Renting vs. Buying (detailed analysis)

[friendly37]

a big question: I just visited your website and see how bill gates helps you to make your non profit organization.

Do you own a home?

if yes please give us another video explaining why is owning is better than renting.

if not i doubt that. please be honest. since you are educating people on how to take good choices and teaching old things in a new way. thank you for your time.

[PCGamerPortal]

@friendly37 the video taht comes right before this one on the playlist talks about that, when he made the video he did not own a home, he rented it because it was the better choice for him.

[harisnsiddiqui]

@friendly37 Sal does not own a house and he has made that clear in 2 other vidoes. Offcourse that was in 2008, so not sure if that has changed in the last 3 years.

[friendly37]

by the way the neighborhood where i live, the rent is more expensive than paying my monthly mortgage. all american who are rich are owners, all who don't own are mostly poor.

the housing market goes up and down as anything else. i am convinced of being an owner is better. i can even rent some rooms and make some profit.

i know some people who owns a lot of houses and let the renters pay for the mortgages.

if you travel a lot, there is no need to won. thanks

[harisnsiddiqui]

@friendly37 Also remember that the video is not illustrating a Thumb rule but rather a scenario where traditionally renting a house at face value would be cheaper. $1200 rental vs $2000 mortgage.

Also factor in maintenance, insurance, property Tax and inflation. So their is no simply yes or no answer when it comes to buying vs owning but in the scenario and perhaps generally buying would be more costly.

[friendly37]

I am living in a luxury townhouse. i pay $1400 for my monthly mortgage. The house is $190000. so i paid it in full after 30 years it will cost me $504000.

now suppose i rent this townhouse for $1400 monthly. It will cost me the smae amount after 30 years. Now if i rent, i will continue renting after this 30 year period. right.

please tell me now who is the winner.

if companies that lease apartments lose money, do you think you can find a place where to live.

[unytcommsys]

@friendly37 It's not just rent. It is cost for keeping the house i.e. repairs, insurance, property taxes, etc. The math changes accordingly.

[bluefoxicy]

When you deduct your interest, you have to itemize: you lose your standard deduction. So unless you have $17,800/year or more in interest (assume you pay 35% in taxes; lower tax bracket, higher number), you're disadvantaged. That's the break-even tax advantage. At 4.25% that's 4.337% APR, you need a $410,421 house to get a tax advantage.

You really need a financially crippling house before owning is better than renting. Put that money in your 401(k) and savings.

[mu66777]

I thing if own the house then you are safe your money. own house better then renting

[ZacharySmith89]

One point: The present value of buying assumes that you will sell the house you bought, at a SIGNIFICANT 6% selling cost. A more flexible, telling answer can be obtained by zeroing selling cost and figuring present value after 1month. This tells you the difference accruing per month: 'D/month' (actual math more complicated, but close enough to b linear). Then this formula tells months needed for present value of buying to equal renting (if applicable): Selling costs - (# of months * D/month) = 0

[VeryScaryShadows]

Thmbs up if you thought of blockbuster,redbox,Movie renting kiosks at first :] i did lol i felt stupid

[Skygerobrian]

Khanacademy rocks!!!

[hmongpabhmong]

I know this guy talking here on YouTube. He is saying that Rent is better than Own because he has rental properties and wants to make money

That s why?

[msegreto2]

@hmongpabhmong why not ask those people who lost 50gs when their houses dropped if they should have RENTED lol

[kaakoo]

@msegreto2 Purely depends on the markets. Tax deducation with appreciating home value = win. Depreciating homes lose.

[ZacharySmith89]

@hmongpabhmong Or maybe he said that renting is better for his situation, and that you should do the math for yours.

[friendly37]

@hmongpabhmong

[allegrobas]

Strictly by the numbers the model makes sense. But something which cannot be quantified so easily is this subjective "pride of ownership" factor which may motivate people to buy even if renting might be more prudent. It's like buying an expensive luxury car when a Hyundai can get you from point A to point B more cheaply. Sometimes money is not the only thing to consider.

