Renting vs Buying a Home? — The Real Math

Most renters don't invest simply because there's nothing left to invest after they pay the rent and other living expenses. lol

Rent increases, taxes, insurance, maintenance never stops!

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I think there should be more of a disclaimer about your story. First of all, we need to identify the age? At what age they are buying a house? What is the long term goal are both party going to be living a single lifestyle or going to have a family. Also, Jake can choose to find a better place to rent, at a lower price. Personally I don't rent, and I don't liked renting an apartment, rather rent a room from a family which is cheaper than renting a apartment 30%- 50% cheaper depending on the area. Owning a home you have to pay property tax for the rest of your life, if you don't pay property taxes the government will repossessed the property and sell it. Whereas, I would invest more, and retire in another country where the dollar is worth more, and the taxes are cheaper too. Also, the interest rate also tide to the bond market; therefore, it's not guaranteed fixed for 30 years. Nevertheless, it's depends on your lifestyle, what is the end goal? 😊

There's a crucial point missing here: what if you have to buy a property because you're considered unfit to rent for a landlord?
That happened to me and my family, so we decided to buy a home.
Furthermore, I've seen people buying a home, because they grew frustrated with their living conditions, noisy neighbors moved in, the landlord raised the rent and in spite of it, nothing in the house was fixed.The renters ended up paying for repairs themselves, as no one wants to live in a run down properly.

If I'm only staying for three years or less, renting is the smarter choice since it lets me invest more of my money.

Renting wins most of the time. Home ownership is equity trapped in a wall.

The video assumes Jake never touches his $60k investment for 30 years, but doesn't really address what happens if a real emergency forces him to dip into it early, versus Marcus's equity, which is locked up but also can't be accidentally spent on a bad month. Different kinds of risk, not just different numbers.

Why isn’t the renter investing over time?

Not fully true, landlords find ways to recover things that break often.

That Renting makes more sense if you actually invest that money....not just saying it, but actually investing it.
Also how long you intend to stay in that area is a big determiner.

the fixed mortgage getting cheaper with inflation while rent keeps climbing every year is the part most people never stop to think about

Hmmmm. I’m both a renter and owner of two houses. MY HOUSES ARE A HEADACHE. Taxes keep surprising me. HVAC went (a dual system for zoned air) and that was a nightmare, tenants are a nightmare, maintenance is a nightmare, etc…. Me as a tenant….. the house is huge, the property landscaping is beautiful, the in ground pool is refreshing, the township is safe and desirable, and I PAY NOTHING for repairs. My stocks are doing well, my 401K and IRA keeps growing. Equity is building in both houses (unless the market shifts). I have zero complaints renting. My homeownership causes me to complain each month 😩

Proof that using maths to make serious life decisions is seldom a wise idea. There's more to life than just the figures.

This video is biased to the homeowner as it doesn’t or has limited consideration of the costs saved and invested by the renter: 1) Investing the difference monthly will dramatically grow it due to compounding, especially if invested in a Roth IRA; 2) Increasing property taxes, insurance, and HOA fees; 3) The renter, if living in an apartment, is living in a smaller space; therefore, the overhead/utilities are lower; 4) The homeowner has to spend money on more things associated with ownership, such as outside maintenance, furniture, and fixtures; 4) The constant costs of home maintenance (ever increasing parts & labor costs) especially as the house gets older (heating/electrical systems, settling of the house’s foundations, windows, doors, paint, etc.). Maintenance costs alone is estimated between 1% to 4% of the fair market value of the home. That is why you see many home improvement/repair commercials.
I know these because I have experienced both being a renter and a homeowner. Both have advantages and disadvantages depending on the stage of life, but to me and maybe even generally, home ownership is more about lifestyle rather than financial.

Mortage stays the same but all the phantom cost go up. Maintances, property taxes, insurance will all increase. As the house gets older those maintance cost also go up very quickly (new rood, AC, HVAC, pipe repairs, siding, drive way repair). Also rent does not always go up by 4%, you can negotiate on rent or find a new spot to rent. Renting give you mobility as well if you need to change jobs for better opportunities. Not saying buying is bad but renting has a lot of benefits specially if you are young. The other cost of home ownership is the time it takes away and that to some may be worth a lot.

Depend. In my country monthly mortgage payment €900 with 20% down and same house to rent €1500. I don’t know where people find houses that rent cost less than mortgage payment… I am from Italy.

Nice information

If I were Jake, I could invested the difference and also added a SIP of 100 dollars per month in S&P 500. That would make Jake win.

I wish it was really as simple as my monthly mortgage being the same every month, but taxes and insurance goes up too much. Doesnt feel cheap.

the RISK of leverage isn't covered, no mention of the possibility of being "upside down" on the loan

you forgot to mention 1 thing, if the renter guy kept investing the difference untill he buys the house in cash, would that cost less than getting a loan?

