How I (Still) Grow My Money by Renting vs. Buying a Home
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- čas přidán 27. 08. 2024
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Correct me if I am wrong, but the calculator's analysis does not include equity in home (it's calculated in F14 but not included in the final analysis), "ending net worth" equation doesn't include the "commencing costs" and doesn't have recurring monthly investments for the renter.
So the results are misleading, or flat out wrong. Please update your calculator. There are dumb ppl on the internet who might use it to make decisions.
edit: the "renter's investment gains" are wrong. the down payment, closing costs, maintenance and diff in utlities are correct. but the rest is wrong. the renter would be investing the difference between rent and mortgage payment, but you have the renter investing the mortgage payment (minus principal). this is incoooooooorrect
Hey the spreadsheet is broken by the way. Super great idea, but when I jumped into it: J7 = -C23 instead of -F11 and J11 = Sum(J8:J11) instead of (J7:J11).
Can lead to pretty big swings in the results due to renovation costs and the full cost of closing
@@AwkwardHandshaking the creator doesn't care. I think made the spreadsheet to make it always better to rent. I bet his parents have a rental business lol
fix your spreadsheet
Looks like someone found a possible flaw in the Spreadsheet. Any chance of getting it updated?
I think what this video and your other videos helped to clarify for me was that I can bury my FOMO, prevent myself from buying a home I can't really afford, and keep my money working in the market. My wife and I were really set on trying get into a house (almost felt pressured to) at the end of 2021 and we just couldn't compete with investors putting in cash offers and zero contingencies. Then the prices spiked, along with the interest rates, and now we couldn't afford the mortgage if we wanted to. We felt like we missed our chance and got priced out of our own neighborhood. After we calmed down and watched your videos, we realized we could still afford our rent and keep a high savings rate invested in the market. Appreciate you my dude!
Yeah, FOMO isn't a good headspace to be in for making big commitments. Happy to hear you found what works for you!
It's a bit of a cultural thing e.g. in Germany it's rare to own your own home...they're perfectly well off it's just not a cultural norm.
Keeping a high savings rate invested in the markets while we are in a recession isn't the best option in my opinion, you're set to loose A LOT of money. This video takes for granted that markets only go up and that is simply not true.
Even when it comes to buying a home so many people get it wrong thinking that just cuz they can afford x amount mortgage that's what they should get. My wife and I bought our first place in 2015 when we were 19 and it was the 2nd cheapest house on the market in the cheapest neighborhood of hamilton Ontario for 149k, we lived in that place for 7 years and bought 3 more houses during that time. Moved into our dream last October and did it very comfortably after building all of the equity we had by living below our means the years before. A personal home is not an investment, it's a liability. An investment property is an investment. People don't seem to understand that
Hey joihiini I'm very interested in your story. Are you living in Hamilton right now? How is it? I really enjoy Toronto but it's just so expensive :(
I’m just trying to wrap my head around the concept of considering a $1.2 million property as a “starter home”
My place was 70,000 euro /$100,000AUD and it's decent. I did some minor rennovations but if I bought back home in Australia similar home that would have been $700,000AUD+ plus all the additional costs with bank rates, council rates, insurances, maintenance.
Lmfao right I thought I was the only o e who said wtf lol
That's uncommon for big cities, unfortunately
@@Danokh I live in the suburbs of one of the largest cities in the United States can easily find new builds for $270,000
@@andrewnwaldrip where's that?
If you are buying a home just to live in then that home is a liability, not an asset. I would much rather rent and invest the difference. No headache with renting compared to owning a home with maintenance, repairs, insurance,taxes, etc.
Now with the recent economy, To get financial freedom you have to be making money while you're asleep
Well investing in stocks and crypto isn't a bad idea, a good trading system would put you through many days of success
1. Crypto
2. Stocks
These two are really profitable now.
It is possible to produce good investment success provided you're focused
The ability to continue making money after retirement is such a fantastic goal.
The trick is to diversify you investment, don't panic when everyone is and invest constantly
I almost never comment on CZcams videos and I just gotta say your content has been great for me Steve. I have the opportunity to rent for very cheap in a nice place and made my own calculator recently to figure out unrecoverable costs on both sides of the equation. You blew mine out of the water and I can’t thank you enough for your content.
Let's talk...🖕
The calculator's analysis does not include equity in home (it's calculated in F14 but not included in the final analysis), "ending net worth" equation doesn't include the "commencing costs" and doesn't have recurring monthly investments for the renter.
also, the "renter's investment gains" are wrong. the down payment, closing costs, maintenance and diff in utilities are correct. but the rest is wrong. the renter would be investing the difference between rent and mortgage payment, but he has the renter investing the mortgage payment (minus principal). this is incorrect
So the results are misleading, or flat out wrong.
I THINK INFLATIONS IS CAUSING THE CURRENT SITUATION WE ALREADY HAVE NOW, THE PRICES INCREASES IS DUE TO THE HIGHER DEMAND OF PAYING OUT TO THE EMPLOYEES. THE AUTHORITIES IN THIS COUNTRY ALWAYS TREAT US LIKE CHILDREN WHO CANNOT FIGURE ANYTHING OUT FOR OURSELVES. RIGHT NOW VENTURING INTO MULTIPLE INCOME STREAMS IS THE BEST WAY TO SURVIVE THE CURRENT HARDSHIP AND RECESSION...
True! Building wealth involves developing good habits like regularly putting money away in intervals for solid investments. The stock market has plenty of opportunities to earn which I took advantage of. I made my first million from going diverse, mainly ETFs(stocks, bonds etc), bitcoin, and gold. I'm also working on an investment plan that includes NFTs with my advisor, Mrs Margaret Rose Delashmutt It's been a year and a half of steady growth.
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Same here, It's strange how people talk about all the profits, they've been making through investing in bitcoin, while am here not making any profit at all. Please can someone put me on the right path?
