Rent vs Buy In-Depth Review | Liam Orton | Skillshare

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Rent vs Buy In-Depth Review

teacher avatar Liam Orton

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Taught by industry leaders & working professionals
Topics include illustration, design, photography, and more

Watch this class and thousands more

Get unlimited access to every class
Taught by industry leaders & working professionals
Topics include illustration, design, photography, and more

Lessons in This Class

9 Lessons (1h 36m)
    • 1. Renting Vs Buying Intro

    • 2. Highlight Summary

    • 3. Rent vs Buy Financial Deep Dive 1:2

    • 4. Rent vs Buy Financial Deep Dive 2:2

    • 5. Rent vs Buy Financial Summary

    • 6. Rent vs Buy Quality of Life

    • 7. Renting Vs Buying Affordability

    • 8. Renting Vs Buying Comparison

    • 9. Renting Vs Buying Closing

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About This Class

Should I continue renting or buy? Is now the right time for me to buy? What if I can't afford a house in the area I live?

Get unbiased answers to all of these questions and more to help you decide on the best course of action for you. By the end of the course you'll have the knowledge, tools and resources to make the right decision for where you're at today.

Course Key Takeaways:

  • In-depth Financial Analysis of Renting vs. Buying over the Long-Term

  • Understand how Inflation affects Real Estate Prices and Rents

  • Know When You're Better Off Renting

  • Real Life Examples of Renting to better understand Quality of Life

  • Better understand your options if you life in an area that you can't afford a house in

I hope you get a lot out of this course and that it helps you answer this very important question!