Hello! Well, ypu don't always have to use a real state agent to sell so you won't have to pay those 5% in commissions.

I am now paying about 2.5 times the property taxes today as compared to 20 years ago. Insurance as well. Must factor that as well. Contractors also to do fixes. Factor all that as well over all those years. That stuff can't be left out.

The biggest problem own vs rent is when you're approaching your retirement and your pension won't be able to support your previous lifestyle and expenses. If you own a house, you can sell it and buy something smaller, and the difference is to support you or cover unexpected expenses or treatment.

The comparision is not 100% fair, Marcus is paying 1900 to the bank, while Jaxke is paying 1400 for rent. to be fair, Jake must invest the remaining 400 overtime, becasue that what it is about. the two parties should put the same cost in the housing for the comparision to make sense.

I guess renting means you're flexible and can move from one city to another.

Im a landlord, renters pay me .They pay for my investment and i get to keep whats left over.I love renters

Comparing buying a house to rent an apartment, is the same of Comparing a motorcycle with a bicycle!

You missed a very important point. There’s a $500 difference between one of them paying and rent and the other paying mortgage. So the guy paying rent is saving $500 every single month which can also be invested in an index fund and gains him profit of about 5% annually.

This is why I am looking to buy. Ten years ago I didn't have the savings and wasn't as sure I'd be staying in this same area. 5 years ago prices skyrocketed. What changed is rent started to skyrocketed. Where it previously only went up $5-$15 a year, it wasn't an issue. Then it went up $100 in a single year, and $250 over the past 4 years. When I asked, the office says I'm still paying $100 less than than new residents, so I concluded that I can expect similar increases still to come. Least I ave enough savings that buying is an option again.

Wirng comparison.. total morgatge - total rent should be added to the renters balance. Even without its compounding its better

Adult Children in the comments, thx for renting, how else could I buy more houses…

If you have a room rent that never increases which I have, then renting is better. Who does not know this?

Fun story: 30 years later Jake's kids rents Marcus' house now

Well detailed

In Greece, the house I rent was €280 per month in 2021, and now I am paying €800 per month.

In 2021, you could find a house in my area for €100,000, and now it costs €350,000.

A new-built house in 2026 costs €430,000, whereas in 2021 that same house would have cost €160,000.

What nonsense are you talking about? The video has several mistakes.

😂worse of all some people’s rent actually goes up by 10% 😢 every year

Your math is skewed…A) the renter has to invest the difference between renting and buying every month and that will make a massive difference.
B) the homeowner most likely will have ton of expenses renovations roof hvac mold lots of stuff come out plus 6.5% interest rate 20% downpayment u r looking at $2600-$2800 real carrying cost a month. Do better with your calculations holly.

Great video. Thanks for this!

Who invests once and never touches it? Also if you wanna move your assets a home is not as easy as stocks or etfs

The conversation about housing and affordability was solid. Many people become house-poor because they focus on qualifying for the loan instead of maintaining long-term financial stability.

its not real math. in fakt one person is paying 500 more without maintenance. and we never count this difference, but we count the diff in 20 years when we are talking about renting rising.

There are so many Ifs in this video.

If Jake does this, if Jake does that.

How about we factor in the fact that a homeowner can loose their job and cannot pay for 3 months. Interest pile up and makes them not able to pay out the bank. The bank seizes the house. Homeowner $60k gone. Whosh. Where's this narrative.

Also, rent goes up by 4% a year, but here's a trick. A renter can chose to live in a smaller house until the $60k becomes $360k, then take out investments and just go buy a house. 8% a year is brutally low compared to smart investors, some make 10-15% yearly.

There's so many variables here. None is correct, nor owning nor renting. This is the reality.

The best is to inherit. And that's it

Mark and Jake both die of starvation because there is no way either of them can afford $2,000 the rent or mortgage making only $55,000 a year. 😂 Jake can not even rent because the rent is more than 3 times his income...

That’s a little faulty logic. For the comparison to be fair: the person who bought a house is investing into that property (taxes, HOA, difference between mortgage cost and rent, and maintenance expenses). Person who rents, to be fair, would invest this difference into s&p500 to grow. Plus, I wouldn’t agree that a person who bought has more freedom, I would say the opposite. Person who bought might find out that he hates climate, that he doesn’t like his neighbors, etc., but will have to suck it up (because selling before at least 5 years mark in healthy economy wouldn’t make any sense). Someone can say: oh, he can just rent it out. Ok, then he will pay rent in another place (or mortgage), pay mortgage and taxes, etc. on this property until it rents out (can take months), and sometimes rent out even cheaper than mortgage cost (saw it myself with friends renting out below mortgage cost. Their payment was $4000 and renting prices in this neighborhood $2700). Renter can just move when they don’t like the neighborhood anymore (moving costs are not that expensive). With rent nowadays we are paying $200 less after renewal of the same property (you should just negotiate), some properties offer first month with no payment (which usually cover most of the initiation fees).