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This might tie into the psychological aspects and social pressure of buying a home, but I have heard people say that renting means you're throwing away money with nothing to show for it. I don't think so. You bought your place to live in for that month. You lived in a space that was yours because you paid for the month. It absolutely was valid money to spend. Thanks for the videos!🙂
I wonder if they think the same when they go on holidays and stay in a hotel or AirBnB? That's just like throwing money away.
Appreciations and tax deductions on selling a home out weights paying someone else's mortgage for them to profit for retirement. Your legit paying for somones Lamborghini or next investment
@@bakeraus because that’s a temporary stay vs a permanent shelter for you and your kin
@@jrbello8266 Where im from you can get kicked out of your rental after a month if the landlord wants to sell, rennovate or move back in. That's nearly a temporary shelter situation, it can get tricky depending on what country and regulations are in place.
I'd also say people ignore the expenses. HVAC dies in your house? Goodbye $15k. HVAC dies in your apartment? Not your problem to fix, and you are allowed to break your lease if the apartment doesn't resolve the problem (in most places, I think).
There's a lot of practical value delivered in this video, thanks man! You mentioned (but didn't go into) psychological factors. I think cultural differences have a huge role to play. For those of us in the UK and similar countries, there is an expectation that you will own a home as soon as possible, or sometime around starting a family. There can be a perceived stigma around not having hit that milestone, like renting is something to be ashamed of. That alone could make some people want to buy, even if renting is financially more beneficial over time. Yet in most western European countries, renting is the norm and you don't buy your forever home until you retire.
I kinda already intuitively knew that I was gaining a lot more by renting than buying, but your calculator showed me I was gaining a lot more than I even realized. Very well-made tool, I can tell you put a lot of work into it.
One of the reasons the numbers work out for the renter is because of a technological advancement called the apartment complex. This technology has brought greater efficiency to housing needs. The per unit maintenance costs are cheaper on a 20-unit complex with one management than on 20 independent units (aka homes) with a total of 20 managers. This economic advantage of scale is working for the renters of your friendly neighborhood apartment complex.
I live in US and work an a Mortgage Consultant.
We offer loans form 0 to 5% down so if you lower the initial investment by 15% I think the capital gain will make real estate much better options.
Also real estate is a lot more than just capital gains. Where the real value comes from is the Tax benefits such as 1031 exchanging or Depreciating your assets to avoid paying taxes and still be able to get a loan on the pre depreciation income or long term Net Operating Loss.
Renting is a great option for flexibility as well as predictability in forecasting your monthly expenses. One of the best ways I have found to build wealth is buying an investment property with a primary residence loan, and then moving after a year and renting it out. Add house hacking to that equation and you have a recipe for success. I own 3 rental properties but currently rent myself!
I wasn't able to find any calculators that included house hacking (or having rental units in general) so I hope this one works well for anyone thinking about doing that! Should show quite a favorable impact on the end result (assuming any initial renovations required aren't too expensive).
@@steveantonioni I also want to add a caveat for anyone reading these comments, in the US, you can commonly buy a house with 0-5% down on a 30 year fixed, and the prices of homes are more reasonable than toronto. The purchase prices for my houses have been $270k, $305k, and $82k respectively. I was using primary residence loans to get into the $300k ones in Colorado, and put 20% down for the $80k house in a long distance market where I add renovations to increase equity and cash flow. At the end of the day, there is a difference between "investing" in real estate, and buying a home. It is often much better to rent where you reside and invest in real estate elsewhere.
@coco marineblu In colorado springs lol. If you are interested, I have a 3 part series on buying real estate on my channel that goes step by step with my real numbers.
Hi Steve! This calculator really gave a very comprehensive overview of the points of considerations when it comes down to renting vs buying. I have done a similar calculation a few years back when I was considering a home purchase, and I definitely left out the sunken expenses that buyers have to fork out as well.
Fighting against the cultural norms (as you have mentioned) in Hong Kong has certainly been an uphill battle, where one is expected to own a property as a sign of maturity / wealth / rite of passage. "Buying bricks" as what the Chinese say is a virtue. But with sky-high property prices and low wage growth, owning a property is not only hard on one's pockets (as confirmed with your calculator) but also hard on one's mental health. After deciding to go against the current, being a rebel and not buying a home, I've never felt freer, lighter, and more excited for what the future entails because the dread of paying off a mortgage for the next 30 years has been lifted off my shoulders.
I guess that freedom, lightness, and excited is the definition of true financial freedom.
The calculator's analysis does not include equity in home (it's calculated in F14 but not included in the final analysis), "ending net worth" equation doesn't include the "commencing costs" and doesn't have recurring monthly investments for the renter.
also, the "renter's investment gains" are wrong. the down payment, closing costs, maintenance and diff in utilities are correct. but the rest is wrong. the renter would be investing the difference between rent and mortgage payment, but he has the renter investing the mortgage payment (minus principal). this is incorrect
So the results are misleading, or flat out wrong.
Well, I became a homeowner at 22. I ran my numbers here out of curiosity, and it turns out buying was the better option... But boy, the stress that comes along with buying and maintaining a home is it's own beast...
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How much can she make for you in every trade she does.😏
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if you househack it will make home ownership cheaper. also, you can cash out refinance when rates go down, which makes it a non tax loan that you can use to invest too. some people cash out refinanced in the last 2 years. they got maybe $100k-500k loan on their house at 2%-3%. just was basically free money given how bad inflation is. and they got to maintain the same or lower monthly mortgage payments at the same time get that money out.
Counterparty risks. You're relying on someone else's income to pay back your debt. That's a recipe for disaster
@@Hboogie182 doing house hack, you should not rely on that income for sure. Need to make sure your own income alone can handle it. Then house hack is just extra money for more savings!
It is insane that a starter home costs north of half a million literally anywhere right now.
