Addressing 200+ Comments on Renting vs. Owning a Home | RR Episode 325

[@Turner.K.]

You've posted a "reacting to mean comments" video. You're a true KZbinr now Ben.

[@owlegrad]

46:00 “the loudest voices tend to be the least interesting” dang what a wicked hard casual burn 😂

[@willsamuel6750]

I was one of those comments on the last video with more questions about the subject last time, I mentioned how there might be a difference between rural vs urban areas (large cities). After listening to the episode, I dove deep, calculating all of my past and expected expenses associated with the house I bought last year. There were a few huge investments, including the down payment, transaction costs, and some large repairs we did, which really hurt my return. In fact, when I calculated the opportunity cost of renting an equivalent house, and investing the difference (namely, the down payment), it would have been way more profitable to rent and it is costing me around $30,000 per year in lost investment income (over the next 5 years). This taught me a few things, 1) the down payment is a huge chunk of that opportunity cost, minimizing this (e.g., 5% down instead of 30% down) would seem mathematically optimal for a young person like me. 2) repairs are a HUGE expenses that is often unrecoverable when you sell, and not accounted for when calculating real estate returns. 3) this relationship reversed after about 2 years, annual housing costs became lower than rent, and over time this would become more extreme, making a rental less optimal for long times. BUT, over a 5 year period (and I would expect 10 years too), I would have still come off better (pre tax) renting because I was able to invest such a substantial amount initially rather than tying it up with the down payment. All that being said, I don’t have any regrets with buying this (unprofitable) house. It was a good deal considering the market at the time, and it has improved our quality of life by orders of magnitude. I also believe the reduction in stress and property ownership has improved our ability to earn with our day jobs and I am able to use this space for my side buisness, which I may not be able to do with a rental. We are investing 55% of our income, and treating a house like a liability (instead of an investment) gave me financial peace to move forward with the purchase and greatly improve my lifestyle. I was talking to my parents about this, and how I might do a cash out refinance if rates drop. They have a paid off house and said they are happier with that, but in retirement, I said, “you can’t eat your house”…. they are currently struggling since so much of their net worth is tied up in their house rather than liquid assets. The illiquity (or expensive access to home equity is a persistent problem in my mind, and I think I prefer to maintain some leverage on it for the foreseeable future. Thanks @Ben Felix for your thoughts with all of this!

[@Skankhunt42vmmf]

The amount that you would loose in extra interests starting with a 5% down-payment vs starting with a 30% down-payment, on a high interest mortgage environment is not something you seem to be considering. Also the average investment return after inflation is like 7%. Not every year returns 20 to 30%, yet mortgage interests have remained high for years. Fortunately they are decreasing

[@willsamuel6750]

@@Skankhunt42vmmf right, I assumed an 8% nominal growth rate of my investments with a 3% assumed inflation rate (5% real return). According to my broker our down payment size would not have affected our interest rate, I think because we had good credit scores.

[@Skankhunt42vmmf]

@@willsamuel6750 no. I'm not talking about the down-payment size affecting your interest rate. I'm talking about the fact that if you require 10 extra years of mortgage paying because you star with only 5% of the house cost as down-payment, you will be paying extra interests to the bank for 10 years. Are those extra interests much smaller that what you can return on average on your investment? If the mortgage interest rate is let's say 5-6% I find it much safer to pay a big chunk as down-payment. If they are 1-2% sure let's invest while we pay small interests for longer

[@willsamuel6750]

46:27 …. The mark of an intelligent mind is being willing to change your opinion in light of new information. Good on you for being humble @Ben Felix!

[@MrKililae]

Great episode, would love to see more like this in the future!

[@wandaespana2577]

I liked this format, the communities insights are great but I don’t always find the time to dig in there. Would be nice to have some of these summary conversations every once in a while

[@martycurtis7090]

Agrred. I was thinking it would be nice to have a "key takeaways" moment at the end, and maybe in the show notes.

[@john-s9m3f]

Grateful for what you do Ben. You're saving the financial futures of so many people.

