Renting vs. Buying a Home: The 8.71% Rule (2023)

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Title	:	Renting vs. Buying a Home: The 8.71% Rule (2023)
Lasting	:	15.29
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Here's that free calculator: 🏡 Rent Vs Buying Free Calculator: beaconsai/humphreytalks/freedownloads brbrAlso did you love the new Outro? Lmk your thoughts!
Comment from : Humphrey Yang

Excellent info, thank you very much!
Comment from : Obed Jimenez

Something to note The property tax valuation isn't always the same as the market value, and you can usually apply for a tax break, reducing the amount taxed brbrI'm really lucky, the market value of my home is $255k and my property tax value is $181k I'm a disabled vet and get a $120k exemption
Comment from : VulcanKick

It is hard to set a realistic value of each thing So your analysis is weak
Comment from : André Fréchette

you do see the tax money- it goes to the community you see the maintenance cost, it is not gone it improves your home, quality of life, and home value That is not money you don't ever see again, it's still investing
Comment from : A good one!

A nice updated video! Though there's a few assumptions that kindof tip the balance in favor of renting, you covered the straight line interest effect, but another big one is:brbrYou didn't account for capital gains taxes When shares are sold you'll be taxed on the increase in value, and on any dividends paid, where a house you live in will be sold without any capital gains That 7 gain on market is much closer to 4-5 after taxes
Comment from : HantaleMedia

I feel like two factors would lower that number significantly: one being 80 leverage that turns a 2 gain in price to 10 profit and the other being the fact that rent inflation (which was mentioned but not taken into the calculation) It probably makes sense to add 1-2 percentage points to the 871 figure just for the rent inflation in the first few years of ownership
Comment from : Taha Pourjalali

Great videothanks for the info and spreadsheets
Comment from : MATT OVERHOLSER

You did not account for leverage 5 was the "difference" berween s&p vs median home appreciation but the buyer is earning 197 on the 500k not just the down payment so in reality it would come out to 985 real estate vs 719 s&p 500 brPlease correct me if I'm wrong
Comment from : Juan Cano

The example home is a 1/2 million dollar trailer We are in a bubble
Comment from : Gunks Hunter

Why do you compare only the first year of home ownership and renting? What will the rent be in 30 years? Also, where do you get this tax-free 7whatever return from the stock market? Of course, buying is not always the smart choice, principally because of transaction costs But the idea of comparing a fixed 30 year cost with the first year's rent is ludicrous
Comment from : Gordon V Cormack

He forgot to include home insurance And yard work LOL
Comment from : X O

VRAU500million/$/CHES/TASFERENDMYTIMISARAROMANIALASNAMEVARGASANDORADRESS/GLORIA/NR/92/LOC/GIROC/JUD/TIMISOARAROMANIA
Comment from : Sandor Varga

one more thing that could go into calculations is if the rent is lower and you can put the money in stock, how much you get
Comment from : nima moradi

You’re missing the benefit of the leverage on buying the property The 2 gain isn’t on the $100k you put down, it’s on the $500k that the property was worth Meaning 5 x 2
Comment from : David Browne

One thing I noticed is you had the cost of capital / opportunity cost in there for the down payment but didn’t include it for the principal payment Would the same opportunity cost not apply? Apples to apples a renter could in theory take that principal payment and put it in the stock market and out performbrbrSecondly, most FAs don’t include your home as an asset because you need somewhere to live, even if it appreciates and you sell you have to live somewhere so that money goes right back into another home in a market that has also appreciated
Comment from : delavager

Isn’t the mortgage interest cost tax deductible?
Comment from : Andrew Curran

The most important thing to consider is whether you plan on staying in that area or not for the next 7 years Raise that number of years or lower it depending on the interest rate and base asset price Opportunity cost can also hit you if you have an opportunity to earn double or triple the amount you make now, but you're anchored because of the mortgage
Comment from : Alex Vig

the link for the calculator is broken
Comment from : Mohammad Maraqa

For those that can itemize, the int deduction tips the scale in favor of buying
Comment from : Noxemis Tirpze

bI started investing when I was 27, mostly through sweat equity I just turned 33, and this last month was the first time that my passive income broke $100,000 for the month This is solid advice! DO IT/b
Comment from : Kelly jane