I give it 15 years and they will be worth a million
Nice video . It’s however worth noting that Location plays a huge factor in the calculation . Try this same calculation with a different Province/city and you’ll get a different result
The power of buying a home is being able to set your own mortgage payment, which can be 3x lower than rent on the same property (at least here in the U.K). You can invest the difference.
uhh wouldn't you be paying more in interest on the home since you are paying off less. It would reduce your profits from investing since you are paying of that big loan on a house. The real question is which one will benefit you more in the end when you include these factors.
@@Dannykle no, the interest on my mortgage is 1.8% and is being eaten up by 9% inflation. The debt is making me money!
@@jd9720 Sadly that is not the reality here in the US. Interest rates are much higher here so we would be losing a lot to interest.
Yes, if you can buy at a relatively low cost, then buying is better. Depends on current market, interest rates, etc etc etc
I know you're targeting mostly those who are fairly new or illiterate with finances, so I get why this wasn't included, but I think the benefit of leverage, low interest debt, overall networth growth because they have an asset (the different between renters and home owners), and how they're likely to invest more money into stocks as living costs do not increase as much as renters is a nuanced difference.
Also, I also know that in America we can write off a lot of our taxes for owning a home with the SALT deduction.
It was included. Leverage, interest, net worth growth is all taken into account in the calculator. As was the difference between the asset each side of the comparison owns (homeowners own home vs. renters invest in the stock market). Also, assuming an equal starting point in liquid cash (as stated in the video) the renter would be much more likely to invest more money into stocks as their living costs are likely much lower than the home owner.
I'd suggest adding a section for tax write offs on your own copy if you want to go that extra mile.
I was shocked by the result too and figured something had to be missing, but everything you mentioned is included in there.
I think at the end of the day, being able to rent a house for $3,000/month that would cost $1.2M to buy is one of the unusual circumstances where renting is better mathematically than buying.
Let's talk...🖕
Most homeowners don't write off anything on their taxes for owning a home since the standard deduction was increased, and has dis-incentivized itemizing your taxes and getting a SALT tax deduction. Most people benefit more from taking the standard deduction rather than itemizing their taxes.
Was told yesterday by two separate banks they couldn't approve me for any type of mortgage. I have over ten years experience in my field but because my current job is a 1099 contract, they need at least a year of that income to qualify. Credit didn't matter. It was a pretty big blow to my spirit, especially considering I took this job because it almost doubled my income.
Let's talk...🖕
What state?
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I have been through that, makes you feel like you are worthless and a bit of a loser. I CAN YOU! You AREN'T!, it's just the economy and how the banks work. Just keep on trucking you are doubling your income and it might be worth thinking about other ways of living. I did that which isn't for everyone but I lived in a Tiny House on Wheels for three years renting property and then I moved to another country and bought a house. What I'm trying to say is life can change on a dime for the good and bad, so there is nothing wrong with having more money in the bank but just need a future plan.
@coco marineblu Lmao right! He’s saying this like it’s the end of the world. He literally just have to wait a year or two more. There’s nothing wrong with that. It’s not a buyers market anyway right now so what’s the rush.
Thanks for all this. I live in a very expensive place as well. For me buying is better than renting only because my state is covering both the 3.5% downpayment (deferred for 30yrs at 1%) and closing costs (deferred for 30yrs at 0%). The problem is actually finding one within my budget Ugh. The key take away that you mentioned was if we are renting....we MUST be investing! Anyway I always learn something from your videos! Thanks!
What state/government covers your down payment?
I own several fully paid Rental properties that were financed mostly by my long term tenants so yes, I totally agree with your video. Keep renting, it's good for you. Even Institutions and Private Equity firms want you to rent one of the thousands of houses in their property portfolio because it's good for you. We want all you renters to be well off financially all the way past retirement because we truly care about your welfare.
sarcasm alert! :D
Hahahaha Lol.. I am in same path now !!!
I am working on welfare of the society buying more SFH for rental so that people shouldn't worry about it , just pay monthly rents.
Ah yes, your sarcastic statement is directly applicable to those who don't already have fully paid rental properties they have owned for years. Hey everyone, let's move to the prairies!
Not sure about canada but in the US you can obtain a house with 3% down. this makes a huge difference and when you look at the average year over year return of real estate we are talking huge gains. at 3% down you are getting 33x leverage, even with growth of 1% yoy we come to 33% yoy growth... for those of you that say that houses can lose value, so can everything else! Play long, keep 6 months of payments in reserve, and you can't lose, only reason to not buy is if you are leaving the area in under a year.
If you leave after a year you can rent out the house, use the rents against the mortgage to cancel out the DTI of the house and go get another house! you can do this at 3.5% down every year through an FHA loan btw.
Maybe this holds true if you look specifically at the unnatural growth from 2020 to 2022. Cherry picking is not good information. Anyone who used this logic from 2023 to now will get a big wake up call.
You might not know about this but owning a home could set you up pretty early in life. By using a HELOC to purchase a rental property. That’s the power of leverage. I would go 100% for homeownership. Also you don’t account for tax deductions related to real estate.
I agree Kenneth.. however I would rather own a multifamily rather than a single family. Would like to cash flow.
The only time, I decided buy a home, is when I realize I can buy it in cash without thinking twice. I realized early on if I stretched to pay for a house, I had no cash to reinvest in myself. So I just focused on my main business and growing that and also my investments. Before I knew it, I had enough coming in and sitting in assets to buy a house.
Very interesting, great job, I’m 65 and the math is totally different than when I purchased my first home, your hard work will help this new generation
Got our place for $275k, so a 30 year mortgage at the time (5 years ago) was like $1300/mo all including taxes and insurance. We chose to pay the principal off a bit quicker, so we did a 20-year term and are paying about $1700 all in now with a 2.6% rate. That's for 3 Bed, 2.5 Bath, 1,950 sq ft, and we are a dual income household. So splitting that in half, it's like having $850/mo rent per income, with about $350/mo per person going towards principal. So we're at like $500 per person net if you consider paying down equity as forced savings. Pretty good for being in a US medium metro area, while making OK salaries. We've put loads of money into the house ($45k approx, $9k/yr on average) upgrading old stuff so that's some serious downside, but it's nice knowing we can stay for a while and just chill with our low payments, and not worry about that going up. Plus we should have some low spend years coming up now that we've got some big stuff out of the way. And it's worth about $100k more than when we bought it, so that's a bit of upside. Buy FTW in our case I feel.
