Just don't buy such an expensive house. It is true, though, that you never really ever completely "own" your house, since you have to pay property taxes, which is basically like a perpetual rent on the land and house.
you must also remember that with house or property ownership comes very high upkeep expenses that are simply not present for renting. condo fees or equivalent house repairs can easily figure into 25% of the monthly outlay. factor that in and it's not a pretty situation for home ownership.
that said, there is a nebulous quality to actual ownership. some people take great pride in this, and others want nothing to do with it. to each their own, but the $ argument is rather clear.
Great video. One variable that needs to be considered is inflation and the overall direction of the housing market values. Inflation essentally devalues the dollar, hence prices on everything will continue to go up. Our national debt is so high that eventually inflation will kick in and devalue our dollar. If you get a fixed payment loan you lock in on predevalued dollars. You may earn 4% on the 250k but if inflation is 5% you actually lost money. Please expand on this and NPV. Thanks!
This arguement is serisouly flawed. While the math may be almost correct for the first year (you will actually pay less than 45K since interest will be calculated on a monthly basis not yearly - actual interest will be $44,749.46), it fails to take into account that you will not be paying 45K in interest every year (unless it's an interest only loan) because you will be paying back principal evey month.
People should actually remember hose are really suppose to be homes not money makers unless your into rents out ot selling . It supoose to be a roof over your head and food to eat .
It's true. My friend family lose their house because they couldn't afford the payments anymore and they are back to renting. Sucks for them because they did back into the house and now they lose more money than if they never had bought the house and just stuck with renting.
im a 31 yr. old man in milwaukee, wi that had some time on his hands. i've been worring about the future of me and my kids with the economy being the way it is and i was wondering about what would happen if banks bust. i found your page by a mistake. i was looking for info about stock and bonds and anything that can help me build a future for my family and i'll say that these postings have really been educational and it gives me a better look on the way i should handle my money.
I plan on renting while saving for a home and then paying for most of it. Where I live you can a nice townhouse for 100-120k. After you buy that house you can then start saving for your next house. After you get enough saved you can buy the next home (240k, which is quite a lot nicer home), while either renting out the other (which in some cases you can even rent more than the mortgage which I am doing right now) or you can sell that home and apply that money to the new home.
I'm not done with the video (so I don't know if he discusses this), but what about after the 30 years and your house is paid off? If you are 30 years old and have a 30 year fixed mortgage. Then you are 60 years old (of course). Life expectancy on avg is 78 in the US. That is 18 years where you only need to pay for the taxes and upkeep, while the renter is still paying. This is also to say someone is buying a 1 million dollar house with a mortgage (which I would not do).
Great video. I have same arguments with my head-in-the-sand friend and they dont get it. One thing you left off was when you own a home you have to maintain a home. Can easily add another 15% to that monthly home ownership cost for amortized repairs, upkeep, maintenance, landscaping, etc. When the roof goes tits up, its a $10K day for the homeowner. When the roof needs replaced on a renter, its the landlord's problem. Home ownership is EXPENSIVE. Its a lifestyle decision more than anything.
@UDPride Couldn't agree more. If your a smart investor with your money and you shy away from the "romanticism" of owning your own home, you can raise more capital for higher returned investment. I've always told people about the benefits of renting and their argument always is the money you spend per month goes to the landlord, i try to show them how much you can save.
If you can buy a home outright without going into debt, then in some cases, it would be better to buy. I would be more likely to buy a home and hopefully some land in another country other than the U.S. personally, anywhere that doesn't have property taxes.
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Houses are actually depreciating assets, it's the land that actually appreciates. Who here love houses made in 1965? Putting money into a house itself becomes a losing battle over time.
Well, in my opinion, the $ difference between renting and buying a home translates directly to what you get after a few years. When renting, you get NOTHING after a few years. As far as I'm concerned, paying more when buying your own house is worth it. This, of course, applies here in the Philippines, because we're a small country, and people here don't move around a lot unlike in the U.S. So, in hindsight, maybe for Americans and other big countries, renting is better :)
GODDDD this is so much to inhale. I'm 19 now and I planned on moving out when i turn 23. (after college) but I'm going to have to watch this whole playlist to understand this stuff.
@iamdukepoptarts I'm in the same boat as you man. I'm heading off ot university and I have read a few articles out there claiming it is a renters market. Unfortunantly for us rent is expected to skyrocket in the next two years.
You should add the opportunity cost of the 250K that is tied up in the house, which can not be invested in example a CD. This will make you argument even better.
Do you people commenting realize that this video was made 3 years ago? Yes, 4% interest is high, but I can attest that I was getting a over 3% interest in a savings account with the bank I was using 3 years ago. Khan's using a hypothetical situation, which applies more to the time when he made the video. I wonder what his interpretation of the current renting vs buying dilemma would be today, and if his opinion has shifted with the times.
then rent on owning a home is the differencve between the principle payment and the interest payment. You are not compairning the same amount for the same home you are RENTING. And who is getting a 4% return on the money we put in the bank!!!!! Yo9u totally SUCK!!!!!! And you are not calculating the interest rate correctly!!!!
I don't understand. Why do you have to buy a $1M dollar house when you could buy a cheaper house with payments on your mortgage that would be less than $3K a month on a APT? I currently rent at 1,250.00 a month but I want to buy a house and figured that I would be paying 1K a Mo. on a mortgage with 20% down. Buying a house is way better long term compared to renting. While you r young it seems fine but once u get older to yor retirement age u are going to wish that u owned unless u saved good.
you made a mistake in your initial equation. The borrowing cost is 45K over the life of the mortgage friend. You don't pay off the 45K in the first year so your not saving per year. Also at the end of the mortgage and paying off your house you have a $750,000 property appose to nothing when you rent. Yes there is cost of borrowing but you left out time after the house is paid off. What if you lived in a paid off house for ten years? your saving a lot more than you would be renting in that 10 yr
@bsnakeage You're an idiot. The 6% is per year. Come on, who the hell would loan 750K in order to make 45K in 30 years? That would be a 0.4% interest rate.
@docbrown8 I own a house, and i worry about my home value going down. But it's morons like you that don't know basic math that give me comfort. It's 45k PER YEAR not a total 45k over 30 years. And of course there's something to be said about the mortgage schedule where the interest/principal ratio becomes more favorable over the 30 years
@amirmemon That's what docbrown said... Why're you trying to argue the same point at somebody who agrees? He was pointing out to bsnakeage that the 6% is per year and not per 30 years.
@AboveMeIsARetard He said $45k over the 30 years, then removed the comment. What he said within a few weeks ago is consistent with what i had said 5 months ago. Anyway, looking back at my own comment made me realize how rude i can be online... wow. sorry about that
If you think you truly OWN your own home and are debt free, just quit paying your property tax - after all, why should you keep paying for something you OWN - you will soon find out who truly OWNS your home (even if you built it with your own hands!). Property tax is rent that never goes away.
The term "real estate" comes from latin and roughly translated means "royal estate" "royal land" or "the king's land."
Mortgage is also from latin and means "death-promise" or "promise 'til death."
@OhhhThatGuy While you're at it, I guess your town should get rid of the courts, police, firefighters or even their schools. Your property tax is used for you. Stop complaining about it.
@OhhhThatGuy That's what I thought. It seems that, at least in America, you don't really own a house, even if the house is paid for and mortgage free.
