Renting vs Buying a Home: How to Decide 

Exactly

I will contact her later

I just contacted her and she attends to me nicely

She's just right

I think she is the best because I have been hearing many things about her

Unless you buy an acient home, maintenance is not a huge amount and with great additions you can make your house worth more. Not even talking about your rent being increased by an unknown amount, how nice that is! Renting is convenient for a few but making it as a winner^^ How about buying a home, stuffing every penny you would spend on overpayment into stocks and pay off a huge chunk when your fixed rate contract expires. That's what reasonable people do.

@@ficc666 Many homes are older and there are significant maintenance costs. Home improvement projects costs are usually higher than how much they increase home value so aren't worthwhile. Rents don't necessarily increase unexpectedly. That's largely locally dependent. Some areas have legal limits on rent increases. Your last 2-3 sentences are incoherent.

​@@alankoslowski9473If it's an old home, the value will be considerably lower as you have to spend money on renovation. And I disagree with other points as well, nice additions do add value. Also, you have no control over the landlord's will. This might make sense in the USA where people get fired out of nowhere and there are huge distances. Not so much in Europe.

@@ficc666 Renovation can cost as much or more than how much it increases the home value. Did you actually watch this video? He explains how the flexibility of renting is usually beneficial if you lose your job. If that happens you might not be able to afford the house anymore. If you can't afford it anymore you will have to sell it which is expensive and time consuming.

Extrinsically motivated goal or Intrinsically motivated goal?? 🤔

Absolutely agree 👌

Agree!!

*Agreed!!*

Yes, it's good to see this type of analysis vs. typical (simplistic) money-only talk. This applies to car-buying as well.

Except all you have to look forward to when renting is a rent raise.

Yeah, the precariousness is a huge factor in quality of life. I find it relatively easy not to compare myself to millionaires, but it would be nice not to be at the mercy of landlords who can kick you out or having to live with housemates as you get older and just want privacy.

Well said. That point cuts both ways though. That settling down of owning severely limits your flexibility.

Was the reason you moved so much because of your landlords or for some other reason?

Devin, yes. I have friends who have had experiences like yours. I think an important point Ben only touched lightly on was the role a sense of control plays. If you choose to rent when you know you *could* buy but are *choosing* not to, you probably are plenty happy--and probably have a good landlord, too. But lots of today's renter are renting with the knowledge that they could not buy, and that their preferences are irrelevant if they need to save up a six-figure downpayment. So they are not choosing to be renters, and that impacts happiness.

Moving costs, storage costs, costs of stuff you decide to not take with you, costs of setting up new cable and Internet and phone and utilities etc. opportunity cost of putting down deposits and delays in getting deposits back. There’s a lot that goes into being a renter who doesn’t just sit in one place forever which I think most analysis ignores

Hey Daniel. Weird video to see Australia's best calisthenics RU-vidr commenting on, but I guess we all need housing advice in this crazy market! Good luck, mate!

Your style of sharing information is not dissimilar, Daniel! Good stuff!

He forgot that rent goes up over time

@@PinataOblongata I thought the same thing lol

@@aimenaldarkhobi8366 Not always. Sometimes rent decreases, and they might not be able to increase it for the duration of your lease depending on local laws.

Yes, Ben is among the few diamonds in the pile of coal that is YT financial channels.

Genuine question: why is a rental house more risky when it comes to noisy neighbors? I'd think the opposite. If you find out your neighbors are noisy, and you are renting, you can easily move somewhere else. How does buying make it better?

@@clubmate12 I think you are correct, there is always the option of moving when you rent, and moving is significantly harder when you buy a house. In my situation my wife and I really vetted the neighborhood where we would get a house, it definitely doesn't guarantee the neighbors won't be noisy. The noisy neighbors are people who live above us, so by being connected via a wall or ceiling we are just more prone to noise issues. When my wife and I were considering renting again, there was no way we could really vet the neighbors we would have. We were worried that moving to another rental property would result in the same issue. Anyway, I think your point is completely valid. Buying a house doesn't guarantee no noisy neighbors, and renting does provide you with more flexibility.

