Should You Own or Rent Your Own Home?

should_you_own_or_rent_your_own_home

Is it better financially to own or to rent your own home? Most people would assume that its an easier answer and that if you can pull it off, homeownership is the way to go. You’re about to discover a very unique perspective on this topic and a very surprising outcome. There are many factors to consider when contemplating becoming a homeowner and most people are unaware of many of the hidden expenses that await owning a home. Meanwhile, renting a home gets a bad rap but in many situations can be surprisingly beneficial. Discover if you should own or rent your own home in the below video (or if you prefer to listen to it, here’s a link to the podcast:

 

 

Rent or Own?

 

Now, where this all got started was I recently did a video on personal finance wisdom. In there, in passing, I quickly dropped in that for many people, it’s actually a better deal financially to rent their own home as opposed to own it. That created quite a controversy in the comments section. In some side, they had some people thinking that I was absolutely crazy. Other people were calling me a genius. It depended on the person’s perspective and in those comments, I didn’t have enough room to really explore this topic like I can here.

 

Why Renting is Usually Better

 

Let’s start with why I believe that for most people, renting is a better deal than owning, but then I’m going to through a lot of other angles and different things that you need to consider in your own situation.  It’s probably pretty unique for a real estate agent like myself who sells properties to people that I fix up and resell and those kinds of things that I’m so pro rental, but it’s because of all my years in this business. I’ve seen what happens and that’s what I want to talk about here.

 

Fixed Cost

 

Assuming your rental is set up as a normal standard lease, you know what your monthly payment is going to be every month. Whereas when you own, this is a variable expense. You have no idea what could come up tomorrow that you may have to pay for. I’ll give you an example. I went on a family vacation. I came back and the air conditioner, the little drip pan that drips the water … We have 2 different air handling units in this property, one is upstairs, one is down. The one upstairs, the drip pan got clogged and water seeped out and it leaked. It became a $2,000 expense to fix the whole darn thing. Poof, $2,000.

If you’re a homeowner, you know what I’m talking about. It’s like a bottomless pit. There’s always something going wrong. That’s part of home ownership. Well, what happens is when you’re renting, you don’t have to concern yourself with that, the landlord does. Now, the landlord may not always fix up what needs to be fixed up but the burden is typically on them. First, you get the variable expense and that ends up being pretty darn huge.

 

 No Improvements

 

When you rent a home, you tend not to want to go improve it because you don’t own it. You’re not tempted to repaint, to put in new floor coverings, to put on an addition. When you own a home, you want to fix it up. All of a sudden, you take out home equity lines of credit to rebuild the deck and you do all sorts of things. Home Depot and Lowe’s do really well as retailers because as homeowners, there’s a temptation to want to fix it up. Whereas when you’re renting, there’s no temptation there.

 

Default Investor Landlord

 

Right here, we’re already starting to see the savings but there’s more to it. Now, this is where things get interesting. In most cases, if you’re in a certain price point and that usually is a nicer home in a nicer area, either medium to medium upper, nicer parts, typically this is lower total cost than owning. So often I hear the lament, “Well no Phil, because the landlord passes on the expense to the tenant so the rental rate is higher to cover those expenses.” I have discovered that’s not usually true.

Now, certain areas are different but in a lot of situations, the landlords that you are renting from, if you’re at a decent home in a decent area, they’re not a professional investor. They’re an investor by default. Maybe they moved out of that home to buy a new home and they couldn’t sell it or they were too greedy to drop the price low enough, so they rented just because they have no other option. Maybe they inherited the property and they’re leasing it out.

I have found, again working with friends, family, other clients over all these years, so often I have found that the rental rate here would be 1,200 but when I look at the value of the property as well as the cost of taxes, insurance, HOA, this thing ends up having a monthly payment of say like 1,400 when it’s all said and done. I know that that may sound counterintuitive but so often, I see where the landlord either A, is losing a little bit of money each month or B, they have a low enough loan so that they’re monthly payment may only end up being say 1,100, I’ll put a 1 there. It’s only 1,100 because they have a low mortgage but if you came in and bought it, you’d have to come in and probably you may not have a humongous downpayment so therefore, your payment would be higher. Does that make sense? I hope I didn’t totally confuse you there.

