Rent vs. Buy In the United States' New Economic Reality

The key idea is that whether renting or buying a home is financially beneficial depends on factors such as the monthly cost, potential investment opportunities, and individual preferences.

• 💰 Renting vs. buying a home: Calculate the monthly cost of ownership, including property taxes and maintenance, to determine which option is better.

  • Renting a home means you never see the money again, while owning a home includes mortgage payments and miscellaneous costs, making it important to calculate how much money is lost in both scenarios.

  • The main goal is to compare the monthly cost of home ownership to renting and determine which option is better, taking into account property taxes, maintenance costs, and mortgage payments.

  • Property taxes are owed on any owned property, with the average rate being 1.11% and an example of a $500,000 home.

  • For owning a home, you will have to pay property taxes and maintenance costs, which amount to about 2-2.1% of the property's value per year.

• 💰 Buying a home includes the down payment and missed stock market investment opportunities, while stocks have historically outperformed real estate by around 5% annually.

  • The cost of the mortgage payment is determined by the property's value and the amount financed, typically over 30 years.

  • The cost of buying a home includes the down payment and the opportunity cost of not investing that money in the stock market.

  • Over the past 30 years, residential real estate in the United States has appreciated by an average of 1.97% per year after accounting for inflation, while the S&P 500 has returned an average of 7.19% per year, indicating that stocks outperform real estate by around 5% annually.

• 💰 Renting a home is more advantageous than buying if the monthly cost of renting is cheaper than the monthly cost of owning, according to the 8.71% rule.

  • The cost of capital includes the cost of debt, which is calculated as the loan balance multiplied by the interest rate per year, resulting in a total cost of $33,000 per year, representing 6.6% of the home's value.

  • Add up property taxes, maintenance costs, and cost of capital to come up with a simple rule.

  • The 8.71% rule states that if the monthly cost of renting a comparable home is cheaper than the monthly cost of owning a home, it is more advantageous to rent.

• 💡 Renting vs. buying a home: Calculators can help determine monthly break-even payments, but it's important to consider human irrationality and impulsive financial decisions.

  • You can use a calculator to determine your monthly break-even payment for renting versus buying a home, but there are flaws and other important considerations to take into account.

  • Humans are often irrational and impulsive, so it cannot be assumed that renters will invest their down payment wisely or make perfect financial decisions.

• 💰 Buying a home can be more beneficial than renting after 30 years due to the accrual of equity, unlike renters who gain no equity, but the rule discussed in the video may not consider variables like inflation and mortgage rate changes.

  • A mortgage payment can be seen as a forced savings method, as it allows for the accrual of equity over time, with the cost of equity and debt constantly changing due to the variation of the amortization schedule and the availability of different types of mortgages.

  • After 30 years, the cost of interest is mostly gone and buying a home becomes more beneficial than renting because you have a tangible asset that could appreciate in value, unlike renters who are essentially paying their landlord without gaining any equity, and the rule discussed in the video may not account for variables such as inflation, mortgage rate changes, and opportunity cost of equity.

• 💡 Owning a home in the US can lower monthly costs and provide benefits like predictable payments, control over modifications, added security, and reduced value owed due to inflation.

  • In the United States, if you have more than $14,000 in mortgage interest to deduct, it can lower your monthly cost of home ownership, but there are also non-mathematical benefits to owning a home.

  • Owning a home provides predictable fixed payments, more control over modifications, added security, and the benefit of owing less in terms of value due to inflation.

• 🏡 Renting offers flexibility and simplicity, while owning a home provides stability, potential appreciation, and peace of mind for retirement.

  • Owning a home can provide financial stability through fixed mortgage payments and potential capital appreciation, as well as a sense of fulfillment and peace of mind for retirement.

  • Renting offers flexibility, no ownership costs, and access to amenities, making life simpler compared to buying a home.

• 💡 Run your own numbers to determine whether renting or buying a home is financially beneficial, especially considering high mortgage rates in the US, with renting being more appealing in the short term but buying potentially offering greater investment upside if staying for more than five to eight years.