Where I live they gross up your total income including income from interest. This is then taxed at the marginal rate - in my case 40%. Also where can you get 4% interest these days?
More like I get an actual 1% interest after paying taxes.
at the end of 30 years .....renter will have lost 30 X 26k = 780k and will own no property
whereas ....owner will have lost 30 X 41.5 k = 1245k but will own 1000k property(assuming that real estate fluctuations keep the house at 1000k even after 30 years...which will be worst case scenario).....
so the owner will have paid just 1245-1000=245k for living in that house for 30 years.
please explain me what am i missing ...i think m really stupid.
@dhruvrai23 Your calculation of 30x41.5k =1245k is just the money spent on interest, that doesn't include any more being spent toward the million dollar principle.
@dhruvrai23 Your calculation of 30x41.5k =1245k is just the money spent on interest, that doesn't include any more being spent toward the 750k dollar principle of the loan
I think owning owning your home is the best way and not renting but i see his point. You can invest and save your money much easier then owning a house if its done right but at the end of the day i would own then rent. I have my own place and i would tell everyone to save up that 20% down payment and not pay PMI at all. That will bring your house note down to the same amount as rent in most cases.
@FamilyRealEstate I pay 500 per month but i dont live in a 6000 house. He is just saying you can rent a million dollor home for about 3k but he never said that rent price was the total cost of the house at the end of the year.
in bad areas we use 30 as rent coefficient. so if you can rent the house for $1000, you can pay up to 30k for it. otherwise you loose money. think of vacancy, evictions, bad tenants, home repairs, taxes, fees etc.
in good area coefficient runs up to 70.
if i'm going to live in a house longer than 10 years, i will agree to 100.
but as of right now i have 2 houses rented out, 1 piece of land where i'm building a house and rent my residence.
Its a lot easier to leave one rental unit and move into another, then selling and buying a new home. The landlord gives you months and sometimes year notice of rent increase. You'd have more then enough time finding another rental in your budget. If you're a good tenant most landlords would never do that anyways or work with. Then the bullshit costs like, Air, furnace, roof, plumbing, repairs and upgrades, etc labor, maintaining the home. Don't forget inflation.
Its a lot easier to leave one rental unit and move into another, then selling and buying a new home. The landlord gives you months and sometimes year notice of rent increase. You'd have more then enough time finding another rental in your budget. If you're a good tenant most landlords would never do that anyways or work with. Then the bullshit costs like, Air, furnace, roof, plumbing, repairs and upgrades, etc labor, maintaining the home.
And don't forget, if prices move against you far enough, you can always walk away. At the same time, you enjoy all the theoretically unlimited upside to appreciation. Combined with the capital gains exclusion (which in itself is not guaranteed), this makes ownership more favorable and should be factored in. One must also analyze the proposition over the expected horizon of ownership. On a year to year basis, this is an easy calculation, but perhaps one should look at it at a 7-10 year basis.
you are ignoring a couple of factors: the proposition should incorporate future expectations of: inflation, volatility of variables, the implicit option value of housing prices that being "long the call option" on future prices. We can assuming housing prices talk a "random walk", but now we can ask given a 20-30% decline in values, what is the probability that we will see one move or another. You alluded to it here, but I think you are essentially long a cheap option.
I strongly disagree with the idea that it is better to rent your home instead of owning it, unless it's a 2-room apartment. I don't know any rich people who rent their house. I'd rather spend 20 years paying off a $3 million house and then enjoy it and keep it for generations instead of having to worry about paying rent every month. My life would be very different if my parent's mentality was the opposite, that much I can say for sure . .
It is always best to own a home than spending every month on rent. Get easy and flexible home mortgage from the fast and reliable services of Integrated financial Group.
I forgot to add that you're well and truly debt free if you own the resources too - energy, water, etc (and the means to dispose of the waste you produce...) Looks like we've never be truly debt free if you want to live in your house..lol
I havent read all the comments... but one "devils" argument might be missing here, and it is when you retire and dont work anymore, if you bought a house its normally yours and you just pay prop taxes; and if you rented, then you will still have to pay that ame rent, which is of course + $! (Im not a realtor, just read this because of RK)
Though with all that being said I do not know the first thing about buying homes and all the such so watching this discouraged me in a way. I am not sure how they do apartment living in CA and I can understand where you get frustrated at your friends and family telling you to buy buy buy but for me I want to but don't even know where to begin. lol Just apartments have so many rules and regulations. Gah! Though houses here are not as expensive as there. Jeeze. lol
Another thing I know these are just little things but here where I live it is different. I can't paint the walls, I can't add rooms. I could probably buy a 20k fix-er upper and enjoy redoing it how I like than live in a small ass apartment. Hey nothing against you I actually enjoyed watching this but it hurts me because I want more animals and I want more land and freedom. There are so many rules here about changes and pets. It is so annoying!
I want my own house, my own land. I don't want to have to listen to what my apartment people tell me. And here where I live if one person screws up we all get blamed for it. The pool here was actually closed because they could not keep security at the pools. GAH! Do you keep your cat a secret because you don't want to pay the ridiculous 350 down payment and 20 dollars a month extra?
He made it simple, but add maintenance cost, repairs, State raises property tax, school tax. Then add most homes sold were over priced by 25% or more. Most home prices have fell 40% in Michigan, Florida, California, Nevada. You had people with a score of 450 getting loans for 250K homes, making 45K a year! add we are in deflation right now. over capacity of goods produced, unemployment at 20%, most of the homes sold were ARMs that reset Jan 2011. it will get worse, before it gets better.
If you can pay 100% cash for your house (no mortgage), will it be better to buy instead of renting? If you buy and pay 100%, you only pay the $10K property tax. If you rent, you make 4% interest on the $1M which is $40K/yr. Less the $36K rent/yr, you'll still be ahead by $4K/yr. So, is it better to pay 100% for the house or rent?
@tmc300 You are assuming that they will stay the same or rise. what if the price of the home falls 20% after you buy it. its now worth 800k, but you owe 1M, you just lost 200k in value, it just disappeared. but you still owe that debt of 200k. for a home that people can buy now for 800k or less. you can always hope to short sell it, if the mortgage holder will let you.
Let's not forget how much money goes into maintaing the house on the home buyers, where as if you rent, the landlord pays to maintain... But... Long term goes, what happens when you pay off your house? Vs Still paying rent. I have an uncle who rented his entire life.
Sal - A house may not be appreciating today or for next 3 years or may be 5 years but tell me a house in a place like California which did not appreciated atleast by 8% in 30 years.
Moreover, even by burning some money on interset you now own a property. So, when you retire, you do not have to worry about paying rents...you have a house where you can live easily. You also get a sense of security by owning a house which you won't get by renting it.
@vikasmvp Thats simple, take the money that went into making mortgage payments. even at 5% growth over 30 years, you make out better.
Now when I retire, I can rent a home. without being taxed, maintenance, repair cost. getting me by surprise. and I will know how much income I have VS outgoing cash flow.
You have to remember all the trend lines are broken now. what happened 25+ years ago is over.
shakaama no offence but if u have that much cash your spoiled and why would you consider renting at all? lol no one wants a loan they can avoid but who as the cash for a house?
Not necessarily. You're forgetting the (safe) interest that you could have earned on the $1M by keeping it in the bank vs purchasing the home outright.