 

Low Down Payment

 

You do have to have a first month’s rent, maybe first and last month’s rent. Here, you’re going to have a significant downpayment and even in today’s world of creative loans, there’s always at least a 5, a 10%, sometimes with FHA, it’s 3 and a half percent but still that can be a substantial amount of money depending on the size of the property. This typically has a lower amount down and so not only you’re saving money without having to put the money as downpayment but your total cost usually ends up being lower on a monthly basis, almost always. It’s pretty wild. Again, some situations are a little bit different where it’s a higher cost to rent than it is your total cost to own. You can run that math on your own. That’s just one of the spots, too. You got to keep the fix up and variable cost in mind as well as you start to look at that, as well as the significant downpayment.

 

No Commitments

 

Now, you may be saying, “Wait a minute, you’re signing a lease. You have a 1 year commitment.” True, but I have been a landlord for a very long time and if a tenant moves out of a property, they’re gone, it’s very hard to sue them to get the rest of the rent money. Now on commercial real estate, you can do that. In residential, they move out of the property, they’re out and that landlord can try to sue them for the money that’s lost because they just bailed prior to the end of the lease, but it’s hard to get that money.

 

Owning

 

This is a huge commitment, huge commitment. If you get a mortgage and you own the property, you’ve got a big commitment on your hands. I’ve used this phrase for so many years and it’s very, very true in a lot of cases. Buying a home is like going to jail. It could be really easy to get in but it can be really difficult to get out. When you own a home and you try to get out of it, you have to sell it or you can lease it back out. Either way, you’ve got to do something to get yourself out of there and cover payments and easiest way being to sell.

 

Costs

 

Problem is selling your home is not always easy and this is a very important point right here. There are transactional costs for buying and selling a home. These transactional costs end up really adding up. Let me put here no, there’s no transactional cost here. No trans cost. Let’s talk about all these transactional cost are. Number one, when you buy the property, there are going to be closing costs above and beyond the purchase price. Now, you sometimes can get the seller to pay for them but let’s just use the amount 2%. When you buy a property, your closing cost tend to be a little bit higher than when you sell. Let’s say 2% when you try to buy. That’s an extra cost just for you getting the privilege to buy. It usually comes in the form of recording taxes from the county, title insurance, and all sorts of other fun stuff. If you ever seen a settlement statement, you know what I’m talking about.

Then when you go to sell, typically people use a full service listing. Now, if you really know what you’re doing, you can do a flat fee listing. Either way, you’re still going to be at least 3% but for most people, they’re going to be at 6% in sales cost when they go to sell it. Now when you go to sell, you’re going to have some closing cost. We’ll call that 1%, and you may even have to do a bit of fix up because they do an inspection, they may find some problems with it. Let’s call another 1%.

Together here, these transactional cost are 10%. Here’s why that’s so critical. When you buy a property, if you want to get out of that thing after a year, let’s say you bought it, you realize it was a bad area of town, a train drives by every 14 minutes that you didn’t know about, you hate your neighbors, all kinds of reasons you want to move out, your property has to sell for 10% more than what you paid for it just to break even. Did you ever think about that? 10%, that’s a huge number.

 

Inflation

 

One of the big keys of being a homeowner is that you have to live in that property long enough so that hopefully this thing goes up by 10%. Did you know that over the past hundred years, Robert Shiller who is a economist at Yale, he has proven that single family homes do not appreciate but they literally keep pace with inflation which ends up being about like 2.8, call it 3%. Typically, houses go up by about 3% a year but they’re not going up in appreciation, that’s just the fact that your dollar bill is losing value. It’s called inflation. They’re going up and you probably asked the question why are they going up to keep in pace with inflation. That’s because the cost of a builder having to pay for the employees, the materials to build the actual property. The land itself is not actually typically going up either.

This really comes down to material and labor cost that go up over time and that’s how it gets … Don’t get too confused on that. Point is when you look at the number 3% and you look at the number 10%, you need to be in that property a minimum of 4 years just to break even or get a little bit of potential benefit from being a homeowner. Interesting, huh? Now, you might be saying, “Wait a minute Phil, you’re forgetting about 2 key items of being a homeowner.” Number one would be, and hopefully we’ve got some room here, so I’m just going to put 10% next to transactional cost because I need some more room. This could be a benefit here. First of all, you can get debt pay down, debt pay down, meaning a portion of your mortgage payment actually goes toward the principal of the loan.