[@freedomlife3623]

I have done both. One thing kept me owning instead renting is the way of living space. We renovated our place the way we would like to live, no landlord would spend that much money to renovate a place for someone to rent. Even my contractor was telling me I won’t get much of renovation cost back. But we don’t really care as we enjoyed our place so much more & don’t have to move to upgrade. Second point is nothing beats the secure feeling of living in a fully paid off home.

[@TheFreeRunPorject]

Loved the follow-up episode.

[@singranasbonfireofdreams8161]

i liked the format, and as they say diversification is the only free lunch, so dont stop the old content but sprinkle in this too

[@ryans450]

Imagine my shock tuning in for the first time in months and seeing Ben with this hair style.

[@rezlogan4787]

When I rented I had absolute contentment. Every repair paid for, access to a pool I never needed to maintain, flexibility to move on demand, and a great property management team who were a source of social connection. I gulped hard after my wife gave birth to our twins and her nesting instinct kicked in hard. Though I understand the mathematical merits of my decision to buy us a modest house, the contentment is long gone. The “new” house has needed plumbing fixes, a new garage door and opener, new flooring and carpeting, new HVAC system, and new appliances. The wife is at her bliss point buying new upgrades like collecting stamps and I’m desperately withholding maxed out retirement from my paychecks in futile hopes she won’t see what I bring home and immediately start planning another expensive improvement for me to finance.

[@rationalreminder]

Wait. Are you me? -Ben

[@rezlogan4787]

@@rationalreminder If you are also annoyed about buying a recent new car because the paid off one is starting to die, perhaps yes!

[@rationalreminder]

Ah not quite. We already have the new one. -Ben

[@kerri648]

every repair paid for ? what if they take forever ? in an apartment, heat controlled by management.

[@rezlogan4787]

@@kerri648 That’s a bad deal and it pays to shop for good management. Our maintenance staff actually lived in the complex and had all replacement parts for appliances, plumbing, etc. located on site ready for immediate replacement. If we ever had a leak, break, etc., it was fixed in 10 minutes by week’s end. They also made A/C and heating our responsibility, so we got along fine installing a window AC and safely designed space heaters with outlet thermostat controls for each room. That’s one advantage of a small space with low ceilings: no cost at all to heat one room in the dead of winter, and it created a nice little cocoon effect. One winter it was -3 F outside and stayed a toasty 67 inside for cents per day. We also blocked under the door, turned off forced air heating, and installed heavy felt curtains that created a nice thermal buffer. I’ve never slept cozier in snow. Now in a big house, space heaters are useless with these vault ceilings and tall windows.

[@robertwright8844]

20:12 This is an important point, but many people don't even have to consider whether their landlord is cash flow positive. Unless you're pretty certain you'll be staying in that *exact property* for a long time, transaction costs are so high for owners that renting could be wise on that basis. The tax alone is so high in some US cities ... Philadelphia has a real estate transfer tax that costs you over 4% of the sale price to make a round trip (buy/sell).

[@drchickensalad]

With regards to mortgage being lower than rent, here in downtown Manhattan (NYC) I got a $3600 mortgage on a 1 million 1br (right when interest rates started going up but before they went to the moon) but renting an equal place would be at least $5500 as it's a large 1BR in a 24/7 doorman building. Maintenance is 1350 but 900 of that is property taxes (with the ability to defuct as normal)

[@usandmexico]

Informed from the recent fires in Los Angeles, if you buy a home and it's destroyed, you still owe the mortgage, and that's not including being unable to insure or losing your insurance before a disaster. Add on top of that the property taxes still owed; in LA, the land of some those homes is 2/3 the value, or at least that's how the tax is assessed.

[@michaelsimms2819]

How does the math change if you're living in a rent controlled house or apartment? BC and ON have very strict rent controls, and limit how much the rent can increase each year. Since landlords lose money on rent controlled properties, they have to increase rents on new tenancies. So effectively you have newer tenants subsidizing longer term rentals. Given that a current homeowner can always move out and charge market rent, rent controls could actually be driving the high equity increases we have seen in BC and Ontario.

[@PJTremblay]

Dan is awesome.