@shakaama yea thanks i know i win. oh righttt...your finance videos on your channel. yea cant be bothered since from what i saw you post, its mostly quite poor compared to sal's.
You have $250K in savings... If you are stupid enough to use the entirety of that as a downpayment on a house that's your own lookout... Buying without security is foolish.
Why not wait until you have $300K in savings and buy a house with a $200K downpayment? Why not find a house that costs a bit less? Why are you paying a 25% LTV when the standard is 20%? Why not building a house from scratch (cheaper than buying)? Why not renovate an old house?
Also lets assume that you buy at age 20 and you live to be 80. You will pay your mortgage until you are 50 years old (or less if you make extra principal payments) and you live rent free for the last 30 years of your life (when rents will likely be higher). On the other hand, if you rent, you pay rent for the full 60 years. That's not just double either. See your 30 year loan is a FIXED rate and your rent is not. Rent will go up, up, up over those 60 years. Look at what rents were 60 years ago.
Mortgage rates are not 6% anymore. They are way down. If move in a year or two then sure, its a greater risk of prices going down. However, you need to look at the long term. Historically, housing costs have always gone up in ANY 10 year period, even during the great depression. Sure you could compare 2006 to 2008 and say they are down, but look at a full 10 year span. History tells that the house should be worth morth in 2016 than 2006. Yes, there will be hiccups but look long term.
i "bought" a beautiful home in se MI in 2000, i was 20yrs old. i was a roofing contractor. i "bought" the home for $180k with 10k down. i made my payments and improved the home with close to 100k and 4 yrs later the home appraised for 450k! 1 yr later i couldn't sell the home for the 180k i still owed so we had to pack what we could and leave. 5yrs later i'm a happy renter and will never assume that kind of debt again. you'll see exactly what you "own" when you can't make the payments! great vid
That's what happens when you buy beyond your means. No offence matey, but it honestly sounds like that's what you did.
You bought the house for $180K, added $100K in renovations, equalling a VALUE of $280K... You put a downpayment of $10K meaning you had a mortgage of $270K to repay (plus interest)...
If you weren't able to forseeably make those repayments then you bought beyond your means.
It sounds like you, along with many others, lost that house before you even moved in.
I haven't watched the detailed analysis video yet but it seems like you've focusing on time scales that are too short. Looking at over lapping slots of say 15 years would be a good idea perhaps, just to see what value the house would be at.
Also, it would be nice to estimate how the mortgage payments go down and the rent goes up (lets say in line with inflation) and compare the amounts in the future.
To add to what illeyjs noted, home maintenance out of pocket costs range from 2-4% of the house value, plus costs for water, sewer, trash, more expensive utilities.
This a good example in CA where the monthly rent to home price ratio is .003. In the midwest , the monthly rent to home price ratio is .0055 and the advantages to renting vs buying are not quite as grossly obvious.
The increase in the value only need to exeed (buyprice)1,0155^x in a short time period of x years for a possible gain vs rent. That probability should rise based on time.
So the longer you chose to stay the more likely it is that you will find a time when you can sell and gain money.
There is also a possible gain in regular inflation. If you manage to break rent + 1.0155 investing in somthing else could be better than buying the house.
Your points are well made, but after 30 years one person owns a home and the other is still paying rent. Also if the home were paid off and sold, WITH NO APPRECIATION, for $1million and that divided by 30 for an annual amout of $33,333. This would result in $8,167 per year vs $26k renting. Or you could live in a home debt free.
You are never debt free if you own your home. You still pay council / state taxes. You are only truly debt free if you own the house and the land itself!
That is a moot argument... You pay similar taxes when renting. If you own your house outright, you are not in debt for it. If you rent, you are renting forever.
@stepchangeable Actually believe it or not, a couple months ago I was in between apartment leases for 2 weeks. I have a nice office at campus (I'm a PhD student) and I lived there for 2 weeks, taking showers in the gym. I saved time not having to commute, got more work done, and it's not like the roof is going to just dissappear at night. It's a win-win situation. I would of almost stayed there except it would be quite awkward to get a date and say "let's go home to my office".
I think the next video should show what price range you would have to buy in order to get something that would be the same cost as renting but you would still get the benefit of having a property. Buying is usually not to buy something comparable to what you are renting. In the long run, you will make money back in real estate. The market will recover from the recession. You can also take that 250k and buy property in cash elsewhere for cheap and rent it out, (NV, Merced, Sacramento etc).
I am still confused about the interest payment in mortage which is 45k which was stated asa yearly payment but the payment would have been made over years...plus once the home has been paid it becomes your asset where if you rent it will never become an asset its as simple as that in addition plus rent will be continuesly increasing where the morgage is a straight forward payment
The guy is stupid... He calculates that $45K interest repayment, but forgets that the amount you pay in interest each year of your loan term drops significantly year on year... Building your equity at the same time.
It's over-simplified and ignores key facts in order to support his position.
sal khan. Thank you so much for such an educational video. I learn more than I wish I did when I was younger on your website. Again I really appreciate your effort to educate people in the easiest way possible. Really all I can say is thank you and I wish you gain something from your contributions.
Its all good only financially. Think Socially and Family wise. You don't make a Home when you rent. When you buy, you get more socially involved, people know you and respect you if they know you for a longer period.
If you are WEAK enough to allow the opinions of friends and family, then your comments are understandable. I personally feel sorry for people who are not strong enough to raise their family in a truthful condition, instead of a fake and debtful upbringing.
The Video talks about numbers. not raising families. You decide if you want to buy or rent. Its your choice. They make you realize you own a home, when you are actually slave to the Mortgage company for 30 years. Everything is Fake.
You don't live in a society with a muscle and money only. You need brains to raise healthy and happy family. Moto, do you rent or own a home?
I agree that the video is very helpful in discussing numbers, and should NOT include "Socially and Family wise" concerns. I also agree that it is a FAKE idea to believe that you need to buy, to "make a home",which is the B.S. that brokers (like me) convince renters into mortgages that most home owners cannot afford. I think people should raise their families in a truthful manner, even if that means renting a home until you can honestly afford the mortgage, you don't need to buy to have a home.
motogpslider, TRUE. very true, We should raise the next generation in a humble, REAL WORLD society which is if you cannot afford, DO NOT BUY and not a credit (NO MONEY, dillusional) crazed materialistic society. Materialistic= caring what other sheeps think about you
Shouldn't financial considerations factor predominantly into your decision to make (or not) what would be one of the biggest investments of your life?
I am sure being a homeowner has some legitimate existential value, but if you fixate on that, I think it's easy to let emotion cloud what should be a relatively detached, rational analysis of what to do with a large portion of your total life income.
Why would anyone rent out a 1M house for 3k/mont. In yearly basis that makes only 3,6% interest on the equity. Not counting depreciation or appreciation. Maybe that made sense during the bubble, but otherwise you would get better yield even from government bonds. You should at least get 6%/year to even think about investing in real estate.
I think this is a good video, but the most important element is missing. That is how do you pay off your mortgage quickly. Most people are decieved into thinking that they must stick to the repayment term.
The trick is to get rid of the mortgage as quickly as possible, by earning more (2nd job, better job, business, family loans, etc) and over paying the mortgage thus shortening the term.
So glad to see so many comments from smart people like yourself. The guy who made this video made glaring omissions and displayed a fair amount of ignorance of the long term gains in buying a house... Pitting a BEST CASE renting scenario ($1m house rented at a measly $3K/month with $250K in savings AGAINST a $1m house with no savings in bank and an expensive 30year mortgage)...