 

Debt Pay Down

 

Have you ever seen on a statement how much goes toward the principle in the first couple years? Very little. Maybe a hundred dollars a month. Very, very little goes toward the debt pay down in the first couple of years. Now, as the years progress, all of a sudden, that gets a little bit better. Again, we’re starting to build up to where it’s valuable to be a homeowner versus to rent and we’re getting there as you can tell. Debt pay down is there. It exists. It’s not bad. It beats poke in the eye.

 

Interest Tax Deduction

 

Now this is interesting. In the United States, not in Canada, in other countries, but in the United States, the interest on your mortgage is tax deductible. Meaning, it reduces your overall income that you’re paying taxes on. That can be very beneficial but not for everybody. In fact in many cases, the standard deduction the IRS gives outstrips or is better than if you did an itemized deduction and you included interest tax reduction. Interesting, ain’t it?

On the surface, you’re like, “Oh, man. Tax deduction for the interest.” As we talked about, it’s mostly all interest, not debt pay down so maybe this ends up being like 700 a month you’re paying and more in interest. That can be a pretty good tax deduction, right? Sure, but your standard deduction’s probably bigger than that for most people. Again, you talk to your accountant. At some point, when you’re making a ton of money and you got a really, really expensive house of huge interest, then maybe that’s different. For most cases, you aren’t probably going to use your standard deduction on your taxes, not itemized and this would fall in the itemization. Interesting, right?

 

Short Term Vs Long Term

 

For these reasons, I feel like it’s almost always a better idea for people to rent. Now, what I talked about was this idea that short term, it’s better to go rental and then I’ve mentioned this idea of long term maybe better to own. One thing I want to point out is this, mortgages in home ownership, statistics show that people tend to stay in their mortgage for 3 years and the average person stays in their home for 5 years. Watch this, we talked about how you have to be in your property for almost 4 years just to break even because of all the transactional costs.

Well, the average person lives in their home for 5 years so the average person is moving, changing jobs, transferring within 5 years anyways. Even crazier is they refinance within 3 years so their debt pay down starts all over again. You always stay in this realm of a very low pay down and high interest on a mortgage as far as the breakdown of the payment and since the standard deduction cancels this thing out, these things have almost no value.

 

Tips for Homeowners

 

If you are going to own your own home, you need to think in terms of long term, long term. That is so critical here. Now, the benefit of owning is permanence, permanence because guess what a huge issue of renting is, uncertainty. What happens if that landlord decides they’re going to sell the property? They’re tired of losing money, 200 bucks a month for the last 5 years. They want to sell the property. You have some uncertainty as a tenant that that landlord might stop making mortgage payment, they may just want to sell the house at the end of the lease, so there is some uncertainty.

You get permanence when you own but you have to be looking at this from a long term perspective because if you don’t live there at least 4 years, you probably won’t even break even of what you paid for from the expense standpoint or even just cover your bases, so you have to be in there. That’s why we say 5 years. Let’s just use round numbers, 5 years where you would stay in that thing at minimum.

 

Instant Equity

 

Now here’s another big thing that rentals can’t give you. If you’re a real estate investor and you watch my videos, you may know how to go about the process of potentially buying a property lower than what its existing value is at the moment at which you buy it. That is really key. If you know what you’re doing, you can do this.

Now it sounds good on the surface but here’s what I’ve discovered all my years in working with friends and family, everybody else who’s just, “Phil, I want to buy a home and I want to get a great deal on it.” They have discovered the best deals make for lousy homes. They tend to not have the right number of bedrooms, they don’t have the right layout, they don’t have the right this, the right that. What happens is if you’re trying to buy a home and you have a spouse involved in the decision, I have found over the years it’s so hard for people to buy homes with instant equity because the instant equity deals tend to not be the ones they want to live in for all kinds of reasons. Again, it just comes from experience. This isn’t theoretical. I’ve watched this happen.

What ends up happening is the people look for a great deal, they find some great deals, but they don’t fit what they’re looking for and they end up going to the MLS, they ended up buying a retail home, they ended up buying a brand new home, they just throw their hands up in the air and buy the home they want and ended up paying for a retail value. This is a myth, in other words.