[@Skankhunt42vmmf]

The much more interesting question to the 40k to 2M argument multiplying by 50 de original investment is. Can you turn those 2M today into 100M again within the next 50 years relying only on a house price? I don't think so. However for a next episode I would like you to talk about the expected future returns of housing vs stocks given current valuations

[@nettoyageadriance]

Thanks for your time guys putting this together. Very interested in this subject! Paid off our home last year. 38 years old. Leveraged 20% collateral on it to buy an investment property two months ago at 4.99% 3 yr fixed. Zero cash exchanged to control a new property except closing costs. Slightly negative cash flow for now. Self-employed so was also looking for tax write-offs and a stable place to store money. Wise or stupid? (still maxing retirement accounts with a 50% savings rate, no kids, no other debt)

[@user-yt8cu8hu5l]

Everyone’s situation is different. Everyone’s priorities are different. We should do what is best for each of us and not impose our preferences on others. Rent vs own is financial and psychological exercise that should be evaluated and result may vary at different stages of one’s life. As is said with equities, past performance is not indicative of future results. The big housing gains seen in some markets or with some generations may not be seen again. Home insurance is disappearing or becoming cost prohibitive in some places (CA, FL). I owned three homes. I rent now. I may own in future. No regrets. Just keep swimming!

[@robertross8565]

Great news about Dan being more involved in the podcast.

[@nanobrains]

Great format! Love to hear more remarks on a specific topic

[@neenz2050]

LOVE THIS FORMAT 🎉

[@MetalMilitia072583]

My simple response to this endless debate: it's not just about the money, it's also about lifestyle choices.

[@stoepsi]

I really loved the episode. Very calm and thoughtful. And I was able to get some additional aspects of renting vs owning out of it. Thanks. BTW: It is also my experience that what bothers you as an owner can easily be accepted as renter. This is a cost that never shows up anywhere. One might go for the 50% more expensive kitchen as owner, while a cheaper solution as a renter will just as easily be fit for purpose (cooking great meals).

[@Bradbajc]

4:47 Technically they didnt have to move just because the landlord is selling. The new owners would have to issue them an N12. Also there are no lease renewels. They go month to month after the initial first term. Great video Ben!

[@70qq]

i live in the U.S. , and the rent vs buy debate is big here as well obviously ... what i find strange is people often compare rent prices vs the median home price (especially since rates are up higher than most people under age 40 remember) ... a median home is around 1,500 sq ft , 3 bed/2 bath while many rentals are a smaller 2 bed/ one bath apartment or a smaller home ... not much of a basis for comparison really , because the two are very different animals ... rent is cheaper in dollars , not per sq ft , because youre getting less home ... id guess renting a house of the same size is still more expensive than buying in most cases , even with rates being up , but as always you lose the flexibility and freedoms that renters enjoy ... but as a child in the early 1980's , i also remember my young parents buying a home at about 18% interest and complaining ... my mother told me decades later , it was the only time she saw my dad cry ... because the first night in the home , after us kids were in bed , he said to her "how in the world are we ever gonna pay for this ?" with tears rolling down his face ... their house payment was $235

[@rationalreminder]

The U.S. studies we looked at control for dwelling size and still find that renting typically produces better financial outcomes. -Ben

[@smachsimo]

Great episode guys

[@martycurtis7090]

We started our marriage by renting a dark, dingy, 2br/1ba basement suite. Didn't even have a tub for our girls, so we used a blow up pool to bath them... but it was cheap, which was what we needed. That was in 1994 and went on 5 years as we worked minimum wage jobs and scrimped and saved every penny we could to get a downpayment; we lived below our means at the time which was pretty mean indeed. Got our downpayment together and built our first house, putting in as much sweat equity as we could. Sold that place 2 years later and pocketed ~$25K. Moved from our new house to rent again a parish home at a near by acreage that was owned by a church. That acreage came to be known by our girls as "the mouse house" cuz there were so many you could hear them in the walls... again, low rent in exchange for cleaning and yard maintenance... we socked away as much money as we could. Stayed there two years and then moved to a completely different town. That was in 2003 Bought our first rental property in that town at the bottom of the market (though we had no idea it was the bottom at that time), and then shortly after bought a second property that also had a renatl suite. So now we had two rental incomes, and our jobs. Our cost of living was going down b/c we were being subsidized by our rental income. Continued to scrimp and save. We were well below the average income of our siblings and friend groups I might add. Moved to a different town a year later to takeover the ownership of the local Subway restaurant, bought yet another home. So now we had a new, unproven business, and three properties, two of the three properties had good rental income, which really helped as we got the Subway going. That was 2004. By 2007 the oil boom in Alberta was well under way and house prices had risen substantially. We sold both of the properties in the previous town and paid off our mortgage in the current town. We have been debt free ever since, save for one short 15 month period where we bought our current home (an acreage just outside of town) and had to wait until the current home sold in order to pay off the new acreage mortgage. We saved a lot of cash along the way and have just sold the Subway... now have a consultation booked with PWL Capital to explore the possibility of handing over asset manangement to them... we'll see :-) This all started with minimum wage jobs, and a lot of hard work and sacrifice.