The only way buying in my high property tax city makes sense is if we could Airbnb or rent some rooms to pay the mortgage Another thing to factor in is that landlords oftentimes pay for water/sewer/trash, lawn care/snow removal or other utilities They pay for insurance and assume all the risk, which is high if you live in Florida
Comment from : All Things Possible

Not the home, the landbrNot the home, the landbrNot the home, the landbrbrPlease understand that your house does not really hold value it is the land
Comment from : Sunny Snow

Around 9:30 into video you talk about the amortization table and interest You have a common misunderstanding of the amortization table In fact the interest you pay each month is: (remaining principal) x (interest expressed as fraction) / 12brbrIf you pay extra towards principal near the start of the loan you will effectively skip down the amortization table to the payment that matches the new principal remaining brbrIn other words it is pure simple interest with no "front loading" brbrUnderstanding the math goes a long way to improving the decisions you make Especially in regards to how valuable extra payments are in the early stages on the loan
Comment from : MrObeesho

What you can do versus what you actually do with the money you have saved should never be factored in If people decide to be foolish you can not have that factor built in anu formula
Comment from : amit singh

I told my friends and family if you could buy a house, they were co fused and said, "You can't buy a house You gotta rent it first That confused me and now I don't how to get a house or apartment
Comment from : VerTicalX

So if I own a home like we’re told successful people do, I get rewarded with state tax every year and pay an extra $70,000 in interest if I have a mortgage Does people really not see a problem with that?
Comment from : JayBird

I'll buy a straw house in Cambodia before I buy a home in San Diego
Comment from : 1Smoking Lizard

How did you leave insurance out of the equation? In California I pay Fire and Earthquake insurance Over $3k and rising annually
Comment from : Rob Dupree

Back in the 40's and 50's a simple milk man can afford a home for his family without having the wife to be working at all Now a two income family making over 100k a year cant even afford a two bedroom condo in California What a lovely time we living in
Comment from : epicwolf

Except for the times we are living in, buying is always the best option ever, do not even question itbrthose calculations are wrong in so many ways, because , except for this crazy today market, usually no one who is 1st time buyer will buy a 500 k home,but a 250k home, and historically the mortgage payment is less than the rent second , interest will gradually decrease over the time of the loan, and not everyone needs to put 10 down on a home, take VA loans for instancebrthird : most homes tend to increase in value and even if that was not the case you will at least keep what you have paid for so far, and regardless of that ,you will always need a home to live in
Comment from : DAVID FERNANDEZ

Rather have root canals performed than move Factor in the cost and time lost due to that
Comment from : Snakeonia

Quick question why did you use the median home price appreciation rather than the mean/average?
Comment from : E90bmw

If you're planning to buy a house, we've developed Home Buying Guide, a free scientific calculator that considers all the important factors; your income, current rent, house value, and interest rate allowing you to make the best decision based on your personal finances The tool is both handy and easy to use
Comment from : Xillion

Definitely Buy Yesterday there was a discussion how some states have become impossible to live in due to Social security not being enough to cover rent Well idk about you but in 30-40 years I don’t plan to rent and if you still are that’s on you Most people buy a house which will appreciate itself with time and in 30 years max they’re done paying it off which leaves that SS check for just your normal living expenses I bought my house a year and a half ago for 230k (4bed,25bath) and it’s already priced at 300k and if I do some cosmetic repairs I can get 400k without a problem
Comment from : Devo

The price to rent ratio is super busted in most markets right now The fed is paying attention to that and are looking for further "price corrections" Buying is just a bad idea right now unless you absolutely have to brbrthat 400k scenario at 2900 a month, rents for 2400-2650 in my area It's bonkers brbrSadly, if home prices don't adjust soon, rents will just go up as they always lag a bit behind home prices Hopefully we don't get to that point
Comment from : misterringer