[NathanTouring]

@allegrobas Absolutely, but people mainly talk about money with the buy vs rent concept don't they? On economic terms the buy vs rent thing leans strongly toward renting making more sense.

[ericnies]

Hey, want to co-author with me on this book The Housing Conspiracy! Download it at: Lulu.com

[SteroidsR4success]

I'm only 16 years old but to be given this knowledge at such a young age, is just simply amazing. This is going to help me out so, so much in life. God bless, thank you Sal, this is amazing.

[FREAK9364]

@SteroidsR4success Im the same age. This is definitely going to help us. Much easier to live in a dream home when we're old enough.

[sanantoniojoe]

@SteroidsR4success You're such a dork! Bet you're on adderall too.

[sanantoniojoe]

@SteroidsR4success You're such a dork! Bet you're on adderall too.

[srikumarrajesh]

Kool, really good video...

[mart83648]

I would like to see a video on "paying your mortgage off vs. saving"

[Luvanicebum]

@mart83648

Well, the basic idea of it is:

If you're mortgage is financed @ 6% fixed

and the best savings rate you can get is 6%, then it's a wash, doesn't matter what you do.

BUT, say your mortgage is 4.5% fixed. You can't deduct more than your years interest on your taxes, so any extra you pay is only making 4.5%.

Now, it's quite easy to make a conservative 7-8% investing in other things such as Roth IRA's, Mutual funds, stocks, commodities...etc.

[Luvanicebum]

So, there's never any harm keeping your mortgage for the full 30 year term since all the interest is tax deductible, but there is harm to your finances if you choose to pay extra on your mortgage compared to getting that extra 4-5% in capital gains.

[johns2mc]

Why are the savings values if renting after 10 years in the actual model different than the savings shown in the video? The model shows $419,548 vs. the $480K above. The assumptions are identical. Anyone?

[ZacharySmith89]

@johns2mc Notice the rent @13:13 It is the same over at least two months. Apparently, there was an error in the spreadsheet when he made this video.

[Rspct2all]

Thank you, again

[tr7027]

OMG you are a genius. thank you so much for sharing your knowledge. I love your videos and I think that you amazing. Thank you!!!!!!!!!!!!!!

[raviraay]

Salman,

I always have the same question on the same topic ( Buying vs Renting). I have a question with the spreadsheet, The sheet shows renting is better when you are going for a bigger home(higher price) but when I calculated the same for a 250k home and with 20k down payment, it is suggesting that buying is a better option, can you explain me on that please.

Thanks,

[raviraay]

Hi Salman, Thank you so much for doing a wonderful job and I really am addicted to your website on everything. I first visited your website while I was googling for finance videos and once I am in your site, no looking back. You have an extra ordinarily gifted with your knowledge and teaching skills and I have recommended this website to all of my friends and family. Again great job on your commitment.

[ChachEBlackTV]

Where can I download this excel sheet?

[casscalculator]

This model is very helpful, thank you. a few questions- why are all of the cash flows discounted at the rate of inflation? shouldnt the cash flow impact of return on cash balance which grows at 6% also be discounted at 6%? also, shouldnt the cash flow from the sale of the home after 10 years have a different discount rate b/c it has different risk attributes?

[EngrishTeacherRyan]

thanks for the excel file sal! great job

[PesarIrooni89]

these are very good examples. but what my parents thought me were much more simpler. they told me if you are renting a place for let say 2000 a month , you would be very stupid if you find a house for 2000 a month and still seat in your seat. you will always get use to the location. and 1 more thing, does it really matter to you how much does the place that you are renting worth? what good does it to you? i think we should consider what GOES OUT of pucket rather than other stuff. that is just me

[ReggaeSunset]

Correction...if you're renting for $2000/month you should get a house only if the maximum payments are $1500. There are costs associated with homeowning that aren't calculated into the mortgage. This is where people screw up; don't buy a house when the mortgage is the same as rent. I purchased a home in a price-range that after an OVER estimate of any/all possible extra expenses it STILL came out to less than the rent in my area. That's when it's a smart buy.