You are 100% right, buy is the way to go, you probably have tax deduction on interest paid and house tax as well depending on where you live. And if inflation keeps going at this pace rent will be 4% higher each year while yours is going down. People that say renting is better are living in fairy world, the guy in the video is a influencer and i am even sure is sponsors are paying the rent, so chances are he is a scam.
Loved the video. I've been trying to explain this concept to several people for a while now. I've found that most people humor me for the sake of conversation but don't actually believe that it's possible to build wealth without real estate. In my local community, many only focus on trying to achieve home ownership (if you can call carrying an 800k loan ownership lol) and completely disregard the idea of renting + investing. I tend to think that most people aren't comfortable investing on their own and thus default to purchasing a home. It can't be ignored that a house is far less liquid than stocks - and that the sale of a home typically leads to the purchase of another with additional unrecoverable costs (land transfer tax and all the other things outlined - even if the next home is purchased in cash). Cheers.
It depends on your practicality, lifestyle, choices and priorities. Some people rent expensive homes that costs thousand of dollars when they could have paid and used the money to buy a simple home that’s affordable for the budget. You can live as simple and as practical as possible first, save and invest so you can afford whatever you want in life later.
But if you never sell the house and hold and own multiple properties, rent them out, wouldn’t the property owner be better off? Not a criticism, just genuine question out of curiosity and my own learning… love your channel!
lmao, the answer is yes
You got to understand a couple things , if you are looking at that home that he put for 1.2 mil that small bungalow style home the monthly mortgage payment with 20 percent down like he did is 5,612 dollars.. It is very very unlikely that you will be able to rent that property out for positive cash flow. The home he saw for rent that was charging 2900 may cash flow but because it was bought and financed at a much lower price or close to a 50 percent down payment. Owning multiple properties doesn't add to net worth if it is draining all of your income to pay the mortgages and doesn't cash flow.
Yes, and this dude used insane numbers to purposefully try and make renting look better while also still barely succeeding at it. Unless the market in your area is absolutely fucked beyond belief (even worse than Toronto is) then you're better off buying.
Yes and you’re also receiving tax benefits owning vs renting. Real estate is known to offer much larger returns on investing than investing for most people.
@@Outwardpd agree, the maintenance costs especially seem wayyy too high unless you’ve bought a money pit.
For me definitely buying. Bought my home and 3 rentals here in the SF Bay Area in the last 25 years span. All of them paid off with a 15 years mortgage. All of them more than tripled in value. The rentals are cash flowing like crazy. Never had negative equity and tenants paid all mortgages/insurance/upkeeps.
Interesting Steve but still not convinced by your video. I live in NZ where renting is super frustrating and risky because tenants can be kicked out after one year of renting and often are. Renting is incredibly insecure here and getting very expensive. I bought a house cheaply at 25 and filled it with flatmates. That lowered my monthly payments to well below what I would have paid for rent. The interest I’ve paid in my lifetime to the bank is incredibly low because my husband and I smashed our mortgages super fast (like in 6 years each mortgage) by being frugal. We now own two mortgage free houses and one gives us a passive income. If you also factor in we have three children and expect to most likely pass at least one of our houses on to them then intergenerationally (is that even a word) - it is cheaper to own a house here. So in summary - time is a factor here. If you buy super young and smash the mortgage and are not paying any interest to the bank over a long period of time (say buy at 25 and pay off by 32) - you are better off in old age and can live cheaper than renting hands down. If you are a frugal person having a house is definitely cheaper due to paying off loans quicker. Also did you factor in things like having your own garden to grow fruit trees and vegetables yearly which in my experience has reduced food costs significantly - you can’t do that on rental properties. Plus I think over a couple of generations owning is better than renting.
Steve - Forgot to mention - rents are not capped in NZ and we are currently experiencing the biggest homeless problem we have ever had.
I like the advice, really young myself so this info you shared will help, thank you!
This is pretty well impossible for the average person in Toronto, especially for younger generations. There is no 'smashing' your mortgage no matter how frugal you are. Two homes in Toronto? Forget it, unless you are making absurd amounts of money or are inheriting wealth/property.
kiwiprincess76
Thank you for being the voice of reason! I completely get you and did something similar. I'm so happy we don't have to worry about rent/renting increases/nosy landlords. There are places where it's cheaper to own, even though a house is a lifetime hobby! Sorry to hear about homelessness in NZ. Had no clue. I hear about the problems w it in California and what people--homelesss and homeowners/renters alike go through and it is so sad. How is this possible in such a country? Seems like the only stable places to live are taken up by the rich. Greetings from Chicagoland 🍕
Math is not correct , If you are paying mortgage and repaying principal then your interest won’t be flat 5% for 10 years. Let me try to explain , Your borrowed amount will go down each month as mortgage payment consists of principal + interest. Each month you are reducing your borrowing so it will reduce your interest too.
Buying a home, should not always making the best investment, but it give you confidence and safety place, and that's other investments and rent cant do.
I won't be rich enough for this to even be a consideration anytime soon but still I can't stop thinking about these kinds of things haha. I'm a long-term planner.
Hi Steve. Great sheet. But I think there is a bug in one of the formula's on the Breakdown Sheet. The Ending Net Worth yellow box formula does not factor in the commencing costs in the Sum formula. The current formula at I12 & J12 respectively is =SUM(I8:I10) & =SUM(J8:J10). I think it should be =SUM(I7:I10) & =SUM(J8:J10). Let me know.
