasty-keyboard-warrior-comment-troll-Graham impressions lol
That Ford GT ❤
Just cant argue with this reasoning…
Lmfao what is stopping you from having a mortgage AND investing in stocks? Yeah you end up paying somewhat more for autonomy and more space, but that is QoL increase. And you can still just as well invest in stonks for your retirement.
I tell this to everyone… thank you! Renting is the better option IF you can invest the difference. PERIOD. The issue is most people are dedicated enough to do that, therefore ‘forced savings of a mortgage’ is the ONLY way most people obtain assets. Also why most people will always be poor or struggling.
Is nice to leave in lalaland. Here in America my friend doesn’t work like that. Maybe in a little town in nowhere land.
Yeah you purchased the 1m home at low rate and need renter to keep it. Then keep raising peiced every year.
So, is buying a house as a primary residence an investment, or is it more like a consumption?
Which stock brokerage to use for investing? What’s your opinion on Robinhood?
I wish I could give this video two thumbs up. One of the most informative videos I’ve ever watched. I’m a renter, always have been, I know it’s a good option, but now I feel even better about it. No more pressure to be a homeowner. Thanks Graham!!
Not in Ireland!!! Renting is way more expensive than getting a mortgage and unpredictable when the landlord may want to sell the house under you (stability, zero)
I’m more surprised at the house price to size ratio in other states…I’m from Oklahoma City and a $400,000 house would be a literal mansion.
All these people listing all the reasons for not to own never say that yes you will pay for lots of things. The landlords are paying all that and then still making a profit most of the time. Why not take those benefits for yourself and not pay off someone else’s house.
Not every decision is financial. Owning a house brings people peace of mind. The worst financial decision is having kids.
buying a new house is so hard. so I will rent and buy a cheap little piece of land
Big dawg Graham, some of that is cap I work in property management we have went up as high as 7-10% in the DMV. We charge upwards of 275 for parking and expect random fees tacked on yearly lol. I agree though, this whole buying homes WAY above or even at the rate you could rent is getting outta hand. Great video my guy!
How about for we veterans? Does it make sense for US to buy homes still?
No property taxes for most, no PMI and zero down payment. After a year you can still turn it into a rental property. So..
You forgot that in 20 years the 600k you have won’t be able to buy you a house because house prices would have gone up much more than the 600k you saved.
Are youburning wood? It’s almost June! Ick
As a long time renter whose landlord is now selling the property, Here in Oakland California with strong tenants rights, And the only one that seems to want to buy it but Even though it is heavily discounted due to my tenant occupancy, I can’t afford it.
I’m pretty sure at a $100000 discount, it is worth it. what do you think?
This is great advice that do many people should listen to.
Lets not forget about the bullshit HOAs. Mine has gone up along with my property taxes and insurance every…single…year….ugh
In Nashville that home would be more in the high 2k’s – 3k range to rent. $ 2,100 gets you a 1,250 townhome in a crappy apartment complex. Not a good situation around here.
1,250 sq ft town home, I meant to say.
thank you
Grahams is trying to get more tenants
For young people watching, just because he sounds confident doesn’t mean he is right. Do your own research.
Does he still have a webull promo code?
Imagine having parents that don’t own any properties.
When it comes to buying or renting, you dont listen to someone that has a bias…end of story. Watching Grahams videos on how the middle class should spend their money is like watching a gorilla in the zoo. Its there to entertain us and when you walk away/ the video ends…you just forget what you saw because its not important.
Over the last 4yrs across two apartments, my rent increased by $700 over two renewals at two separate complexes in different parts of the metroplex. Blame it on DFW and the mass influx of people to Texas, but regardless it was on average $350 more each renewal.
@grahamstephan I wanted your financial advice. I have a fixer upper. It takes 100k to renovate. I want to renovate, but not sure what to do next. Air BNB or rent it? I have goals on having more than 20 properties.
Man oh man. Ppl use to look at me crazy when I said this a few years ago. Those same ppl are penny pinching to pay their mortgage lol.
When the real estate agent is arguing it’s better to rent than to buy… you listen 👀 appreciate the honesty & in depth look -a real estate novice
Who actually stays in a home for 20+ years anymore? We are not like the boomer generation.
He’s right though. I rent a 1.5 million dollar apartment overlooking the Copenhagen harbor. My mortgage would be double what I am paying now if I were to buy the place. We live in paradise and we could never afford to live here otherwise.
I’m hoping there will be a housing crisis so I can buy cheaply when I sell a few houses in 2025. As a backup plan, I’ve been thinking about purchasing stocks. What advice do you have for choosing the best buying time? On the one hand, I continue to read and see trading earnings of over $500k each week. On the other side, I keep hearing that the market is out of control and experiencing a dead cat bounce. Why does this happen?
Investing in real estate and stocks might be a wise choice, particularly if you have a sound trading plan that can get you through profitable days.
You’re not doing anything wrong; you simply lack the expertise necessary to make money in a bad market. In these difficult circumstances, only really skilled experts who witnessed the 2008 financial crisis can expect to generate a large wage.
My CFA, Desiree Ruth Hoffman, is a renowned figure in her line of work. I recommend researching her credentials further. She has many years of experience and is a valuable resource for anyone looking to navigate the financial market.
Thank you for this tip. I must say, Desiree appears to be quite knowledgeable. After coming across her online page, I thoroughly went through her resume, and I must say, it was quite impressive. I reached out to her, and I have booked a session with her.
Those drinks in the ad look wild af.
Owning shifts the risk from the landlord to you. Rent is the most you will ever have to pay, and mortgaging is the minimum you have to pay. See what happens when you miss a couple mortgage payments.