@@alexperoff-investingessent8367 For the vast majority of neighborhoods, there are rental options, so what you describe has little to do with buying/renting. I also don't see how you are avoiding many other risks of owning: - Ensuring no one will move into a home next to you and be a crappy neighbor or the neighborhood will go into a decline over the duration that you own the home. - Something can happen that will be costly to fix (e.g. slow roof leak). - Not taking a better job, because it's a longer commute or would require a move (in many cases, homeowners don't even apply for such jobs, because their home is fixed, so many don't even realize this downside until they get near the point where they are ready to sell). What you describe sounds a lot like what I and many other early homeowners felt when first buying (I regret having purchased, but it took me 4-5 years for the downsides to sink in). The short-term high of buying doesn't mean it is a thoughtful long term happiness strategy, because it's easy to focus on the positives in the short term and ignore the long term risks/downsides. And that is assuming someone even gets lucky in the short term and there aren't unforeseeable downsides in the property right at move in. (Side note #1: I actually feel very fortunate with my past ownership experience. While it wasn't financially smart, even in a booming local housing market, I fortunately avoided the major obvious downsides. The hindsight-is-20/20 issue that I do look back on is that I specifically didn't apply to work at some particular places that I would have really loved being at -- I got lucky that my job remained extremely good.) (Side note #2: I'd rather not even tell you, Alex, any of this, because you've already purchased, so you're committed. It sounds like you have avoided any major near-term downsides, which certainly increases your chance of being satisfied with your purchase long term. However, my comment is intended more as counter-considerations for others reading who may feel compelled to buy based on your comment. I think it's good to balance the romanticized feelings of buying with some of the cold realities touched on in the video and repeating the consideration that renting is an option in the vast majority of neighborhoods.)

It basically comes down to your net worth when you retire as all of us will retire. Do you think you can pay rent when you retire?

@@clubmate12 I have rented a lot and owned and just not having to share walls, having more space between you and your neighbor cuts way way down on noise. It is a reason I own (with a big yard) too!

Houses also gain insane value over time and leave a great inheritance to the family.

@@devilsadvocate2643Not necessarily. It depends on the time and location. Sometimes their value can be flat or negative for for extended periods, and your heirs might not want an old, crappy house.

hes a stock salesman...

You sound like an awesome teacher, wish I had you for my economics in high school!

In many places, a property is regarded as a physical asset that people can understand and relate to, while stocks and bonds are considered paper assets and will involve a lot of knowledge in order to manage it personally. The capital markets in many less developed countries are also deemed to be more risky. Not to mention a property is often viewed as a status symbol.

A yield of 1-2% sounds bad to you? What numbers are you used to? Rent on a 400k home would be 4k a month?! Sounds like a great investment to me.

@@arnoschuster4392 4k per year

@@arnoschuster4392 1-2% annually. Not monthly

@@mrslcom This is definitely it. It's not just with this issue too. I call it the non-abstraction premium.

Yeeees me too

Finally, someone who heard what I said!

While I agree that renting is better for some and owning is better for some, this was a TERRIBLE analogy.

@@Oncopoda why?

Thank you!

@@Oncopoda perhaps it is, for you. For me, the dogmatic nature of those strongly on the rent or buy camp, and their flat-out refusal to accept any arguments that may tell them their own choice to rent or buy might not always be the better option, this reminds me very much of fierce conservatives' and fierce liberals' dogmatic beliefs and refusal to accept anything that is contrary to them.

Your Landlord is happy too

@@robocop581 No problem with paying someone to do a job. Both sides of an exchange are SUPPOSED to be happy with their transaction.

@@michaeldegrave5905 spot on.

Don't forget the literal translation of mortgage is "death contract"

​@@michaeldegrave5905being a landlord is not a job but I still agree with your sentiment

Now imagine you had that same conversation in 2007. Your friend would be far in the negatives, and you'd only be down 50%. You can't really use the period with the fastest real estate appreciation in the last century as a benchmark for future gains. Better to use averaged data like the studies from the video.

@@michaeldegrave5905 not in Canada. Here it went down for a little bit in that period but after went up like crazy. If my friend would have bought his house in 2007, his house would have tripled-quadrupled in price.

Is he gonna sell his house?

@@nfldream221 because he made some renos, he calculated that if he sells his current house then buys a similar house in his neighborhood, fixes it to live in it, he will pocket 100k.