[@WisdomOfTheAged]

I'm curious if there are studies comparing financial differences in outcomes between owning strata vs non-strata properties. For example, you don't control when or how major repairs are done in strata properties. A roof repair replacement may be delayed by other owners voting against it, causing more expensive repairs later. Or the opposite. The strata may be more on top of maintenance and repairs than an owner might choose to be. I also wonder if strata and non-strata properties appreciate historically by different rates, which changes the financial outcome analysis.

[@bjohns347347]

I’ve been a landlord for 15 years and have done the management and maintenance mostly myself. I’ve done well but I would have done even better by putting the funds into the stock market instead. The main reason for me to invest in real estate is to diversify assets because it ‘feels’ safer. More psychological than anything else I guess.

[@freedomlife3623]

Yup, REITs pays over 6% -7% without any work. You don’t have to deal with bad renters too.

[@michellehoque465]

Fun After Show format! Hope there will be more :) Nice to see the different reactions from folks in different geographical areas, life stage, and wealth categories. This type of topic is quite like financial planning where its very personal and people could be working towards different goals such as home ownership, downsizing to rent or own a small place, etc. and it doesn't always follow the normal life cycle. Listening to the show makes me very grateful to be a home owner and have the freedom and flexibility to decide when I want to downsize to smaller home or consider rental options including owning or renting a home in a retirement community with certain available amenities.

[@Imsosmrt1999]

Renting vs owning is like is it better to own a bicycle or a car? They confer different benefits, so it’s not like asking is it better to own a Toyota or a Honda. The reality, however, is that very few tenants will ever exercise the discipline that is imposed on homeowners through forced savings. No way would I have put that $1,000 into the S&P index fund if I heard the selloffvacatiions commercial. I’d be sunning my renting ass on a beach. Instead, I paid my mortgage and did without some (different) fun times.

[@Bodeification]

Just to point out a different perspective than what your kid had. When I was growing up, I moved 8 times when I was 4-10. To 6 different cities and 3 different countries. By the end, I was expecting to move again and excited to know where we would go live next.

[@freedomlife3623]

You are probably an adventure in heart. Sounds very great upbringing.

[@pavlosaikevych]

great format. Love it!

[@StockSpotlightPodcast]

Another banger! Well done

[@intothevoid7641]

The landlords not making money - something I wondered while watching the original, perhaps tax advantages for landlords might make a difference to profitability

[@thomas6502]

Enjoyed this. Thank you!

[@murky024]

To the note about real estate investors appearing in the red related to their investments vs rent, I think some of this is also attributed for investors leveraging up more by re-financing loans to take capital out and reinvest, at least in the US, and even more so before interest rates went back to a more normal level.

[@aknorth1053]

I think the lack of control is not really stated renting vs buying. Wall color flooring changes light fixture update appliance choice ect you can't have typically when renting

[@guillaume1973]

Wall color and light fixture changes are possible if you bear some of the cost. LL arround here are willing to pay for paint if you do the painting. You can install your own light fixture if you keep the old ones to put back when you leave. Flooring might be trickier

[@freedomlife3623]

When you young, being a renter offered you career mobility. I moved many cities, finally landed city I like to stay for long term, Vancouver. Lucky I managed to buy a place before housing price skyrocket. Do feel the crunch for Gen Zs.