We are set to close in a week Our mortgage (principal interest tax insurance) will be 3x our rent But we can comfortably afford it and simply want to own That was the driving factor
Comment from : HolyGrayle

I wish property taxes were that low in Illinois
Comment from : Enoch Haven

Taking early notes from Warren as to the importance of sound asset diversification and risk management It can’t be overstated I’ve been trying to grow my portfolio of $300K for sometime now, I would greatly appreciate any other suggestions
Comment from : liu zhang

I do understand you can't cover everything Most the people won't open they sheet and actually do the calculations These numbers just arnt realistic in most cities A 150k-200k house around the area I'm in is 6500 avg taxes And that maintenance number is way too low The average water heater and one appliance is 5k I appreciate the calculations and idea but that doesn't represent most areas And I'd be willing to bet people actually putting 20 percent down is less than 5 percent of home buyers Which brings on pmi In order to stop people from making stupid decisions they need to actually understand the real costs involved
Comment from : Corey Alfredson

The cost of capital calculation is slightly skewed because the real estate is actually returning you 2 on the $500,000 property value, not just on your $100,000 investment, which is effectively 10 return on your 100,000 Because the entire property value increases whereas the money of the stock market is only the 7 on your 100,000
Comment from : Ben Ferguson

If you control your home, you will be more wasteful
Comment from : Bohdan

This was interesting Thanks for sharing Accruing equity is fine, unless the market drops right now (August 2023) it seems things are going to do a slow slide for the foreseeable future
Comment from : NJHeart2Heart

In Florida how do you add HOI which is 6-8k? Add in another percentage point?
Comment from : joe davis

@humphrey what would be the numbers for GTA - canada?
Comment from : Omar Sharif

There are other factors One is, if you are skilled or hardworking and brave and willing to fail sometimes and learn, you can buy distressed homes and fix them up A few years of very hard work, and you can live in a very nice home, customized to your tastes and needs And, your taxes will be low because the previously assessed value will be low, and your mortgage payment will be low Next, as an owner, you can make other income streams off of your home It is easier to rent out rooms This is a great way especially for young people to afford mortgage payments Or, Ive built very nice mother in laws and ADUs into homes These ideas are risky, yes But you can redo a kitchen yourself for $3,000-$9,000 People who hire contractors would pay four times that
Comment from : charlie

Another issue is that 5 cost of opportunity on 100k down payment is 5k and that's it A 2 home price annual increase is on a 500k asset, which is 10k per year This post is missing leveraged nature of homeownership
Comment from : Alexandra Shayakhmetova

This calculation misses insurance This can easily add another 1 cost to home ownership
Comment from : Alexandra Shayakhmetova

A quick recap of the rule would’ve been nice Your original explanation weaved exceptions and notes, etc throughout and it would’ve been nice to had a 30 second recap with a whiteboard at the end
Comment from : Humble Thinker

You forgot to mention quality of life, being able to lay down roots somewhere vs renting a mold infested slum and dealing with a landlord
Comment from : Lindz

Please redo w insane Homeowners Insurance and HOA fees as in Florida
Comment from : skeeter bodeen

I am fortunate I made productive decisions about my finances that changed my life forever I’m a single mother living in Hk China, bought my second house in April and hoping to retire next year at 50 if things keep going smoothly for me🥰🥰
Comment from : John Flick

your friendly neighborhood ice cream man

1:44 any cost an owner has is baked into the cost of rent , renting is 100 allways more expensive
Comment from : your friendly neighborhood ice cream man

renting is almost never truly desireable
Comment from : your friendly neighborhood ice cream man

You did not include home owner insurance premiums My own HO insurance jumped from 1 to 16 That means a 103 rule
Comment from : Kent Robertson

Wow just go straight to the point this is America who cares 😂😂😂😂
Comment from : 1984 Lee

I'm wondering why are we including a cost of capital at 500,000? Isn't the assumption that we borrow at least 400,000 of that, so we never had all that capital to begin with? Shouldn't that be applied to just the down payment?
Comment from : mosatsoni