Just don't buy such an expensive house. It is true, though, that you never really ever completely "own" your house, since you have to pay property taxes, which is basically like a perpetual rent on the land and house.
DaveJLin 4 days ago
buying house is always better.
xavierlert 3 weeks ago
it make me understand the process
adamaqmal 1 month ago
you must also remember that with house or property ownership comes very high upkeep expenses that are simply not present for renting. condo fees or equivalent house repairs can easily figure into 25% of the monthly outlay. factor that in and it's not a pretty situation for home ownership.
that said, there is a nebulous quality to actual ownership. some people take great pride in this, and others want nothing to do with it. to each their own, but the $ argument is rather clear.
mikegleeson909 2 months ago
He forgot about one thing: even if you pay more by buying, at the end of 30 years
you have a house.
Ducky888888 2 months ago
@Ducky888888 I totally agree with you on this. How can he miss something like that?
kidyeahman 2 months ago
I think its not the way to calculate it.
You should add up all the payments through 30 years on both sides and compare the two together.
Ducky888888 2 months ago
what the hell did docbrown8 say?!
porschedemon1 2 months ago
This has been flagged as spam show
Fab videos... thanks for taking the time to share them!
JaxInvest 2 months ago
Preach!
blankman091487 3 months ago
you have to treat the purchase of a home like an investment buy at the bottom sell at the top and you'll be golden.
thetruth377 3 months ago
here you go folks... calculate for yourself... in most case if you are planning on staying less than 5 yrs..renting is better
nytimes.com/interactive/business/buy-rent-calculator.html
buying a house seems like a much better idea when you are older, have kids and arent going anywhere for a while. (which isnt always the case)
Euphorica 3 months ago
Great video. One variable that needs to be considered is inflation and the overall direction of the housing market values. Inflation essentally devalues the dollar, hence prices on everything will continue to go up. Our national debt is so high that eventually inflation will kick in and devalue our dollar. If you get a fixed payment loan you lock in on predevalued dollars. You may earn 4% on the 250k but if inflation is 5% you actually lost money. Please expand on this and NPV. Thanks!
TuYou2B 3 months ago
This arguement is serisouly flawed. While the math may be almost correct for the first year (you will actually pay less than 45K since interest will be calculated on a monthly basis not yearly - actual interest will be $44,749.46), it fails to take into account that you will not be paying 45K in interest every year (unless it's an interest only loan) because you will be paying back principal evey month.
BGoose22 3 months ago
Good vids. Thanks for passing along some good information.
jdbohdan 3 months ago
Question if you won the lottery let's say around 40 million dollars but never worked before or have a job can you still buy a house ?
s2mar33 3 months ago
@s2mar33 of course, you just buy the house cash. If you aren't taking a loan from a bank then previous income in meaningless
ddetour 2 days ago
People should actually remember hose are really suppose to be homes not money makers unless your into rents out ot selling . It supoose to be a roof over your head and food to eat .
Dragonsayian 3 months ago
8:56 I want to party with Khan!
accidomunam1869 3 months ago
It's true. My friend family lose their house because they couldn't afford the payments anymore and they are back to renting. Sucks for them because they did back into the house and now they lose more money than if they never had bought the house and just stuck with renting.
chocoboblue99 4 months ago
im a 31 yr. old man in milwaukee, wi that had some time on his hands. i've been worring about the future of me and my kids with the economy being the way it is and i was wondering about what would happen if banks bust. i found your page by a mistake. i was looking for info about stock and bonds and anything that can help me build a future for my family and i'll say that these postings have really been educational and it gives me a better look on the way i should handle my money.
EXMusiqGroup 4 months ago
I plan on renting while saving for a home and then paying for most of it. Where I live you can a nice townhouse for 100-120k. After you buy that house you can then start saving for your next house. After you get enough saved you can buy the next home (240k, which is quite a lot nicer home), while either renting out the other (which in some cases you can even rent more than the mortgage which I am doing right now) or you can sell that home and apply that money to the new home.
prodigy1605 4 months ago
I'm not done with the video (so I don't know if he discusses this), but what about after the 30 years and your house is paid off? If you are 30 years old and have a 30 year fixed mortgage. Then you are 60 years old (of course). Life expectancy on avg is 78 in the US. That is 18 years where you only need to pay for the taxes and upkeep, while the renter is still paying. This is also to say someone is buying a 1 million dollar house with a mortgage (which I would not do).
prodigy1605 4 months ago
Thanks for the video. Simple mathmaics makes the whole subject alot clearer.
flipu4real 5 months ago
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Thank you SAL for your wonderful videos !
The +10 k will be taxed along with the 100000 at 30% leaving -33,000 k as liability/annum of rent....
BUT if you take the opportunity cost (what ur missing) you add -13.5 k(tax benefit lost) = -46500
So if you actually own a house you save -5000 k p.a.
......and in the long run you own a house (Shelter is a human necessity not a luxury)
Regarding wether or not house prices revert; they'll come back - its an economic cycle.
KevinSlasHr 5 months ago
Great video. I have same arguments with my head-in-the-sand friend and they dont get it. One thing you left off was when you own a home you have to maintain a home. Can easily add another 15% to that monthly home ownership cost for amortized repairs, upkeep, maintenance, landscaping, etc. When the roof goes tits up, its a $10K day for the homeowner. When the roof needs replaced on a renter, its the landlord's problem. Home ownership is EXPENSIVE. Its a lifestyle decision more than anything.
UDPride 5 months ago
@UDPride Couldn't agree more. If your a smart investor with your money and you shy away from the "romanticism" of owning your own home, you can raise more capital for higher returned investment. I've always told people about the benefits of renting and their argument always is the money you spend per month goes to the landlord, i try to show them how much you can save.
MrMadeintheuk 5 months ago
If you can buy a home outright without going into debt, then in some cases, it would be better to buy. I would be more likely to buy a home and hopefully some land in another country other than the U.S. personally, anywhere that doesn't have property taxes.
chiyerano 6 months ago
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Darusck16 7 months ago
Houses are actually depreciating assets, it's the land that actually appreciates. Who here love houses made in 1965? Putting money into a house itself becomes a losing battle over time.
internate 7 months ago 2
GREAT POST SHOW THESE AMERICAN< REDNECKS HOW THE HOUSING MARKET IF RUNS. KHAN IS KING!!!!
suckafreeG 8 months ago
Well, in my opinion, the $ difference between renting and buying a home translates directly to what you get after a few years. When renting, you get NOTHING after a few years. As far as I'm concerned, paying more when buying your own house is worth it. This, of course, applies here in the Philippines, because we're a small country, and people here don't move around a lot unlike in the U.S. So, in hindsight, maybe for Americans and other big countries, renting is better :)
jonmanilenio 8 months ago
Please read more books before jump to the conclusion...
justinuei 8 months ago
Hey Sal, please make a video of the same thing, but make it applicable to the present houseing situation in America. Thanks
kombatmaster7 8 months ago
GODDDD this is so much to inhale. I'm 19 now and I planned on moving out when i turn 23. (after college) but I'm going to have to watch this whole playlist to understand this stuff.
iamdukepoptarts 8 months ago
@iamdukepoptarts I'm in the same boat as you man. I'm heading off ot university and I have read a few articles out there claiming it is a renters market. Unfortunantly for us rent is expected to skyrocket in the next two years.