[@gmarks1559]

Dan is great! I also loved the old Canadian couch potato podcast

[@robertross8565]

Hilarious story about the mutual fund story. Don't feel badly. Back in the mid 80's, I bought a mutual fund with a 9% front end load. No wonder the sales guy bought a round of golf for me.

[@raguthanabalasingam2166]

@rationalreminder Please have Wendell Cox from Demographia on your show to talk about real estate within the context of the Greenbelt in GTA and Land Agricultural Reserve in Vancouver. The implimentation of land constraints in these markets and the effect house price to income multiple as well as the effect on rents. Furthermore, there may be some risk of similar policies being put in place in other Canadian metro areas that want to constrain developable land.

[@somerandomdude1695]

I come from a country(India)where people believe that no matter what one need to buy a house. And investing means investing in real estate or gold or GICs rest is gambling. So I think irrational home buying will occur more and more in the future. Sad thing is if they inherit anything from their parents is in form of real estate or other hard assets and their net worth is tied 100% to these hard assets.

[@simonlynch4204]

Did... did the internet public shamed Ben into becoming one of the best finfluencer on the internet? Is bullying good now? ;) lol

[@rationalreminder]

😂

[@Username_CC_]

Epic 🤣🤣🤌🏻

[@Hawk3ye4077]

I feel like there is indeed something not quite accurate with the model you are using to compare cost of rent to cost of home ownership. Since you not comparing renting vs buying a home outright, you are using mortgage payment and amortization periods. Typical being 25 years. Hence in order for this to be a fair comparison both sides of the equation need to have this built in. Hence instead of using current cost of rent we should be using the average cost of rent over the 25 years. That makes a massive difference.

[@rationalreminder]

It’s using the current cost of rent each year. Rent increases substantially over the full period. -Ben

[@Michael-DS]

"The cost of capital is higher with equity than with debt financing for a home" Mind blown.

[@Crewcop]

Back to work rules are probably hurting some people who bought thinking they could work from home as well.

[@wk5297]

I love you both

[@lovethomassowell]

MOVE is a 4-letter word.

[@-mr3puttz-310]

Owning? Whats that?

[@adamrumball2582]

28:47

[@jaythefox]

Did Cameron move to Australia?

[@rationalreminder]

No he’s back in Canada. Just a vacation. -Ben

[@jaythefox]

@@rationalreminder Just teasing :p

[@viktorsayek1]

That hairline made a powerful come back 😅

[@andrewfriedrichs9340]

Silly Canadians protecting consumers, here in the US we let landlords use AI to collude on rental prices. It's what's best for everyone.

[@narbwow8168]

Ben with hair is my sleep paralysis demon.

[@rationalreminder]

That’s the nicest thing anyone has ever said to me. -Ben

[@ramblinghorse]

The money "stuck" in a home is something that I find hard to wrap my head around.

[@Username_CC_]

If you want to retire and your million dollar home is paid off, that won't buy groceries or car repairs.

[@Will140f]

I sort of object to the idea that most people without mortgages “throw money away.” Or at least I’d disagree with characterizing it in these terms. Many people who aren’t homeowners rent because they literally cannot afford to buy, and what they’re “throwing away” their money on is stuff like food and clothing - not exactly frivolities. Now obviously there are people who overspend on dumb stuff, but the majority of people who don’t save anything more or less cannot, or would have to live below the poverty line to be able to save enough to ever afford to buy a house. They wouldn’t just be housepoor but house destitute. Regarding geographic lock-in, that’s doesn’t have to be an issue. I bought a house and 5 years later had to move, so I just rented out the house rather than selling and I rent a place in my new city for less than my mortgage. You don’t HAVE to sell when you move.

[@rationalreminder]

Didn’t we address this exact point? I think we did. -Ben

[@Will140f]

@@rationalremindermy bad, I commented when I first heard Dan talking about “throwing money away” but you did later get into that

[@pcstearns21]

People who are wealthy own homes, they aren't wealthy because they own a home. It makes sense but that statement is a clear failure of the American dream. You shouldn't have to be wealthy to own a home, you should just have to work full time. We stopped caring about that standard and now we have this mess.