@@FrequencyModulator I'm in Ontario, and I believe it! I laughed during the whole section Ben talked about how you have to keep your house well maintained or sell it for less. True enough on its face, but in my town plenty of sales show that no one cares about getting "less" when the price of their poorly maintained house is still twice what they bought it for six years ago. People sell As Is for sky-high prices here all the time.

I wish we still had the "farrer" (more far) vs. "further" (more forth) distinction. Obviously, it was still confusing, or we wouldn't have ended up on our current predicament, but at least it was clearer what the difference was, and why.

Before committing to being a landlord it's important to understand how demanding it can be. Broadly diversified stocks and bonds are much less maintenance and liquid.

Based on a person that I know who owns their place their property taxes have gone up far slower than if they were to rent and that doesn't include the fact that landlords can evict you just so that they can rent for higher price and you have to pay moving cost and not everyone is taking that into account. Another thing is that owners can put solar on their roof making it not only lower their power bill but also not pay more in the future as the power companies increase their rates. There are areas that property taxes vs how much rent is could be far more expensive than owning but that is only assuming that the person would be saving + investing the difference.

​@@XInfinity2024Depends on what state you live in

@@rayzerotYou are 100% correct but its something that isn't talked about in detail as much on videos and I feel like it is misleading with the numbers.

"there's no way to spend capital tied up in a home before you go" - from your mouth to God's ears.

Another consideration is remorgaging an owned house in old age with no plan to fully pay it off. That would solve the asset rich cash poor issue

But how would anyone get a mortgage when old?

Investment helplines that put their phone number in their username are almost certainly scams (see the reply above, *not* Mark's message). Do your good deed for the day and click the triple-dot menu on the comment and report such messages.

That's also the case in older cities in North America. The most desirable homes in Washington are in the old Georgetown district. There's Boston and Back Bay and New York's rowhomes, which are extremely expensive. A well-maintained historic home is very expensive.

The historic homes in well maintained neighborhoods in the US have some of the best and most expensive homes barring the enormous newly built mansions in some areas. The older neighborhoods often are located in better geographic locations and on better plots of land. The parks and landscaping are more developed and maintained. The materials, architecture and craftsmanship are much better too. "Smart money" or "sophisticated money" people tend to gravitate towards these historic neighborhoods. The big earners, bigger-is-better, ultra consumers buy McMansions in the suburbs. Depends a lot on the state and city though.

You still have to maintain them. Any maintenance is depreciation.

Exactly. It all comes down to what the after-tax yield on your home compared to your alternative investments.

It is mentioned briefly. Surprisingly, it does not make much of a difference even when not allowing leverage for the renter. If we do allow leverage for the renter, they do not need to get anywhere near the leverage ratio of the owner to make up the small wealth gap. This is a casually appealing argument that I often see for home ownership, but it does not stand up to scrutiny. Of course, as you point out, leverage also works both ways.

I really enjoyed the broad perspective of pro's and con's of owning a house in this episode. And I think that when looking from a financial perspective on it all, the biggest pro of owning a home is exactly what you mention here. Access to a low-interest large capital loan. As the ROI would be on the appreciation of the total value of the home and not only your down payment, this makes all the difference. Good reminder of the downside of this aspect as well.

Leverage is a great point. Renters who invest their down payment instead of buying a house can also access leverage (although not necessarily as cheaply), namely through in-the-money calls, buying on margin, and leveraged ETFs. The benefit of leverage also decreases with age. This is covered in Ayres, Ian and Nalebuff, Barry, Life-Cycle Investing and Leverage: Buying Stock on Margin Can Reduce Retirement Risk (June 2008). NBER Working Paper No. w14094 (This might make a very interesting video from Ben?)

@@BenFelixCSI thanks for this reply, this is something I’ve struggled to understand, would love to see a video going into it in more detail

@@BenFelixCSI +1 I found this really helpful Ben. But would definitely love to hear you tackle the leverage argument in more detail

Haha, societal bias when we congratulate people on becoming a homeowner but not for being a renter. It’s ingrained in all of us. Luckily I had people like Ben showing me that investing in stocks is the better option and I have outpaced house appreciation even in this crazy time.

It sure is, especially when friends and relatives believe it without any real knowledge on the topic. Like when someone asks "why don't you buy a property, you're losing money renting?" I say well not really i have my money in index etfs. "Oh the stock market is risky, better to buy a place" I could pass them on some to Ben Felix but they will more than likely not watch his videos

Or rent below your means and save from the get go and compound interest. It’s a very complicated topic.