kombatmaster7 8 months ago
You should add the opportunity cost of the 250K that is tied up in the house, which can not be invested in example a CD. This will make you argument even better.
adrianforsythe 9 months ago
Do you people commenting realize that this video was made 3 years ago? Yes, 4% interest is high, but I can attest that I was getting a over 3% interest in a savings account with the bank I was using 3 years ago. Khan's using a hypothetical situation, which applies more to the time when he made the video. I wonder what his interpretation of the current renting vs buying dilemma would be today, and if his opinion has shifted with the times.
ucablca 9 months ago
@ucablca he MEANS T bill of 4% but idiots need to be told BANK to make it simple that holds true even in 2011
msegreto2 8 months ago
then rent on owning a home is the differencve between the principle payment and the interest payment. You are not compairning the same amount for the same home you are RENTING. And who is getting a 4% return on the money we put in the bank!!!!! Yo9u totally SUCK!!!!!! And you are not calculating the interest rate correctly!!!!
cleehomes333 10 months ago
@cleehomes333 you can get 4-5 percent risk free from a govt T bill dumbass...
msegreto2 8 months ago
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I don't understand. Why do you have to buy a $1M dollar house when you could buy a cheaper house with payments on your mortgage that would be less than $3K a month on a APT? I currently rent at 1,250.00 a month but I want to buy a house and figured that I would be paying 1K a Mo. on a mortgage with 20% down. Buying a house is way better long term compared to renting. While you r young it seems fine but once u get older to yor retirement age u are going to wish that u owned unless u saved good.
a1cswiz1611 11 months ago
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a1cswiz1611 11 months ago
I love you man.
jjlm24 11 months ago
you made a mistake in your initial equation. The borrowing cost is 45K over the life of the mortgage friend. You don't pay off the 45K in the first year so your not saving per year. Also at the end of the mortgage and paying off your house you have a $750,000 property appose to nothing when you rent. Yes there is cost of borrowing but you left out time after the house is paid off. What if you lived in a paid off house for ten years? your saving a lot more than you would be renting in that 10 yr
bsnakeage 11 months ago
@bsnakeage your equation is stating that every year you pay 6% on the 750,000? No. you pay 6% in total for taking that money not EVERY YEAR!
bsnakeage 11 months ago
@bsnakeage You're an idiot. The 6% is per year. Come on, who the hell would loan 750K in order to make 45K in 30 years? That would be a 0.4% interest rate.
docbrown8 10 months ago 13
@docbrown8 I own a house, and i worry about my home value going down. But it's morons like you that don't know basic math that give me comfort. It's 45k PER YEAR not a total 45k over 30 years. And of course there's something to be said about the mortgage schedule where the interest/principal ratio becomes more favorable over the 30 years
amirmemon 8 months ago
@amirmemon That's what docbrown said... Why're you trying to argue the same point at somebody who agrees? He was pointing out to bsnakeage that the 6% is per year and not per 30 years.
AboveMeIsARetard 2 months ago
@AboveMeIsARetard He said $45k over the 30 years, then removed the comment. What he said within a few weeks ago is consistent with what i had said 5 months ago. Anyway, looking back at my own comment made me realize how rude i can be online... wow. sorry about that
amirmemon 2 months ago
@docbrown8 LOL!!!!!
shuha24 5 months ago
@docbrown8 im sure alot of people did back when they thought they could flip there house and make a profit
ryanrosevear 5 months ago
@docbrown8 that 45k is interest calculated per year , thats why he says 45k is just burned every year !!
TheNeeraj176 3 months ago
@docbrown8 as of right now swiss national bank has 0% interest rate, japan 0.4% and england 0.5%
asianstrength 1 week ago
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docbrown8 10 months ago
If you think you truly OWN your own home and are debt free, just quit paying your property tax - after all, why should you keep paying for something you OWN - you will soon find out who truly OWNS your home (even if you built it with your own hands!). Property tax is rent that never goes away.
The term "real estate" comes from latin and roughly translated means "royal estate" "royal land" or "the king's land."
Mortgage is also from latin and means "death-promise" or "promise 'til death."
OhhhThatGuy 1 year ago 43
@OhhhThatGuy While you're at it, I guess your town should get rid of the courts, police, firefighters or even their schools. Your property tax is used for you. Stop complaining about it.
porechewgull 6 months ago
@porechewgull Seems to me that sales taxes should be used for that. Things like income and property should not be taxed.
chiyerano 6 months ago
@OhhhThatGuy That's what I thought. It seems that, at least in America, you don't really own a house, even if the house is paid for and mortgage free.
chiyerano 6 months ago
@OhhhThatGuy
Your argument is flawed in many respects....
1. you can't equate a $1 million house to a monthly rent of $3000!...the rent would probably be around 4500/mth for a 1 million dollar home
2. Over -20 to 30 years, real estate has increased at an average rate of 6% per year
3. the house prices in many sectors of the US market are an annomaly
4. interest on the $250,000 is taxable at your marginal tax rate..close to 45% not 30%
5. there is no tax on the capital gain of house
pkk9091 2 months ago 3
Thumbs up if you would invite him to your party for the entertainment!
hanypants 1 year ago
Don't you pay taxes on the interest?
Where I live they gross up your total income including income from interest. This is then taxed at the marginal rate - in my case 40%. Also where can you get 4% interest these days?
More like I get an actual 1% interest after paying taxes.
BarringtonDailey 1 year ago
dear sal...i still do not agree with your point.
at the end of 30 years .....renter will have lost 30 X 26k = 780k and will own no property
whereas ....owner will have lost 30 X 41.5 k = 1245k but will own 1000k property(assuming that real estate fluctuations keep the house at 1000k even after 30 years...which will be worst case scenario).....
so the owner will have paid just 1245-1000=245k for living in that house for 30 years.
please explain me what am i missing ...i think m really stupid.
dhruvrai23 1 year ago 3
@dhruvrai23
Renting, you *save* 25K per year (in his example). This comes to 750K over the 30 years. You also *get compound interest* on the money you save.
Work out 30 years interest on *just the first years saving of 25K* =
(1.04^30)*25k = 81k!!
Now work out interest you would get on saving the second year of 25K for 29 years
(1.04^29)*25k = 77k
Add all these up for 30 years to the 750k saving . The sum is huge.
BarringtonDailey 1 year ago
@dhruvrai23 Your calculation of 30x41.5k =1245k is just the money spent on interest, that doesn't include any more being spent toward the million dollar principle.
freethought23 7 months ago
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@dhruvrai23 Your calculation of 30x41.5k =1245k is just the money spent on interest, that doesn't include any more being spent toward the 750k dollar principle of the loan
freethought23 7 months ago
I think owning owning your home is the best way and not renting but i see his point. You can invest and save your money much easier then owning a house if its done right but at the end of the day i would own then rent. I have my own place and i would tell everyone to save up that 20% down payment and not pay PMI at all. That will bring your house note down to the same amount as rent in most cases.
NJNC12 1 year ago
Your numbers are way off. A $3,000 per month rental will get you a $350,000 house.
FamilyRealEstate 1 year ago 2
@FamilyRealEstate I pay 500 per month but i dont live in a 6000 house. He is just saying you can rent a million dollor home for about 3k but he never said that rent price was the total cost of the house at the end of the year.