Eastern Roman Empire would have never developed industrial revolution It became a stale bureaucracy, held back by retrogrades This is where the phrase “Bysantine rules “ came from😂
Comment from : Leo Y

Isn't there also an opportunity cost to paying property tax and maintenance? That's another 2-3 that we're not investing if you decide to buy
Comment from : Jesus Ortiz

From my standpoint, you didn't consider the cost of utilities and profits from rental income But generally, this is a good idea Thanks for sharing
Comment from : Joshua Huang

Awesome calculator, thank you! Would be even better if it also included length of mortgage as a variable I see in the comments too people mentioning mortgage lengths of anywhere from 15 to 40 years, so clearly there's some variation and possibly quite a large impact on how the numbers work out?
Comment from : Rok Novak

When comparing home appreciation versus stock market to evaluate the opportunity cost, you compared 2 versus 7, respectively However we need to be careful with this comparison The 2 goes on top of your property price, immediately In your example 2 over 500000, applied immediately, not in 30 years when you finish paying your mortgage While the 7 for the stock market would apply over the $100000 down payment you have just made My point here is that a mortgage is a leverage on your current capital invested and it would be worth mentioning this in this video or future ones Cheers!
Comment from : Bruno Mundim

H O A
Comment from : adverteasing

What if you have the money cash and you won't need a mortgage? Rent and last for a long long time, or buy now and save for the next decades to come?
Comment from : esportbets

Great video, although I couldn’t help noticing that you didn’t include the cost of homeowners insurance or PMI (for those who won’t be putting down 20 which is probably most Americans)brbrOn the flip side, the benefit of purchasing a home is largely intangible - things like security, peace of mind, not to mention knowing that one will have a piece of property/shelter upon retirement, which is again offering more peace of mind So the decision is ultimately very personal Still though, this was a great video which objectively breaks down the pros/cons of renting vs buying
Comment from : Dani Vee

Don’t forget that you’re also NOT paying rent during the time that you own a home Meaning that 24k gets subtracted from the cost of homeownership Meaning 9000/12 or 750 per month So yeah Owning is better than renting if you can afford the upfront costs
Comment from : Terrence C

In my opinion, a housing market crash is imminent due to the high number of individuals who purchased homes above the asking price despite the low interest rates These buyers find themselves in precarious situations as housing prices decline, leaving them without any equity If they become unable to afford their homes, foreclosure becomes a likely outcome Even attempting to sell would not yield any profits This scenario is expected to impact a significant number of people, particularly in light of the anticipated surge in layoffs and the rapid increase in the cost of living
Comment from : bernado felix

Can we talk about how buying that 500k house in California should be considered securities fraud? 😂
Comment from : charles wildonger

I rent for under 1k a month , all utilities are included, I just pay my mobile ph bill It's very easy life , I work alot and away from my apt alot It just not worth it for to buy It's very very expensive for 1bed room apt in nearest city Would cost me 275k , taxes 4k, assessment 200-450/month ++ pay your utilities
Comment from : Kim Jones

1 maintenance costs? I own two houses, and I rarely spend over $500/year on it
Comment from : Victor Pham

What you failed to mention is that in the USA, when you sell your primary residence you don’t get taxed on property gain up to $250k single and $500k married You can qualify for this credit every 2 years when living in that primary residence I’ve made hundreds of thousands of dollars tax free selling my primary residence many times Rinse and repeat Plus you get to use your propertybrStock returns are subject to massive taxes and you will be very old before you can touch it
Comment from : Raul Fernandez

+ appraisal costbr+ home inspection costbr+ due diligence costbr+ rising HOA costbr+ closing costbr+ title costbr+ termite inspectionsbr+ pest controlbr+ HVAC inspectionsbr+ radon inspectionbrIf there is a divorce, take the loss, go live in your car
Comment from : LeeLee

Wow, great to know I do made the right decision! I don’t need a house to show I am successful! Being quality Minimalist is the best choice that I realized and happily living without attachment and travel anywhere I want and knowing I have solid investment for retirement!
Comment from : Arin S