Great video, Steve! Homeownership is such a contentious topic for people because there's huge pressure for you to buy as soon as you possibly can (even from parents leaving abroad, I can tell from experience). My husband and I rent a one bedroom in Toronto that's pretty unmatched in terms of rental price (just over $1,000) and we're really lucky because that allows us to invest a huge chunk of our salaries. Are there FOMO feelings for not owning? Absolutely. But nobody in our circle of friends has as much invested as we do so who's got FOMO now? LOL!
Let's talk...🖕
Using the excel sheet it says I’m far off better buying I guess I made a right choice😏
If I were to buy two identical houses next to each other, live in one and rent the other one out, I am going to include the cost of maintenance, my insurance on the house, any utilities that I pay, taxes, my mortgage , a vacancy rate, my profit and recoup my down payment over five years all in rent. As a renter, you get to pay all of this for me while I build equity and you get to pay renters insurance. This is a true apples to apples comparison.
Don't forget, I can also invest the profit I make off the rent and put the money I have set aside for the time the house may be vacant and maintenance into an interest bearing savings account.
Here is the issue, renting is an orange not an apple. If you served me an “orange” pie I would throw it up.
Yeah, you’re right you shouldn’t rent a 3,000 square foot home for 30 years. Congratulations! 🎊
If you took two apartments one building ran by an HOA the other by a rental agency. You trade the freedom of flexibility so in 30 years your apartment cost $600 dollars less a month. Just to find out the HOA didn’t do its job and the apartment is about to collapse… yikes!!!
@@Klake-bk2dp you should try an orange dream cheesecake. They are pretty good.😁
I’m surprised nobody has called out the $1.2M to $3K/month comparison yet; of course renting will look better when you use these numbers. $3K rent would at best equate to a $400K home where I live (large American city). Maybe it is different elsewhere, but I can’t imagine those two are equivalent in most American cities.
There’s nothing to call out. This is a fact where I live (hence why I rent). I gave you a calculator to test out where you live with your own numbers. You don’t have to have the same conclusion as me.
I agree, the cost to rent that house would be much much higher than $3,000 here in Florida.
Hey, anyone run the amount of interest you pay the bank to "own" your own home over the course of time? By the time you pay off your home, you basically paid for 2 homes.
The fact of the matter, for most average single people. There's not a fighting chance to be able to buy a "starter" home and to come out ahead with the mortgage. With average homes being 250-300k right now. Even with a considerable down payment, you'll still end up with a 1500+$ mortgage not even including property tax and everything else.
Consider this: the fastest growing population of homeless people in the United States are people 50 and older. Why? Because landlords always want to raise the rent! If you choose to rent, you may have a landlord who is happy to raise your rent every yearly anniversary. If the landlord sells the property, the first thing the new owner wants to do is kick out the tenant and/or raise the rent! When you rent you ARE paying the property taxes, homeowners insurance and maintenance. However you are actually paying SOMEONE ELSE'S property taxes, homeowners insurance and maintenance. And the owner has the option to kick you off the property if you rent month to month or the owner can choose not to renew your lease. You also cannot decorate your home the way you want. But the greatest Con against renting is that you still have to pay the rent when you get old and/or become incapacitated. When you buy, you generally have a mortgage. You can choose to pay off the mortgage early so that when you become incapacitated, you will ALWAYS have a place to live because you only have to pay the property taxes, homeowners insurance and maintenance. Anyway if the landlord paid all outstanding the mortgage balance on the property they rent out, do you really believe that the landlord will lower the rent?
Nailed it. 3 rentals here. All paid off. Rent includes in the property tax, insurance and upkeep calculation. And yes once rent increases, it does not come down whether there is a mortgage of not. Although wo a mortgage, the rate of increase will be lower than market rate increase.
Renting going up by only 1.5 percent is probably the largest hole in this scenario. If homes increase at a faster rate, rent will catch up. Also, paying less for utilities is not a real thing. It gets rolled into the cost to rent, or it is renter responsibility. Homeowners insurance is optional when you pay off the mortgage, I don't pay for Homeowners insurance. Many things to consider here, you have to look at your own scenario. Good one Steve
thats why you can plug your own numbers for the calculator! he was demonstrating how to use the calculator.
@@rustyshackleford9450 Right, just making sure people don't get the wrong idea. In most scenarios, homeownership will save you money over the long term. This video presents a scenario in a calculator which is largely unrealistic and may influence the perception that renting is typically more cost advantageous to homeownership.
Just making sure people recognize this.
@@Zaerki I didn't get that idea at all as he shows two scenarios by the end of the video which skewe the information very much in the direction of home ownership.
I guess you have never heard of rent control? Most of the cities that are hot and expensive have rent control. Sure, it is better to buy a home in Alabama but who really wants to live there?
its funny how renting vs home owning videos have suddenly popped up on my feeds.
Hi Stephen,
love the video !
There's 1 important factor that is missing from your calculations/spreadsheet.
Most of the time when you are renting, you should have a higher net cash remaining for each month, compared to owning a house.
The spreadsheet doesn't consider/use this cash at all.
As a renter, you must reinvest this remaining net cash in the stock market, which can significantly improve your ending net-worth, compared to buying a house.
If you have time, could you please update the spreadsheet to also reinvest the renaming positive net-cash each month.
I know that it's unrealistic to invest 100% of a persons remaining net-cash, so maybe have a option to for the user to put a % amount they are willing to invest, maybe like 10%-20% of their renaming net cash.
Thanks
Hi Stephen, this calculator looks great! But does it just assume that I'm investing every single penny I saved while renting? I have a set amount that I'm contributing every month and not every penny I saved goes into investments
Hi Steve, thank you for making this video and showing the comparisons. I have been saying this for a long time, but people make me feel like i don't know what i am talking about!!
The real estate crowd will make you feel that way ;)
Justify 1.2m purchase compared to 3k rent.