NJNC12 1 year ago
@FamilyRealEstate
in bad areas we use 30 as rent coefficient. so if you can rent the house for $1000, you can pay up to 30k for it. otherwise you loose money. think of vacancy, evictions, bad tenants, home repairs, taxes, fees etc.
in good area coefficient runs up to 70.
if i'm going to live in a house longer than 10 years, i will agree to 100.
but as of right now i have 2 houses rented out, 1 piece of land where i'm building a house and rent my residence.
zkamasutr 1 year ago
Its a lot easier to leave one rental unit and move into another, then selling and buying a new home. The landlord gives you months and sometimes year notice of rent increase. You'd have more then enough time finding another rental in your budget. If you're a good tenant most landlords would never do that anyways or work with. Then the bullshit costs like, Air, furnace, roof, plumbing, repairs and upgrades, etc labor, maintaining the home. Don't forget inflation.
Jahkillian 1 year ago
Its a lot easier to leave one rental unit and move into another, then selling and buying a new home. The landlord gives you months and sometimes year notice of rent increase. You'd have more then enough time finding another rental in your budget. If you're a good tenant most landlords would never do that anyways or work with. Then the bullshit costs like, Air, furnace, roof, plumbing, repairs and upgrades, etc labor, maintaining the home.
Jahkillian 1 year ago
And don't forget, if prices move against you far enough, you can always walk away. At the same time, you enjoy all the theoretically unlimited upside to appreciation. Combined with the capital gains exclusion (which in itself is not guaranteed), this makes ownership more favorable and should be factored in. One must also analyze the proposition over the expected horizon of ownership. On a year to year basis, this is an easy calculation, but perhaps one should look at it at a 7-10 year basis.
3kidsdadny 1 year ago
you are ignoring a couple of factors: the proposition should incorporate future expectations of: inflation, volatility of variables, the implicit option value of housing prices that being "long the call option" on future prices. We can assuming housing prices talk a "random walk", but now we can ask given a 20-30% decline in values, what is the probability that we will see one move or another. You alluded to it here, but I think you are essentially long a cheap option.
3kidsdadny 1 year ago
I strongly disagree with the idea that it is better to rent your home instead of owning it, unless it's a 2-room apartment. I don't know any rich people who rent their house. I'd rather spend 20 years paying off a $3 million house and then enjoy it and keep it for generations instead of having to worry about paying rent every month. My life would be very different if my parent's mentality was the opposite, that much I can say for sure . .
smokenfly514 1 year ago
It is always best to own a home than spending every month on rent. Get easy and flexible home mortgage from the fast and reliable services of Integrated financial Group.
ifginc 1 year ago
I sold my house and I now rent . its better in this economy
swami24u 1 year ago
I sold my house and I am happy renting Its alot easier.
swami24u 1 year ago
I sold my house in 2008 and bought silver with the equity at an average 12.50/oz.....sitting pretty right now at almost 25/oz.
mike6459 1 year ago
Sal For PRESIDENT! Need I say more?
StncRev 1 year ago
you also have to pay for repairs if you buy instead of renting...
wendy2212 1 year ago
You missed REPAIRS my friend! But GREAT video, thank you for spreading a little truth! :D
EliteDoomer 1 year ago
You, mister, did not account for your income taxes on the first (renting) property. Not a complete view of the cost benefits!!!:)
meganwenn 1 year ago
I forgot to add that you're well and truly debt free if you own the resources too - energy, water, etc (and the means to dispose of the waste you produce...) Looks like we've never be truly debt free if you want to live in your house..lol
stepchangeable 1 year ago
what is your thoughts on rent to buy?
playfastorperish 1 year ago
I wish this sort of math was taught in high school
InventoryClerkTV 1 year ago
only if you have 250k in the bank... :( i don't
jr007nj 1 year ago
I havent read all the comments... but one "devils" argument might be missing here, and it is when you retire and dont work anymore, if you bought a house its normally yours and you just pay prop taxes; and if you rented, then you will still have to pay that ame rent, which is of course + $! (Im not a realtor, just read this because of RK)
doh007 1 year ago
Though with all that being said I do not know the first thing about buying homes and all the such so watching this discouraged me in a way. I am not sure how they do apartment living in CA and I can understand where you get frustrated at your friends and family telling you to buy buy buy but for me I want to but don't even know where to begin. lol Just apartments have so many rules and regulations. Gah! Though houses here are not as expensive as there. Jeeze. lol
Ladyluck8987 1 year ago
Another thing I know these are just little things but here where I live it is different. I can't paint the walls, I can't add rooms. I could probably buy a 20k fix-er upper and enjoy redoing it how I like than live in a small ass apartment. Hey nothing against you I actually enjoyed watching this but it hurts me because I want more animals and I want more land and freedom. There are so many rules here about changes and pets. It is so annoying!
Ladyluck8987 1 year ago
I want my own house, my own land. I don't want to have to listen to what my apartment people tell me. And here where I live if one person screws up we all get blamed for it. The pool here was actually closed because they could not keep security at the pools. GAH! Do you keep your cat a secret because you don't want to pay the ridiculous 350 down payment and 20 dollars a month extra?
Ladyluck8987 1 year ago
It's a little different now that the market's crashed. Now's the right time to buy, right?
domokato 1 year ago
He made it simple, but add maintenance cost, repairs, State raises property tax, school tax. Then add most homes sold were over priced by 25% or more. Most home prices have fell 40% in Michigan, Florida, California, Nevada. You had people with a score of 450 getting loans for 250K homes, making 45K a year! add we are in deflation right now. over capacity of goods produced, unemployment at 20%, most of the homes sold were ARMs that reset Jan 2011. it will get worse, before it gets better.
WizzRacing 1 year ago
nice video:)
Don't forget inflation. After 30 years the savings are reduced by 50% while the house value has increased by 100%
finnlykke 1 year ago
If you can pay 100% cash for your house (no mortgage), will it be better to buy instead of renting? If you buy and pay 100%, you only pay the $10K property tax. If you rent, you make 4% interest on the $1M which is $40K/yr. Less the $36K rent/yr, you'll still be ahead by $4K/yr. So, is it better to pay 100% for the house or rent?
tmc300 1 year ago
@tmc300 You are assuming that they will stay the same or rise. what if the price of the home falls 20% after you buy it. its now worth 800k, but you owe 1M, you just lost 200k in value, it just disappeared. but you still owe that debt of 200k. for a home that people can buy now for 800k or less. you can always hope to short sell it, if the mortgage holder will let you.
WizzRacing 1 year ago
good staff there........really good info
250000BusinessLoan 1 year ago
I paid cash for mine!
riecard 1 year ago
Buying is better, if you consider passing the house to children after you die..
Manjo1981 1 year ago
Let's not forget how much money goes into maintaing the house on the home buyers, where as if you rent, the landlord pays to maintain... But... Long term goes, what happens when you pay off your house? Vs Still paying rent. I have an uncle who rented his entire life.
insylem 1 year ago
Sal - A house may not be appreciating today or for next 3 years or may be 5 years but tell me a house in a place like California which did not appreciated atleast by 8% in 30 years.
Moreover, even by burning some money on interset you now own a property. So, when you retire, you do not have to worry about paying rents...you have a house where you can live easily. You also get a sense of security by owning a house which you won't get by renting it.
vikasmvp 1 year ago
@vikasmvp Thats simple, take the money that went into making mortgage payments. even at 5% growth over 30 years, you make out better.