Simply seeing the listing for a 2 bed/2 bath house set at half a million dollars made me realize moving away from the west coast was probably the single smartest thing I've ever done in my life
Comment from : Selena Gamya

If you know how to fix or enjoy working on carpentry, plumbing, electric, HVAC, buy If you don’t know how to do any of those things, rent I’ve been a home owner for only 2 years now and absolutely hate it I miss the worry free life of paying rent and if something went wrong calling the landlord and it being there probably I would trade my equity for peace of mind Owning a home is overrated and stupid I'm going to sell and go back to renting
Comment from : Dude

The danger of buying is your home drops sharply in value eg drug dealers and the homeless move into the neighborhood
Comment from : therover65

Thank You for this video unable to download the excel file
Comment from : Jude Coutinho

In the 1970s the prime lending rate was 17 I was 18 with one child at that time Just putting this out there so when you are panicking about 75 lending rate
Comment from : BJ Acres

Buying or renting a home depends where you live In California Bay area, home price has increased 200 over last ten years In Illinois, north rich people area near Chicago, house price keep same as it ten years ago So, any people can make an decision simple and easy Don't let numbers fool you Don't buy any homes with higher property tax rate Governments are eating house value by time The trend is the most important
Comment from : Jerry Lewis

Home values will continue to fall well beyond a decade Too many people locked in record low rates, for RECORD HIGH COSTS Prices only need to decline about -10 for catastrophic results Risky HELOCS, Airbnb busts, and decade long value declines, combined with commercial real estate in the red, across the board Foreclosures are only now starting to uptick Supply is increasing, NATIONALLY This bottom won't show until the mid 2030's at the earliest -40 will be a reality God bless, America
Comment from : R

👍🏻 5:30 Opportunity cost of your down payment is 5, which is based on the assumption of the investment return difference between average stock return 7 and the house appreciation 2 And Cost of the debt 7 is the mortgage interest rate of your loan
Comment from : 3650days

871 assuming a 7 apr
Comment from : LJ R

My home purchased 9 years ago has given a yearly return of 12
Comment from : Real Steel

Your NOT adding Equity accrued! Pushing renting like it’s better than owning is ridiculous - all rich people BUY and never rent
Comment from : Abbyy Norman

Buying a house in this super inflated market makes zero sense no matter what it costs to rent imho
Comment from : King Javo

I don't think this opportunity cost calculation is accurate The rate of return for the home investment will be a of the total value of the home, not just your down payment
Comment from : SLMaccabee

Personally I will never ever rent again rent goes up every year your mortgage wont
Comment from : Bmore Blondie

Your numbers are off During the 7 years I've owned my house I've seena 46 increase Not 2 Also you are forgetting one other major expense homeownership incursbrThe forever rip-off of homeowners insurance I pay $1500/year based on a $250,000 house I am in the US
Comment from : Rob I

I have had talk like this with Boomers and Ramsey types They just get confused and call me a lazy Millennial because "but but but a home is always an investment" Millennials dance circles of our financial knowledge around boomers while holding out $5 coffees
Comment from : Jerry Berndt

Ben Felix and the Rational Reminder Podcast is an amazing, insightful, evidence based approach to learning more about personal finance and financial markets/products Would definately recommend! Keep in mind the target audience is usually for folks with foundational understanding of these topics, although they have some wonderful intro topics like how to choose a financial planner
Comment from : Ninja Tortoise

Thank you for the generous calculator and links Great video!
Comment from : Jane Weaver

I think a lot of people forget about actual QUALITY OF LIFE here in America All people talk about is investments and money but what about how disappointed you are in the dumpy home you live in for WAYYYYY TOO MUCH PLUS PROPERTY TAXES THAT'S ANOTHER SCAM?What if you're just plain happier day to day renting an apartment near work and less maintenance? Nobody talks about that Pretty much the rich and powerful that have stayed rich and powerful have us right where they want us which is staying put while they dig deeper into our pockets more and more
Comment from : Clay Keough