10 years is a long time to spend in one place these days

Lol, he had Apple, Tesla and NVIDIA stocks

That doesn’t seem to happen anymore

I would buy bellow my means if I could, but it’s not an option where I work. (A studio condo is still too expensive in socal) If I moved to a cheaper area my income would decrease. I think this is true for a lot of people

I think it's a case of younger persons having a better understanding of contemporary reality. I'm 50 and don't like having a house, so will eventually sell it and return to renting.

I do not believe that “societal pressure” drove the family of one of my mother’s bridesmaids to buy a 1930s era Hammond Theater Organ and install it in their house, which I rather doubt that they could do in a rented house. OTOH, there is societal pressure in that renters tend to foul their nests. Few cases of “da hood” are filled with homeowners.

Owning can be nice once you realize all of the costs involved. You can't just compare a mortgage to a rent payment as a house will cost a lot more than that mortgage payment.

I want to add that owning only makes sense if you plan to live there at least 5 years and I'd up it to at least 7 years in this market. I would never tell someone to buy a small house with the intention of buying a larger house later and to just wait until you can afford the larger house or to find a way to make the smaller house work until it makes sense financially to move as moving and selling a house cost a lot of money.

Really. I hate renting. I never feel like its my own space. When I visit my family home I feel so much better.

@@cianog grass is always greener I guess. But I think you can't ever feel the same as in your parents house anywhere if it's your childhood home.

Depends how cozy you can make it. If it's just a boring home with no personality in a big development with an HOA and no privacy, then 🤢 gross! A truly cozy, homey house is special...

His videos are definitely of value and enjoyable watches, but there are some quibbles. His tactic of relying on random papers as if they are arbiters of truth for example. Look at climate change, it's 100% fake yet backed by millions of papers for political reasons.

@@cryengine_x good thing you know better than all these smart ppl writing all these papers🤔

@@danielhermanus6909 If you want to believe your car tailpipe makes it rain or not rain, well you believe in voodoo.

@@cryengine_x it's not just the car tailpipe and it's not just the rain. But things like that aren't properly discussed in a few words in a comment section, which is why we should leave it at that :)

@@danielhermanus6909 yeah, at the end of the day that's it. You believe, or more properly pretend to believe, actual voodoo. When you really think about it. Whenever they do surveys the vast majority of people wouldn't pay even $10 a month if it would stop climate change. Noone believes this nonsense. Noone. It's a political tool fabricated by communists. It lines the pockets of a whole lot of politicians and their allies. While they jet around to swanky climate change conferences. But then Jets emit a lot of carbon dont they?

Don't you subtract the depreciation property prices from taxes? It's basically a scheme to fuck everyone not on the property ladder over

If you were to weigh one strategy against the other, the way would downright be to buy a home using a mortgage and to aggressively pay down the mortgage early. The house I just bought costs $1,200 a month but rents for $1,600.

@@joshurlay does 1200 include the mortgage, property taxes, maintenance, home insurance, realtor fees as well?

Homeowner's still have to pay property tax, homeowner's insurance, and HOA fees which does increase with home value over time. And by renting, you have more money to invest in the stock market. Although, that latter point is often something that renters don't take advantage of -- lots of people just spend according to however much money they have in their pocket -- so having the shackles of a mortgage does induce forced savings for retirement in less financially prudent individuals. Of course, people are often under-diversified in their assets by owning a home which is usually an outsized proportion of their net worth, which has negative side effects for investment returns. Considering climate change as well, home ownership in many parts of the world likely carries a higher risk than before, so returns may not justify this. If you're financially disciplined, this dilemma may not be too much of an issue, but it's worth bringing up no doubt.

Remember that the alternative to buying is renting *and investing your down payment*. Just as the home you buy can produce a larger saved rent (which is your return), so too can the invested down payment produce larger returns. In other words, the risk of "rent inflation" is matched by the risk of losing out on larger returns.

what if you had an aggressive portfolio and tapered down to holding less volatile positions as you increase in age? similar to lifecycle funds

He clumsily completely forgot about rent inflation amongst numerous severe errors in this sloppy analysis.