Great Video! I'd rather stay in an affordable rental with a family, save and invest what I can and re-evaluate every year whether I want to buy a house or flat soon. No need to rush into housing debt, which is someone elses asset and leaves us a lot less flexible.
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Amazing video, something more young people need to think about as the world isn't the same as it was when our parents were our age (especially in the GTA...). The only other things that I would consider when making the decision are: (1) are you settling by renting a cheaper option (apartment vs home maybe) that you don't really desire (or similarly buying) and on the other side, (2) the additional stresses that come along with owning. There is a feeling of freedom when renting, not having to deal with a new appliance, new roof, or all of the other things that could go wrong. (note: I bought in late 2021 but fortunately do have an accessory unit to rent and using the tool it will work in my favour (with a modest investment return rate))
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Home buyers rarely ever see those gains, as they always keep/live in the home. A renter will gradually upsize (kids), then downsize when they move out. So rent ends up being relatively cheaper as you get older.
You can live off the dividends of your share/bond portfolio…you can’t live off your house, you can live in it.
As the owner of multiple homes, I now rent and love it!
Great video and spreadsheet! I would add moving costs for the rental cost assumptions because of renovictions and landlords potentially re-occupying their unit under the pretense of family moving in. There is a likelihood that this would happen in a ten year time horizon especially if this is a 3000 CAD condo unit rental. Then the renter would also be forced to find a current market rent unit instead of the 1.5 percent annual increases they are used to as well. Lastly, if this is an older rental, you might get hit with above guideline increases here in Ontario (AGI's).
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The calculator's analysis does not include equity in home (it's calculated in F14 but not included in the final analysis), "ending net worth" equation doesn't include the "commencing costs" and doesn't have recurring monthly investments for the renter.
also, the "renter's investment gains" are wrong. the down payment, closing costs, maintenance and diff in utilities are correct. but the rest is wrong. the renter would be investing the difference between rent and mortgage payment, but he has the renter investing the mortgage payment (minus principal). this is incorrect
So the results are misleading, or flat out wrong.
I don't think one of the formulas in your spreadsheets is accurate which is causing the whole "buy" calculation to be wrong.
Excel actually has a formula for calculating the mortgage on a simple interest loan called "PMT". The formula in cell C13 could be =-PMT(C11,C12,C10). If you compare that to what an online calculator spits on and what your spreadsheet is doing, you'll see that yours is wrong.
Appreciate you putting the tool together, though, Stephen. I can tell that you put a lot of time/effort into it and it's very thorough. The NY Times Rent vs. Buy calculator online is also a great tool that's taking into account all of these factors (except renting out your home). I'd recommend checking that out.
Good video. Bottom line--buy a house because you want to live in it rather than rent. And if you are going to only live in it for less than 5 years, rent.
Love the vibes man! I look forward to seeing your other Content and learning stuff I wasn't taught in school!
Hey Stephen Great video.
Do you think you could slot a significant factor into the tool?
One fee that Americans deal with is HOA Fee's which is different from Home owners insurance. If a Company owns the house or owns the condo building they usually charge an HOA fee anywhere from 100-1000/mo. I think this makes the buy vs rent argument much easier to make but having it in the calculator will help.
I'll work on tweaking my own formulas to support it in my copy.
In the US, HOA fees are rather high as well. But you could probably take it into the utility fees. Not sure how it works in Canada but there's also gonna be massive seller fees in the US too.
People in the US complaining about housing affordability need to see that Toronto chart. Good grief!! I think in the US it's a bit different. For one, the house won't be as expensive (outside CA or the Northeast). Also, capital gains would not apply if you are rolling the house sale income into a new house. Lastly, there are mortgages you can get that don't require a down payment. I got a USDA loan with zero down, 2.5% fixed for 30 years, and some of my closing costs were just rolled into the note. My home just outside Austin has doubled in value since I bought it in late 2020. Meanwhile, rents have skyrocketed in the area. I am saving about $600 a month by not renting an equivalent house. Keep in mind that my mortgage includes escrow that pays the property taxes. Plus, I get to deduct the mortgage interest and property taxes when I file. Moving forward, and with inflation increasing over time, my fixed rate payment will win out over renting, especially since I had no large sunk costs via no down payment.
However, in high home price areas, I agree with you that renting just seems to make more sense. Toronto seems out of control with those housing prices.
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Lol off the bat this video is pretty awful no offence, you're paying 3k per month in rent in an area where a similar house costs 1.2m??? BS
Just checked Zillow for Toronto actually and a 1.2m 2BR house/condo/townhouse/etc would be an extreme luxury estate. Found one for 1.2m 2BR 2BA in the heart of Toronto and an unobstructed waterfront view, 2 story penthouse, 2 garage spaces, built less than 10 years ago too. AND fully furnished.
I was unable to even find a house that fits your description at all, closest thing I found was a brand new constructed 3BR3BA single family house, except instead of a bungalow it was a 2 story house + fully submerged basement. Also located in the heart of Toronto, 1.2m.
Those prices are nuts but you are being extremely misleading, on purpose no doubt, about the prices of homes in the area. You're also being very generous with that rent price for a 'similar dwelling' not only is that kind of house not going for that price, an apartment like the house you described is not going for only 3k either. 3k in the area you would've had to be talking about for that house price will only get you like 800 sq ft with 2 BRs.
Not all maintenance costs result in 0% returns too, if you replace the roof on your house that is maintenance but it will also increase the value of your home too, for example. That is part of doing your research and hiring reputable inspectors when homebuying, if you're doing anything besides bare minimum maintenance at a loss on your property's value then you got screwed over on the initial price in the first place. You also can't really use % values for home maintenance expectations in a market where the value of the home is largely dictated by area/land value, this is especially true for the toronto market.
Then you even went and listed a higher expected rate of return on investment than most index funds generate at a GROSS rate.