 

My Personal Situation

 

My wife wanted permanence. She did not want uncertainty. I wanted to rent. Let me just assure you, I wanted to rent, she wanted a home. Now, we decided to pick an area that we wanted to live and we knew we’d be there for the long term and also I was absolutely adamant that we’d get a tremendous amount of instant equity or we were not going to buy and that was the bottomline. It took 2 and a half years for me to find the home that I live so I ask you the question, do you have the kind of patience to look for the right home for 2 and a half years? Maybe not. That’s how long it took me to find a home with great instant equity that my wife actually liked, had the pool, it’s on the water, it had all the things that she wanted, 2 and a half years for me to find it. If you can have a long term perspective, you can get instant equity, you have the luxury of permanence.

 

Homestead

 

Now there’s another thing that’s really cool about home ownership. It only happens in a few states, one of which is Florida, the other which is Texas and I think there’s a few others, homestead. What’s homestead? Well, when Florida was first becoming a state as well as Texas, they were trying to encourage people to move there so they put this law in place that said if you own a home, if you get in trouble criminally, anything happens to you, the one thing that nobody can take away from you is your home and they called it homesteading. You get the power of ownership without every having to concern yourself of potential loss, assuming you don’t have a bunch of debts that you have to pay off like in a bank loan or you could just tell the bank in secret I’m not putting them in there because it’s homesteading.

 

A Secure Life

 

What happens is you have these potential criminals and other people like OJ Simpson, they moved to Florida and they bought these huge estates right before he got to really big trouble legally. Why? Because you put this property in a homestead which you have to live in the home and it’s not always easy to get this designation, you’ve got to do a couple of things right, but there’s power there. One benefit is if you owned a home and you paid all cash for it, it’s a cool place to stick some money because if it’s homestead, it’s a secure place. I’m not giving you legal advice there but it’s pretty powerful stuff right there.

 

HELOC

 

Now, one thing you can also do is when you own a home, you can get a HELOC. What’s that? It’s a Home Equity Line of Credit. Let’s say for example you own a home outright or you have a ton of equity, you bought it with a ton of instant equity, you can instantly create a home equity line of credit and then you can do deals with that money. Here’s the cool thing about that HELOC, it’s tax deductible. If you aren’t getting your standard deduction which you are itemizing your deductions on your taxes, you can use the HELOC interest that you pay and that’s tax deductible. That’s pretty sweet. I can assure you, I use a HELOC to do some of my deals and I get the interest deduction. It’s really sweet.

If you’re in Florida or Texas and maybe a couple other states, you can get homestead. If you got some equity, you can do a HELOC which can be really helpful in doing other deals, parlaying that money in your investments. I’m a real estate investor, so my investments and those types of things. It does give you this permanence and it goes back to this rule, you’ve got to do it long term. There’s a couple of little caveats too. I’ve sometimes gotten the response, “Well Phil, with renting, you have to have good credit, you got to have a job, those sorts of things.” Well, I think in most cases, that’s true. If you put out enough applications, you’d be surprised sometimes you can get hooked up with a decent situation even if you don’t have your credit or your job is unstable.

 

Creative Deals

 

With owning, you could do a creative transaction. You could talk to a motivated seller. If you watched my videos, you could potentially structure a creative deal. That is absolutely true. You can definitely do that. Very few people pull it off and I go back to this concept of the best deals tend to be the lousy homes you don’t want to live in. If you have to please a spouse, a significant other, that’s always been the most difficult. If you are on your own, you’re probably able to live in filth or just a property that’s not all that perfect. You can fix it up along in the way, you can put your own sweat equity into it, you can do all sorts of things, that’s fantastic. If you can, that actually a huge benefit of owning.

If you can structure a creative deal, you may not need to have these 2 things. You can structure a creative deal directly with an owner and if they’re completely motivated, they don’t ask you about your credit or your job history. That also is the same for renting as well. If you call enough rent signs, you’ll eventually deal with a landlord that just needs to fill the property and they don’t really care about your application but you got to make a bunch of phone calls either way.