Now when I retire, I can rent a home. without being taxed, maintenance, repair cost. getting me by surprise. and I will know how much income I have VS outgoing cash flow.
You have to remember all the trend lines are broken now. what happened 25+ years ago is over.
WizzRacing 1 year ago
shakaama no offence but if u have that much cash your spoiled and why would you consider renting at all? lol no one wants a loan they can avoid but who as the cash for a house?
henrybleisch 1 year ago
Hey, let me throw a monkey wrench in your whole scenario:
PAYING CASH FOR A HOME.
It beats renting and a mortgage hands down.
shakaama 1 year ago
Not necessarily. You're forgetting the (safe) interest that you could have earned on the $1M by keeping it in the bank vs purchasing the home outright.
rmm5t 1 year ago
You're forgetting all the things you can save by paying cash:
1. you can literally take off 10% or more right off the top of the price
2. you can remove all the fees and closing costs
3. you can completely avoid letting your personal credit information known
If you pay cash you also get peace of mind of not having a monthly raping and paying extra for your money.
In the entire world, right now, real dollars, banks are paying less than 1% interest on savings accounts / cd's etc.
shakaama 1 year ago
@shakaama sometimes i wonder how dumb some people can get
thegoonist 1 year ago
@thegoonist I don't get it, are you calling me dumb while i'm discussing finance?
Let me check your channel. Oh, ok. gotcha. you're a winner.
shakaama 1 year ago
@shakaama yea thanks i know i win. oh righttt...your finance videos on your channel. yea cant be bothered since from what i saw you post, its mostly quite poor compared to sal's.
thegoonist 1 year ago
@thegoonist i don't get why you're such a big douche bag? are you just trolling?
i directed a question at sal, not you. and you didn't evne answer the question you're just insulting.
i'm done.
shakaama 1 year ago
@shakaama nah i wasnt insulting i was "wondering" aloud, merely
thegoonist 1 year ago
Okay - Hang on a minute...
You have $250K in savings... If you are stupid enough to use the entirety of that as a downpayment on a house that's your own lookout... Buying without security is foolish.
Why not wait until you have $300K in savings and buy a house with a $200K downpayment? Why not find a house that costs a bit less? Why are you paying a 25% LTV when the standard is 20%? Why not building a house from scratch (cheaper than buying)? Why not renovate an old house?
You miss much out.
Vortex42 1 year ago
Awesome video. Part 1&2. Thanks for enlightening me on the issue!
k8888o 1 year ago
do u write software in the valley?
and do you actually want to live in the valley long term? or are you there for now because work is there?
b1ueocean 1 year ago
this makes me want to be the person renting out the house
alfrediscool 1 year ago
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Crowefit 1 year ago
I am now a full fledged passionate follower of your wisdom!!!
StncRev 2 years ago
Buying a home with a FIXED rate loan is more advantageous than being exposed to the inflation or rent.
sforealtor 2 years ago 3
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sforealtor 2 years ago
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sforealtor 2 years ago
Thank you
Rspct2all 2 years ago
Also lets assume that you buy at age 20 and you live to be 80. You will pay your mortgage until you are 50 years old (or less if you make extra principal payments) and you live rent free for the last 30 years of your life (when rents will likely be higher). On the other hand, if you rent, you pay rent for the full 60 years. That's not just double either. See your 30 year loan is a FIXED rate and your rent is not. Rent will go up, up, up over those 60 years. Look at what rents were 60 years ago.
RainwaterRealEstate 2 years ago 3
You are ignoring inflation.
Adjusted for the inflation rate, home prices across the US have roughly the same.
gchamp3 2 years ago
Mortgage rates are not 6% anymore. They are way down. If move in a year or two then sure, its a greater risk of prices going down. However, you need to look at the long term. Historically, housing costs have always gone up in ANY 10 year period, even during the great depression. Sure you could compare 2006 to 2008 and say they are down, but look at a full 10 year span. History tells that the house should be worth morth in 2016 than 2006. Yes, there will be hiccups but look long term.
RainwaterRealEstate 2 years ago
Great job Brotha!
torryfam 2 years ago
Renting: $26,000/yr x 30 years = $780,000
Buying: $41,500/yr x 30 years = $1,245,000 + $250,000 down payment = $1,495,000
$1,495,000 - $780,000 = $715,000
You would have to sell the house for at least $715,000 to break even.
LuckyStrikeDEAD 2 years ago
Solid point. Except the fact that inorder to own the house, or when you sell it the 750k principle that was borrowed must be repaid.
The $41,500/yr was an interest only mortgage.
And thats without even considering your oppertunity cost.
mossmahontuz 2 years ago
i "bought" a beautiful home in se MI in 2000, i was 20yrs old. i was a roofing contractor. i "bought" the home for $180k with 10k down. i made my payments and improved the home with close to 100k and 4 yrs later the home appraised for 450k! 1 yr later i couldn't sell the home for the 180k i still owed so we had to pack what we could and leave. 5yrs later i'm a happy renter and will never assume that kind of debt again. you'll see exactly what you "own" when you can't make the payments! great vid
REALSLATER 2 years ago
That's what happens when you buy beyond your means. No offence matey, but it honestly sounds like that's what you did.
You bought the house for $180K, added $100K in renovations, equalling a VALUE of $280K... You put a downpayment of $10K meaning you had a mortgage of $270K to repay (plus interest)...
If you weren't able to forseeably make those repayments then you bought beyond your means.
It sounds like you, along with many others, lost that house before you even moved in.
Nothing personal
Vortex42 1 year ago
Right now is the best time to buy. In FL a lot of government money support for First time buyers. + up to $8,000 tax money
Komelotstar 2 years ago
I haven't watched the detailed analysis video yet but it seems like you've focusing on time scales that are too short. Looking at over lapping slots of say 15 years would be a good idea perhaps, just to see what value the house would be at.
Also, it would be nice to estimate how the mortgage payments go down and the rent goes up (lets say in line with inflation) and compare the amounts in the future.
Thanks for the video!
GirlyVoice 2 years ago
To add to what illeyjs noted, home maintenance out of pocket costs range from 2-4% of the house value, plus costs for water, sewer, trash, more expensive utilities.
akiemr19 2 years ago 2
This a good example in CA where the monthly rent to home price ratio is .003. In the midwest , the monthly rent to home price ratio is .0055 and the advantages to renting vs buying are not quite as grossly obvious.
TheBlueBlazer2005 2 years ago
Great video! One more thing that you could add to your video. Home insurance versus renters. Sorry if you mentioned it and I didn't hear it.
TILLEYJS 2 years ago
The increase in the value only need to exeed (buyprice)1,0155^x in a short time period of x years for a possible gain vs rent. That probability should rise based on time.
So the longer you chose to stay the more likely it is that you will find a time when you can sell and gain money.
There is also a possible gain in regular inflation. If you manage to break rent + 1.0155 investing in somthing else could be better than buying the house.
Probability of getting fierd i hope it's low.
Corazone1983 2 years ago
Wow, so many variables. If you live in Arkansas making $100k, Houses ave about $150k. I would say buy a house. Making 100k in Calif--probably rent.