There are plenty of other questionable parts of this too but I think that is enough, and the fact that after blatantly and grossly inputting numbers that purposefully favor renting you still barely made it come out on top? I think that speaks for itself.
Haha this man just wants to lead people into renting because he himself has some properties he’s trying to fill. Thank you for your comment I was thinking the same thing.
Exactly, and the down payment could be 5% or less, and the owner can invest the difference between lower monthly cost of owning vs. renting over time.
Wait I'm confused about the utilities. Why would they be more for homeowner? If anything they would be less because you can add insulation, etc...
Must be something Canadian as this is not the case in the US to my knowledge.
The average person also doesn't invest in anything, which is why the average person becomes rich through their primary residence. That's what the data shows here in the US. 70% of millionaires are made through Real Estate as its a default way to invest.
Also have you considered the risk adjustment. Stock market may be riskier on average I believe (not sure on that)
My neighbor inherited her home. Paid in full, she was able to weather a critical illness that kept her from working for a few years. I’d love to get to that point so we could handle a job loss ok. We have HELOC available but that puts our home in further jeopardy.
I never practiced as an accountant really but went to school for it and I just have to say this is excellent economic education. Something most people sadly don't get.
Great work. I just turned 30 and this is something I have considered and depending on where you live this obviously changes but everyone should use a sheet like this to calculate.
Missed your uploads mate, keep it coming.
The calculator's analysis does not include equity in home (it's calculated in F14 but not included in the final analysis), "ending net worth" equation doesn't include the "commencing costs" and doesn't have recurring monthly investments for the renter.
also, the "renter's investment gains" are wrong. the down payment, closing costs, maintenance and diff in utilities are correct. but the rest is wrong. the renter would be investing the difference between rent and mortgage payment, but he has the renter investing the mortgage payment (minus principal). this is incorrect
So the results are misleading, or flat out wrong.
@@zclaus9642 okay so how should we fix the spreadsheet @steveantonioni
@@MrCaseHarts the point of the spreadsheet is to analyze if investing the down payment, diff in mortgage/rent and hidden ownership costs is better than owning a home. i didn't exhaustively look at the spreadsheet but here are the 4 things I noticed
1. take home after tax doesn't matter. it should be comparing rent $ to mortgage $
2. the only money buckets that are being invested are: down payment, diff in rent/mortgage and hidden ownership costs
3. recurring monthly investments of diff of rent vs mortgage and the yearly maintenance costs
4. fix the math, property tax increasing based on inflation and not home appreciation, for example. or the "ending net worth" not including closing costs for purchasing
In Europe (at least where I'm at) the home owner mostly pays less utilities or at most the same.
Also, it somehow doesn't work. The mortgage interest on 1.75 a year interest rate are guessed 3times as high as the mortgage in the excel. Could you check that? :)
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In what world is inflation at 3%?
Did the homeowner spend more or less than the renter? Cause if he spent less than it makes sense that he came out with less
everything depends on what you believe in...
the rent vs buy and market return vs home ownership return always leaves out one of the biggest things which is risk. when you own the home, its yours. we know the math on paper of investment vs home ownership looks favorable to investing but it leaves out that risk. otherwise people would go borrow a couple hundred grand to go invest in the market. they dont do that because that suggestion makes their butthole pucker, and thats the risk they know theyre taking.
i dont think of my home as an investment, i think of it as my home. and when its paid off i dont worry about a mortgage etc. a landlord passes all of the home expenses to you on top of another hundred/couple hundred for profit for themselves. rarely do they just charge you to cover cost. and then you can always be kicked out of your house and/or not have the lease renewed.
pretty much why the majority of the FIRE movement become landlords.
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Toronto market is crazy!!! In most lesser markets, the costs of home ownership would have reduced costs over the renter, and the outcome would be much closer to even.
The biggest thing you miss here is that while renting CAN be cheaper, it’s not the way to get the best bang for your buck. The same house will cost more to rent than to buy over the long term. The thing is though, most people “upgrade” into a nicer house when they buy, and so the two options aren’t really comparable.
Renting is cheaper and more flexible and that will give you a higher savings rate to invest it into your business or just invest it in the market.
Overall I think your assumptions for homeowners are off.
The U.S. tax code is advantageous to homeowners. A few things you neglected that is relevant is deducting interest paid. Principal paid down. Really watching a couple videos from Bigger Pockets would help you improve this calculator.
Jonathan, respectfully, I wouldn't say they are "overall" off because of this detail. I think they're quite comprehensive and reasonable. Principal being paid down is not neglected. But I agree, as you and others have pointed out, tax deductions are important to include. So, I've gone ahead and updated the calculator to include deductions, both the standard amount or the itemized approach - whichever you prefer. Take it for a spin!
This was very helpful, thank you Steve!
4% closing cost is crazy. I’m here in Alberta and all I had to pay for as the was less than $530 for inspection and $1000 for lawyer fees (I knew the guy) . No other costs 😅
Wow this was so useful!
Spreadsheet is great and all the factors you're considering. But 12k a year for maintenance seems very steep. I think 3k may be more realistic. Buying may win out by a little in this case.
Let's talk ..
12k is very high especially if you get a newer build. I think he slightly skewed the numbers to make for an interesting video
The Recurring Home Ownership Costs should inflate as 3% per year as well, right?
Your videos are so great. You're such a balanced finance CZcamsr and I love the FIRE mindset
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Yo dude, would love to interview you about mental health, personal development, and life. LMK if you are down.
Wrong from the assumption. If i make $180 a year, I would not buy 1.2 mil home.
The house chosen to buy vs rent is not fair. A simple search finds homes 3 beds 700k max in that area where the buyer comes out on top by 20k+. I tried to paste links but the comments keep getting removed. But the point holds true that sometimes it is better to rent than buy.
I'm not sure where you are looking but there is no way you'd find a 3 bed house for 700K here (barring extreme exceptions). Perhaps a townhouse or condo, but then you'd have to lower the rent in the comparison to compensate for less space.