 

Rental Income

 

One more item on this owning list and that is you could do a plex, a duplex or triplex or quad, so you could live in one of the units and then rent out the others. Once again, great idea in theory but so few people end up doing it for a number of reasons. Number 1, if you live in the property and you’re also landlording, sometimes you get to close to your tenants and when you get too attached to those tenants, too friendly with those tenants, they give you the sob stories, they don’t pay the rent but they have such a good excuse because I just had a car accident and all these things happened. All of a sudden, you’re paying all bunch of money, maybe they throw parties next door from time to time. Maybe they’re just weirdly banging on the walls sometimes.

In theory, it sounds great to own a plex where you have your tenants in the same property and they’re basically paying your rent. In practice, very few people pull it off. That’s certainly another great idea for owning your own home versus simply renting is that you can have somebody else pay your rent, if you will, by structure in that way. Now you can also do one of these on a lease purchase or I should say lease purchase or a master lease and you may want to lease all 4 units of a quad from an owner and then you just sublease the other units and pay out the rent as well. You could do it that way. That’s kind of a quasi between renting and owning. For me, again like my personal situation, it depends on your situation but I have wife and kids, they’re not going to want that. They’re going to want their own home with a white picket fence and all that kind of stuff.

 

Penalties

 

There is one more benefit to owning a home well over renting potentially. I don’t know if you call this a benefit or not. If you don’t pay your rent after a period of time which depends on the sophistication of the landlord but 30 to 60 to 90 days, you’re out. They take you out. If you own a home and you have a mortgage and you don’t pay that mortgage, it can take that mortgage company 6 months, a year, 2 years, I’ve seen 6 years, I’ve seen it with my own eyes, 6 years to get somebody out of the property and kicked out. If you own a property, you have the benefit of potentially if the world, if everything hits the fan, that you can live there a little bit longer, maybe another 6 months or a year longer.

Now there’s still that huge level of uncertainty if you haven’t made your payments because maybe that foreclosing attorney gets his butt on gear and he foreclose a lot faster. That is a slight edge right there but that’s not very sustainable. You’re going to be able to get away with that once then your cred will be destroyed or if you get a creative deal, hopefully you’re able to get out of that deal and sell it or something. You don’t want to destroy somebody else’s credit, whatever you could do to avoid that kind of thing. It’s not a sustainable concept but it is actually true in the real world is that if you don’t make your mortgage payments, you can stick that a lot longer than if you don’t make your rent.

 

Comments

  1. Natasha says:

    I was raised to buy immediately to build equity (like a bank account). All great points in the video, still, I never had one issue with my home that I owned for 12 years, but I do seem to have, this year, great issue with the landlord not fixing things and now we have to show their property, clean up only for no one to show up, this has happened 5 times in 2 weeks on a Sunday as well, two weekends in a row. The process here of renting is like owning, they want your tax returns etc and you are competing with 3-5 other renters, someone offered more rent for a house that we applied for, yikes!
    Renting is popular isn’t it, given what has happened in the RE market! I was able to make 70k off my home when I sold, and I paid so little for a gorgeous property 712.00 a month tax and insur. included with a park-like setting, flowering crab trees.
    Always great information Phil, I love the videos, they make sense. We decided to rent for another year, with FM, we can end up having a lot more options given more time in a rental situation.

    • Rick Gehrke says:

      Please keep renting folks!! I can retire earlier than I planned!! All landlords!

    • BetterToBuy says:

      I live in North Hollywood, CA, just 8 minute walk to Universal Studios. So, yes, I am spoiled right now. But to show you how expensive rent is in this area. I live in a 1 Bdrm with a roommate, in a 1960ish building with no reserved parking spot, for $1395. I kid you not, that was a great deal for this area.

  2. Chad Shirley says:

    Great video
    Here’s a cool calculator:
    https://www.lendingtree.com/rent-vs-buy-calculator

    • Phil Pustejovsky says:

      That’s a MUCH more thorough calculator than you usually see out there. Thanks for sharing.