Who can say how house prices will fair in the next 15 yrs? From 1989 until 2004 in Seattle a 90k house rose to over 250k. The next 15 yrs--who knows??
yopagedotcom 2 years ago
r u telling me my landlord is paying extra than what I pay him annually!!!!
well, my landlord is taking the money from me to pay the taxes and the home's morgage and put the rest in his pocket!!!
aarwaarwaa 2 years ago
Your points are well made, but after 30 years one person owns a home and the other is still paying rent. Also if the home were paid off and sold, WITH NO APPRECIATION, for $1million and that divided by 30 for an annual amout of $33,333. This would result in $8,167 per year vs $26k renting. Or you could live in a home debt free.
airmancavins 2 years ago
You are never debt free if you own your home. You still pay council / state taxes. You are only truly debt free if you own the house and the land itself!
stepchangeable 2 years ago 18
That is a moot argument... You pay similar taxes when renting. If you own your house outright, you are not in debt for it. If you rent, you are renting forever.
Vortex42 1 year ago
@stepchangeable so true
usedcardboardboxes 1 year ago
@stepchangeable Or squat.
FortNikitaBullion 1 year ago
@FortNikitaBullion LOL! you might have a little moral debt though...!
stepchangeable 1 year ago
@stepchangeable Actually believe it or not, a couple months ago I was in between apartment leases for 2 weeks. I have a nice office at campus (I'm a PhD student) and I lived there for 2 weeks, taking showers in the gym. I saved time not having to commute, got more work done, and it's not like the roof is going to just dissappear at night. It's a win-win situation. I would of almost stayed there except it would be quite awkward to get a date and say "let's go home to my office".
FortNikitaBullion 1 year ago
@FortNikitaBullion Haha, I always thought living in the office was a matter of course for phds ;)
stepchangeable 1 year ago
@stepchangeable You are still not debt free if you own the land and the house, you still have to pay property tax , you alway owe government.
xocful 1 year ago
@xocful depends where you live.
stepchangeable 1 year ago
@xocful buy the property from the government instead of renting it from them...
wendy2212 1 year ago
@stepchangeable
You NEVER truly own land.
You pay a property tax forever!
Luvanicebum 1 year ago
@stepchangeable
But doesn't paying the council/state give you benefits as well? For their services etc.?
parklinkin52 11 months ago
Superbly put.
Vortex42 1 year ago
This comment has received too many negative votes show
thats the gayest drawing ive ever seen
like seriously, if i were u, i would never show my face to society
epandmp 2 years ago
This comment has received too many negative votes show
Fail.
Xerxe5 2 years ago
I think the next video should show what price range you would have to buy in order to get something that would be the same cost as renting but you would still get the benefit of having a property. Buying is usually not to buy something comparable to what you are renting. In the long run, you will make money back in real estate. The market will recover from the recession. You can also take that 250k and buy property in cash elsewhere for cheap and rent it out, (NV, Merced, Sacramento etc).
owl975 2 years ago
I am still confused about the interest payment in mortage which is 45k which was stated asa yearly payment but the payment would have been made over years...plus once the home has been paid it becomes your asset where if you rent it will never become an asset its as simple as that in addition plus rent will be continuesly increasing where the morgage is a straight forward payment
bessyakabossy 2 years ago 3
The guy is stupid... He calculates that $45K interest repayment, but forgets that the amount you pay in interest each year of your loan term drops significantly year on year... Building your equity at the same time.
It's over-simplified and ignores key facts in order to support his position.
Vortex42 1 year ago
I knew about this since i was 13 yo.
moniequa 2 years ago
sal khan. Thank you so much for such an educational video. I learn more than I wish I did when I was younger on your website. Again I really appreciate your effort to educate people in the easiest way possible. Really all I can say is thank you and I wish you gain something from your contributions.
sg87325 2 years ago 12
we opted for shortest repayment possible instead of falling for the 30 years trap. so many financial woes can happen in the 30 yrs.
friends said that we're "could have lived better lifestyle with our monthly instalments!"
at the end, its our choice to live simpler and pay off the 300K in 10 years. since last year, we have been living in a lovely dwelling for "free"!!
when we old, most of us are not able to keep renting the same way.
sungl0 2 years ago 2
Exactly!!!
You did it the right way. This is how home-buying should be conducted and you are living proof that it makes good sense.
Vortex42 1 year ago
thank you so a lot for making this video.
yusufer5000 2 years ago
Its all good only financially. Think Socially and Family wise. You don't make a Home when you rent. When you buy, you get more socially involved, people know you and respect you if they know you for a longer period.
a1bilal 2 years ago
If you are WEAK enough to allow the opinions of friends and family, then your comments are understandable. I personally feel sorry for people who are not strong enough to raise their family in a truthful condition, instead of a fake and debtful upbringing.
motogpslider 2 years ago
The Video talks about numbers. not raising families. You decide if you want to buy or rent. Its your choice. They make you realize you own a home, when you are actually slave to the Mortgage company for 30 years. Everything is Fake.
You don't live in a society with a muscle and money only. You need brains to raise healthy and happy family. Moto, do you rent or own a home?
a1bilal 2 years ago
I agree that the video is very helpful in discussing numbers, and should NOT include "Socially and Family wise" concerns. I also agree that it is a FAKE idea to believe that you need to buy, to "make a home",which is the B.S. that brokers (like me) convince renters into mortgages that most home owners cannot afford. I think people should raise their families in a truthful manner, even if that means renting a home until you can honestly afford the mortgage, you don't need to buy to have a home.
motogpslider 2 years ago
motogpslider, TRUE. very true, We should raise the next generation in a humble, REAL WORLD society which is if you cannot afford, DO NOT BUY and not a credit (NO MONEY, dillusional) crazed materialistic society. Materialistic= caring what other sheeps think about you
tengtengteng10 2 years ago
"Its all good only financially."
Shouldn't financial considerations factor predominantly into your decision to make (or not) what would be one of the biggest investments of your life?
I am sure being a homeowner has some legitimate existential value, but if you fixate on that, I think it's easy to let emotion cloud what should be a relatively detached, rational analysis of what to do with a large portion of your total life income.
Quinstol 1 year ago
It didn't take into account the money one would save after the house is paid off.
devdevorah 2 years ago
Exactly.
Vortex42 1 year ago
Why would anyone rent out a 1M house for 3k/mont. In yearly basis that makes only 3,6% interest on the equity. Not counting depreciation or appreciation. Maybe that made sense during the bubble, but otherwise you would get better yield even from government bonds. You should at least get 6%/year to even think about investing in real estate.
balazyksi 2 years ago
Exactly - This guys numbers are FULL of holes.
Vortex42 1 year ago
I think this is a good video, but the most important element is missing. That is how do you pay off your mortgage quickly. Most people are decieved into thinking that they must stick to the repayment term.
The trick is to get rid of the mortgage as quickly as possible, by earning more (2nd job, better job, business, family loans, etc) and over paying the mortgage thus shortening the term.
bgrawhot 2 years ago
So glad to see so many comments from smart people like yourself. The guy who made this video made glaring omissions and displayed a fair amount of ignorance of the long term gains in buying a house... Pitting a BEST CASE renting scenario ($1m house rented at a measly $3K/month with $250K in savings AGAINST a $1m house with no savings in bank and an expensive 30year mortgage)...
Doesn't make any sense.
Vortex42 1 year ago
A Great Video, I have been saying for years: "The King has no Clothes" Finally the penny has dropped and your video clips explains why.
TheAremo 2 years ago