[vikramp1]

my god...seriously man. U make my life so much better. I needed someone like u to just swoop down and give me tools like this. great model. extremely helpful stuff.

[pezlo7]

Fantastic video, you are offically a legend. Where do I go and how do I go about downloading the spreadsheet?

[calvinlovesjenny]

Hi Salman. this is an excellent spreadsheet! great tool! thanks.

but one thing I'm wondering is, why did you put "Cashflow that could be spent on home-purchase/expesnes" as part of the "saving when renting"? let me know if i'm wrong, but it think when you're renting, you don't consider the mortgage you're paying out as your saving right?

[lovecanadianmusic]

This is great!

Thanks you.

[durt1000]

Thank you for this video.

Great!

[rseshadri]

This is the most impartial analysis on rending versus buying. Other videos on youtube or other places have a vested interest for either realtors or other business organizations trying to sell or rent out their properties. Thanks a ton for making this video Sal.

[queuedc]

Sal: my son's HS math teacher at a private school in DC who know's you introduced me to your site. My 11, 14 and 17 will surely benefit!

We recently had to review the Rent vs Buy but we went a step further: the equity from the sale of our house we invested in Commercial real estate. We ended up with a positive cashflow that pays for our rent in an even nicer house than we used to be in.

[libertypursuit]

excellent video thanks for posting.

[kittykattykoo]

This will be very useful when I have enough money to think of buying a house in the future. Thanks a lot Sal! I'm keeping the excel file with me.

[parinp5]

This is the educational video I have seen so far... Great and practical analysis...How practical can it get than this one...This analysis should be in some text book for real estate students or for every citizen and this decision is important to everyone in USA especially after this crisis...We can remove a useless lesson in history an add this lesson to our textbooks so that americans are not fooled by this mortgage companies..

[84653821]

Sal, If I try a higher rental payment to be more comfortable living. There is an error in the final calculation.

[dabeez666]

You rock Khan,this is exactly what I need right now.Congrats on making it on CNN.

[sgentry777]

Also need to place a value on the capital RISK involved in buying. That capital risk does not exist with renting. If house price declines and owner defaults/walks away, their downpayment is lost AND their credit rating is impacted.

If, rather than walking away, they sell and pay the bank the difference between the sale price and the loan, their loss is greater than the original downpayment.

[mspear1986]

Khan You are amazing. thank you for giving youtunbe REAL value

[BOGZASV8MA]

i am an adult student and the review for graduate work is great...

thanks mr khan ...

you are a saint...

[yogiudo]

Great video,

Another assumption you are making is that renters will actually be able to keep up that steady savings rate.

I think that is more significant of a factor then you think, as most renters are generally have nothing after 20 years of renting.

[kimchee411]

What happened to the assumed annual return on cash for renting you put at the beginning? You consider home value appreciation, but not growth on savings. That would widen the gap considerably.

[bilalownsu]

very helpfull video

[disillusions]

Thank you very much. Now I have something to take to the guy at work who keeps nagging me to buy his house instead of continuing to rent. 

This is important to me since I like my freedom and flexibility in moving. And I noticed that you even left this valuation out of your in-depth model. As you noted in one of your prior videos - this could have a tremendous impact on employment options. 30 years is a huge range of time over one's employment lifespan.

[disillusions]

Now if only you could do a single vs marriage scenerio :)

[disillusions]

But on a sidenote - I would not have the job that I have now if I was tied down with a mortgage, etc. I would not have even had the nerve to consider risking that move. And the new job, that I was able to take, boosted my income by 50 to 70% within the first year. It's a bit scary to think that I'd likely be broke or bankrupt (tied to a mortgage) making half what I am now - if I bought a home 5 years ago.

[ssz212]

great!thank you! you should post a comment on the first video renting Vs buying telling those guys you have take it a step further and actually explain,even better, what most people assumed. They sound a bit frustrated,indeed.

[tomfromdelmonte]

these videos have helped me a lot

[Waytopro4u]

first ^^ nice