      • Jose amoroso says:

        we opted to rent just right after seeing your video presentations last week comparing renting and owning. Thank you for the valuable information. keep up the good work…. Go ..go in educating more people which lead us to right decision. Thanks again sir Phil

  3. Rob Arnold says:

    Great points as usual. A lot of the rent vs own scenario depends on a person’s situation as well. If they plan on staying put long-term owning probably makes more sense. Also the higher the price of the home, the more owning has to do with lifestyle than it has to do with a financial investment. If you can buy a $50,000 house and live in it, you will probably do better off owning than renting. But if you buy a $500,000 house to live in, you will probably be better off financially renting than owning.

  4. elena j says:

    I was offered to buy from my landlord, he was asking 330k and giving me a loan to pay 20% to avoid pmi. We thought it was a great deal at first but, couldn’t handle the mortgages, and this wasn’t my dream home. I would have ended up getting a 30 yr fixed at 4.75 interest on first mortgage 264k, and he was going to charge me 4.5 interest on his loan of 50k. I didn’t do it and I’m so relieved !! renting is so much more easier and less stressful since we went through the crash, shortsold our last home, re-located, basically started over, and all our money was tied into that home.

  5. Donna Gayle says:

    I am very great full for your videos if I knew then what I know I could still be in my house. We suffer for the lack of knowledge. Keep doing what you do best. God bless you

  6. jim mcnellis says:

    Homeowners can help in stabilizing values in most local real estate markets and it can give you and your family a since of belonging. If you have a fix mortgage 15 year or 30 year term your payment is fixed. Rents in most areas almost always go up a certain % per year so being a homeowner can lock in your monthly housing payment cost. When you rent you get the freedom to move with little or no notice and you do not need to do repairs, but you do not share in any equity after years of paying the landlord mortgage.The best plan is to have 10% to 20% for down payment and 3 to 6 months in expenses saved up for emergency’s before you even think about becoming a homeowner or just pay cash.

    • Phil Pustejovsky says:

      Taxes go up each year, as does insurance, as does maintenance. A fixed payment doesn’t exist in owning either.

      • Great vid, Phil. You are so exactly right! I’m so glad you pointed that out. And, if I may expound upon your statement, the “LACK of SECURITY” of Owning, for all those with “Spouse Wants Their House”-itis(!), 2 possibly HUGE “Unpredictable Expenses” Owning will continue to have and to ‘Expect’ increases annually are your ‘Insurances’ (get the best coverage in ‘this’ litigious society (3 x(!) more likely to be $ued…than go to the Hospital!). And #2 makes me angry! Even in the unlikely event that you finally pay it off, or if you are fortunate enough to $buy$ it outright… your “Property Taxes” WILL KEEP COMING “FOREVER”! INCREASING (historically) and *IF* you DON’T PAY IT, SEE who ACTUALLY “OWNS (YOUR) HOME”!!! And even when your heirs show up, it still falls on them. As I was watching, (for personal reasons with My brainwashed Mate) I kept hoping you would add those estimated expense to the “bottom line”, too. But that would have taken “Owning” to the understanding that “It’s a Liability…Not an Asset”! (unless they take your course and learn how to buy “EQUITY”, Not houses) 😉 Many years ago,the 1st thing my “Mentor” taught me were 3 important principles regarding buying/investing in real estate 1st thing. #1- Buy Equity/INSTANT ASSETS! (1st prop = $15k EQUITY on a $27k deal!) #2- “There’s ALWAYS another Deal/House”! NEVER fall in love with a property! #3- “HAVING” YOUR “OWN HOME” IS A “LUXURY”! If you CAN afford it, “GO FOR IT! “Fall in Love”! And Forget the rules! Otherwise, it’s another liability. Obviously, #3 pertains to your personal home, not necessarily INVESTMENT Property. Although, there IS “SECURITY” in using principle #1 here, too! As you said in your vid Phil, “Equity provides options for “HELOC’s” and “EQUITY LINES of CREDIT”!
        I hope sharing helps everyone to make better, easier and “REWARDING” aquisitions. And to get the “MUST OWN, SECURITY!” monkey off your back!
        “YOU NEVER actually “OWN” A PROPERTY”! But you CAN still “PROFIT” from it! 😉
        Thanks Phil

        • Phil Pustejovsky says:

          Rent goes up too…so in comparison, both taxes & insurance as well as rent go up. So those are somewhat of a wash as far as comparisons go.

        • Great 3 principals Tony! It makes a lot of sence.