@@steveantonioni point2honmes is the site CZcams won't let me make a comment with any links. Filters by price home as type 3bed min matching the apartment. Plenty of results very similar to what shows up when looking for house rentals for 3k
Which video has the story about your grandparent's house? I can't seem to find the video.... It looks gorgeous!
Steve, just found your channel, I'm really diggin it! Random question but I'm curious where you get your backdrops when you include graphs/stats etc in your videos?
A lot of the assumptions made are solid but some of the numbers such as maintenance. A homeowner may choose to do limited maintenance or put in cheap fixtures versus paying for expensive fixes. In addition, what does this calculation look like when accounting for annual 3% rent increases?
That's why I made the calculator available for you to play around with :)
This was helpful and interesting to think about. The only thing I see that is missing from the calculation is that the homeowner is likely investing money as well over the 10 years. As rent goes up, your mortgage stays (mostly) the same. Over the 10 year time period, your mortgage will be less than the rental expense. And if your income has grown over those 10 years, you can invest a considerable portion of your monthly income. Most rentals go up at least 5% per year, not 1.5%. Rentals in my area have gone up 2% in just the last 3 months alone. Buying my house was the single asset purchase that increased my net worth the most. I continue to aim to invest 15% of my income even while paying my mortgage, and other nonrecoverable expenses. Yes, its expensive, but I'd be paying a similar amount in rent in my area. I do think the decision to buy/rent depends highly on your location as well. Rent is incredibly high were I live, buying my house meant my mortgage was less than my rent (plus my living conditions are much better). Also - not sure if this is true all across all the US, but the renter is responsible for all utilities, just like a homeowners. The expense does not change whether you buy or rent. Either way, this video was very well thought out, thank you for sharing, I'll definitely play around with the calculator you built!
The renter’s income can also increase over time, so it evens out, plus they’re able to invest a greater portion of their income. There may also be rent control depending where you live. In Steve’s case, I believe rent increases are capped at 2.5% in Ontario for homes built before 2019. A buyer’s property taxes increases and so can variable interest rates (at least for the current economic climate).
Either way, these are still good things to consider when deciding between renting vs buying. There are so many factors, but I think it more often evens out in the end, at least in the short to medium term, and comes down to your needs and personal preferences.
The thing is WHY would you aim to buy a $1.2 MILLION house??? If your goal is to keep up with the Joneses then buying a house is really wrong. But, if you are being realistic and honest about your finances, it is better to buy a house that YOU can afford. Why be a slave to property owners for the next 30 years for example wherein rent cotinuously GO UP and on the flipside the prices of houses continue to go up, too? If your goal is to live in a particular city or house long-term, it is better to buy a house. Case in point: I bought my property for $175K some seventeen years ago (only! time flies fast). It is now worth $600K. Do you think I can buy a home now for $600K?? No. My $600K home now continuously go up in value. If I decide to sell it in my old age, I can live luxuriously and give a ton of money to my son for a downpayment for his own home. I'm glad I bought when the market was right for my finances. As I said, the market in both house prices AND rent continuously GO UP! So, do your homework, save and be honest with your finances.
One thing that was missed unless I missed it is that what the renter's pay will go up as time passes. So it will decrease the amount they will be able to invest or they'll still invest the same amount but will have less extra money for other expense ( food, clothes etc) which we know in time will go up as well. Correct me if I'm wrong..
One thing you didn’t mention is that the person buying the home lives on the outskirts of town . The person renting , lives in the most expensive part of town .
That’s what I’ve noticed from my experience anyway .. ✌🏼
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Renters are at huge risk of losing control of their financial freedom. Particularly older fixed income folks
Does your analysis factor in the part of the mortgage principal that has been repaid, and the part that is unpaid, at the time of the home sale, in order to correctly calculate the return on investment for the home buyer?
I believe so. The shown example featured living in the home for 10 of the 25-year amortized period. Net gain calculation would include this.
Nope, you'll never sell me on this point. Real estate accounts for the majority of my net worth and additional income. All my rentals are previous homes I've lived in btw before people think I'm only talking about buying strictly investment properties
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This is why you're rich. Your investment method is a proven road to success. Why mess with the formula
Here in Europe, my monthly house payment is about the same amount for rent. But the house is mine in a few years. 🤫
well rent increases ... mortgage does not
1% of rental value as maintenance doesn't stack up as a general rule for properties over 1m, I've spent less than 1k/yr for the last 3 years and can't imagine anything justifying 10k/yr.
Indexation of rent at 1.5% is also very low, at least for my country.
Where does the 240k downpayment come from? does ist just spawn there? I guess in RL it would be like a renter guy investing in the stock market from 0$ on and a home buyer saving the same money on a no (low) interest saving account. So maybe one could assume another 5-10 years in stocks vs 5-10 years saving account even before you can even start with this video.
The rent is too low for that property-either the example is incorrect or owners in Toronto aren’t that good at math
Great video, I just want to add some considerations to it. 1. In the US usual mortgage term is 30 years (vs 25 years) 2. Considering 8% of annual return on the investment is a bit of a stretch, since you don’t want to invest all of your money in the stock market (portfolio diversification) 3. Your investment appreciation (from investing the money saved when renting) has capital gains, and I see that in Canada is 50% 4. Rent has been increasing much more than 1.5% per year, unless is rent control. But on average in main cities in the US rent has been increasing more than 10% a year (some places like Miami increased rent by 45.8%) 5. In the US there’s a thing called 1031 exchange that allows the seller to not pay taxes on capital gains as long as it buys another property within a certain time limit 6. You can have tax deductions by owning a home 7. You can get a Heloc when you own a house 8. You can use a cash-out refinance to buy a second home
8% rent is not a stretch lol
You sell your primary residence and then what? You go buy another home which is significantly more expensive and has inflated haha. Renting is superior.