  7. Paul Powers says:

    Well thought out presentation on owning vs. renting. Even though Phil is a licensed real estate professional, he provided information that was valid in most every state.

  8. In states with high income taxes (think CA), by the time your income reaches the point when you can afford buying a home, you are paying itemized deductions alredy just because of the state taxes. Most states have property taxes, so the statement that most folks won’t utilize their interest deduction doesn’t sound right.

    • Phil Pustejovsky says:

      Good point about state taxes being an itemized deduction. It’s so foreign for me to even think about paying more income taxes at a state level. My heart goes out to anyone who does.

  9. I wholly agree with renting as best for many people. I highly recommend an out of print 1980s book* by Benjamin Stein…(yep, same guy from Ferris Buhler movie) he clearly shows why not everyone must own a home ALL the time. Buying a house at the wrong time in your life can be a nightmare, ruin your credit , tie you down,and burn you out on home ownership for good. Excellent advice.

    When my spouse and I went separate ways we sold, and split our home equity, We gladly paid the tax for not rebuying in 24 months..it cost us each $2000. But I see that as buying peace of mind. He bought a home later but I rented for many years because I MOVED several times. I always lived in nice rentals, all I had to do each morning was make the bed, and toss yesterday’s newspaper (now in digital age not even paper needs to be recycled) My level of worry over necessary fixes and maintenance to keep up a house in a nice neighborhood, as a woman owner was taken away. And every weekend was free, not locked into constant upkeep. Plus I never needed to spend thousands on appliances that every home needs, and maintain them.

    I showed friends on pape the list of how much I saved each month by renting- Fire ins., Taxes, repairs, leaky faucets Yard maintenance is a BIG one for owners…so many hidden expenses when you own.

    All of that saved money went into mutual funds/low risk investments (I used a financial manager) in the 80s-90s, earning interest and making money on my money. I saved enough to buy a little fixer upper house I wanted to play with, for for cash. I have now lived here for 15 years very very cheaply. My taxes are very low, so I have money to make the repairs needed. Also a new California law in just six counties allows me, as an over 55, to continue to pay the SAME amount in taxes even if I buy a house of ANY higher price. Makes it good for seniors to give up a too big property, yet not incur thousands in increased taxes annually for the new home. San Diego, Humboldt and four other counties honor purchase between them, or stay in your same location when you buy.

    * I can’t find this out of print title..will post when I do.

  10. Hi Phil,

    Hidden costs? How come? I don’t dig it. Everybody is talking about these costs. Do you live in a rental? What’s about the property rental business? Does it strive on red (it must be a pain to plan a business and only to deal with red numbers) and is that why there are “so many” condos in urban areas? I think I dig the negative propaganda against ownership, specially coming from landlords and alike in the business.

  11. Great video Phil,I have learned much from this and the others on youtube- To this particular subject,I have not been able to get a straight answer myself as to is it better to buy or rent? In my own case I’m single 57 y/o never owned before,and now have the finances to do so-but is it worth it? or should use the money for income generating investments? the online calculators I’ve seen and used are so- so-. I f anyone has an answer for me please let me know-Thanks!

    • Phil Pustejovsky says:

      This video has laid out the facets of the decision for you. Use the wisdom from this video to make your decision.

  12. Hello Phil
    my name is haben , from Vancouver Canada. First i would like to thank you for your video it really helped me to unidentify the difference between buying vs renting. At the moment i am at the hunting process . i found some places i like but confused at the same time too, because i found some place same price with brand new and some thing thats 20 years old. of course its the older the bigger . my fist question is when it comes to negotiation should i leave it to my realtor of course after i told my limits, but for example if the price is 230k whats the best price to start with , is it 200k to low , what do u think. i really need ur advice before i have to decide the biggest decision in my life mean money wise.
    Thanks for your time ahead and i will keep watching your videos again and again and again to make sure i don’t miss any thing.

    Thanks Again

    Sincerely

    Haben W

  13. Should I settle says:

    I have been renting the same condo for the last 5 years. Financially, I have never felt prepared to buy…added to the fact that I have considered relocating several times. Anyway, my landlord put my unit up for sale and asked me if I was interested in buying it. I considered it at first because I have been here so long, and the thought of moving was overwhelming. I gave it much consideration and realized it was never my dream to own a one bedroom condo. The goal was to finish school and start making some considerable income to buy my dream home. I accomplished the first half of that goal, but now I am still a renter. Where I live works for me as a renter…but right now I am not in a financial space to buy what I really want. Should I settle? Help

  14. Patrick says:

    Great Info Phil…
    I am a divorcee with a large child-support obligation so I chose to rent a room. My rent in Southern California is about one-third of what I would have to pay for an equivalent apartment. I have full access to the kitchen, private bathroom, laundry room, back yard swimming pool and Wi-Fi. It works for me and the couple I rent from as well. They rent out two other rooms in the same house and they own a duplex in another neighboring city that generates enough income for their mortgages and expenses for up-keep. I earn a little extra money from them each month as I do handyman work for them on their properties. If I ever buy my own property, I will probably be renting out rooms to help pay for it. Oh, and in California, it is easier to evict a roommate than a tenant.

    • Anand, Madan says:

      Very informative. My suggestion that all those new home buyers must watch this video, before putting their neck in the noose of home buying. In an uncertain economic times and the job market where there are frequent mega mergers only to hurt the employees. CAUTION long term financial commitment needs good home work. This presentation is vital.

  15. L.D. Sewell says:

    To each their own – but as far as I am concerned it is always better to own than to rent. The key is to own what you can actually afford to own though, and not finance a McMansion up to your eyeballs. Ideally a little home of some kind that is paid for (Gasp!) .

    I know that’s not popular and in fact societal conditioning has done a pretty good job of convincing most people its impossible to own a paid for home.

  16. Michael Boles says:

    Phil – You really opened the chasm between options.
    Rented for 14 years, building investment money.
    Then even thought the home aI bought was in great shape,
    became a money pit as I up graded interior, landscaped exterior.

    Lost money early on is now beginning to work.
    The knowledge you imparted will help to not make the same error again.
    Thanks – Michael

  17. Would you sell your house if it were worth twice as much as what you paid for, and take the money and invest it? We can’t get a HELOC because when the last time we refinanced the mortgage, the bank put a lot of liens on the house just in case. The only thing we can do now is ask the bank to release some of that so we can get a LOC for investment purposes. If you were in this situation would you start over and live in a dump and pay rent so you could invest the money you get from the sale?
    Thanks
    An

    • Phil Pustejovsky says:

      Perhaps start generating opportunities and if you discover that you can find great deals, then you will have a place to deploy that capital on something that will have a substantial return.

  18. As always Phil you have some great information. Thanks again.

    P.S. I am one of your biggest fans.

  19. You did not mention that a disadvantage of renting is that landlords usually restrict your personal life is several ways. You may not be permitted to have any pets. You may not be able to park more than two vehicles on the property. You may be told that you may not run a business from your home, even if your town/city allows it. You may be told that no one may smoke in the property.

    That said, I still agree that financially, renting is the best option in most cases. I rent.

  20. I absolutely love your videos. They are very educational and provide a great sense of direction. I currently own my home for almost 5 years and it has been great but had spent a lot of money fixing it up. Remodeled it completely. I have it for sale on the market for the last 45 days. It’s taking a bit of time more than what I expected. I would have spent a lot less money if I had stayed renting the property I was renting before I bought. Many times we say, well we are paying the same as if we were renting but we don’t calculate the expenses that come along when you are renting. Starting from the point f removing an oil tank to all renovations. It depends on individuals situations. My advice is: do your homework before you buy. You make money when you buy not when you sell.

  21. Renting is like throwing money out the window. Bad landlords, especially property management firms, can jack up your rent for no reason, infringe on your personal freedom, and steal your security deposit. There is zero gain from renting.

  22. What if your credit score is low? Can I found a home to rent towards ownership while I fix my credit score to buy in the meantime?

  23. That is an interesting video. I live in Texas. I made a mistake when I sold in 2004. I should have rented it.

  24. I agree with Phil on renting.

  25. Phil, I think you are spot on. I spent over 20 years in the military and had to move an average of every three years. I did a combination of renting and buying homes along the way and found it was just not worth it to buy if you were not going to be in it for the long haul. Additionally, there are so many hidden cost with owning a home that nobody tells you about, it could literally break you, if you are not making a lot of money. Great video.

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