Meet Your Teacher

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Liam Orton


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1. Renting Vs Buying Intro: all rights. Welcome to my course on whether to rent or buy a home slash real estate. So whether it's a condo apartment, whatever unit you're looking at for a living, I'm really wanting to do a deep dive here, take you through an analysis, um, through spreadsheet and also looking at a bunch of different other factors and so that you know for sure, and you're not winging it, you know, of course I'm sure no one's actually winging it. But you want to know, you know, should you be buying or should you be renting? And for some people, maybe it's not a question of if, but when. When should you be renting versus when should you be buying? So the key takeaways from this course are you gonna be better off financially to rent or buy over the long term? Right? We're going to do a deep dive. I'm going to take you through a financial model. I'll give you a quick glimpse into what that looks like. Um, you know. So I'm gonna take you through and we're going out. Um, you know, from age and year 32 from your one. You know, all the way out through to the end of the cycle of your loan so that through loan maturity , assuming it's a 30 year fixed mortgage loan, actually even going a little bit further out into retirement and you can see or modeling out retirement at age 65 seeing what that does to our savings over time, seeing what that looks like versus renting over time and modeling out a lot of the different expenses and investments that will be required to make. So I'll go through and explain all of this to give you much better feel for what's a better solution for you. And I think that's really important. I'm gonna have this as a resource. So go ahead and plug in. You know what is your actual income? You know, on a monthly or annual basis? What is your actual starting savings? How much are you actually saving of your pretax income and then for the housing market that you're in? You know, I have a $250,000 here, but maybe where you're at, that's 3 54 55 50 maybe more, or maybe two fifties is a good number. Maybe even that's a bit high, so you can plug that in and see what it really look like. You know, put in a housing calculator and online and understand what you're gonna need to have. You know, if you assume different levels of down payment, you'll be able to understand What is your upfront investment going to be in this scenario, we're talking about $20,000. What is your ongoing expense going to be, You know, so you can get a good handle for that. And then what's that going to do to your ending savings? And then over time, how is that projected to change versus you can again plug in the numbers for a rental scenario and see where you better off? Um, over time. And you know, from a financial perspective and then from a quality of life perspective, are you better off to rent or to buy? Another question I'm gonna answer is what if you live in a market where you can't afford to buy, You know what, what should you dio? You know what is what is the the answer and when does it make sense more since to rent or to buy? So I purchased my home, and I'm really happy with that. I had been renting a number of different homes. Every and I'd been moving, you know, every couple of years. Um, but over time, you know, you have expenses associated with that. But there's also benefits to, you know, I was able to live in different countries. I was able to try out different types of housing. So whether it be, Ah, 1234 bedroom apartments, homes and other types of living situations. So you get a better feel For what? What makes sense for you And what kind of lifestyle that you like. You know, the benefits of having a home, you know, you have more space and privacy. Ah, and you have your own lawn, you know, etcetera. But on the flip side, then you also have more maintenance, you know, which is also a consideration for people. So I'm really glad that I got to rent a number of different properties, you know, over a Ah, well, 10 year plus period. Really? Um, and then I decided, You know, when I was 32 I want to go ahead and buy my home. And so I spent a lot of time researching that, looking into finding the best deals, going out and hitting the road and seeing what made sense for me and where I could find the best value for money. And that's that's really what my courses air about air is about. Helping you find value for money, you know, leverage the benefit of multiple years of research, um, and experience so that you can get the best bang for your buck and so that you can make smart decisions and get it right the first time. So I hope you get out a lot of this course. Um, I hope that it's a really, you know, blessing and benefit for you in your life. And I'd love to hear about how it goes for you. If you have any questions, please let me know. I'm always happy to respond. And if you feel like you need something else or something above and beyond this to help you again, just let me know. I'm happy to help, and I'm there to support you guys. So best of luck. And I hope that everything goes well for you. 2. Highlight Summary: all right, This is going to be the high level view of the simulation of which is better for us financially to be a renter or via buyer over the long term. And when I say long term, I mean 30 40 years, uhm, I'm going to do a separate video in which I go through in much more detail, all of the different assumptions and how it works out. But I'd like to do a quick video for people that don't have a lot of time and want to get the gist of the message. So what this is, is it's looking at your income savings rate. How much money you're starting out with a percentage of income saying and then saying, All right, if you bought a home A to this purchase price of $250,000 now and you paid 5% down, how much would that be? What would the loan amount be? What do your clothes? It estimated closing costs, your interest rate, your mortgage period for 30 years, and then your credit score, and then, based on that, you're gonna have a mortgage monthly payment of around $1140. You're going to pay PM I or private mortgage insurance for the 1st 9 years, which is how long it will take you to get your home equity up to 20% which is where that expires on conventional financing or, you know, normal bank loan financing. You're gonna be paying property taxes, home insurance, all of the ongoing costs of owning a home. And so that's reflected here on your ongoing expenses. And so we're taking and looking at it like a business a little bit. You know, you have your balance sheet and your income statement the host housing purchase being a balance sheet transaction because it's an asset for you. Um, the income that you have and then the expenses being the income statement portion of that. And so you're gonna have an upfront investment amount of 20,000 and $500 which is made up of your earnest money, your closing costs as well as you're moving expense, and then you're gonna have ongoing expenses. And so this is the 1st 1 is monthly, and then I have it in years and then so this I've broken it out in groups of five year increments and then I've said that every five years your income is gonna increase 10% who you know. So hopefully more than that. But, you know, not wanting to be too aggressive or too conservative here, and so we should see that our housing expenses, a percentage of income because we have a Fixed Mortgage Inc fixed mortgage is going to be decreasing over time. Similarly, we're going to say that our cost space and this is probably not a realistic assumption. But we're gonna make it anyway, is saying that we're going to spend the same amount over the entire course of this loan. And hopefully you're able to manage your expenses in such a way that you can do that because what it means is that then you're able to save 2% more. So you may not be able to actually achieve all of the savings in real life. Because travel happens. You know, life happens. Marriage happens. Kids happen etcetera, etcetera. But we can't factor all of that in, So we're going to go with ah, hypothetical here. And so what we're really looking at is what is our income, You know, on a year to year basis. How much are we saving? What did we start with for that year? And then when we go down here, we see what are ending. Savings is for the year and then we're also because we've purchased the home and we're paying against it every single month and a portion of that. It's going towards the interests that a portion of it is going towards the principal. Our home equity is going to be increasing over time. And not only that, because we purchased the home and we're saying we purchased it at market value. So not under. We didn't get a great deal, and we didn't over pay either. So at $250,000 we the value exact is exactly what we pay for it. However, we see that over time, real estate prices at least keep in step with inflation over the long term. So we're going to add we're gonna tack on 2% every year to the potential home value now when you actually go to sell or if you do go to sell in the future. This may or may not be different, but it is an important thing to keep into consideration because when we look at our rental example, that's something that we don't have the option of to start with. So you can debate whether the future prices of homes will increase or decrease. But you can't really debate whether or not that's gonna be the effect for the rental market . So we're gonna have the option here of being able to sell in the future if we want Teoh. So let's let's look at where we're starting now, right? We start with $25,000 savings were buying a home. And so our total outlay for that up front is gonna be $22,550 meaning that we end the year with only $2620 in savings. Yikes! That's a low number. So we're gonna be working hard on saving, although we do have some home equity and we already have, you know, potential value for our for our home as this. So now if we're going to look at this out into the future, so we go out the next bracket of five years, we see that our income increases our housing expenses a percentage of in cream income decreases, our savings rate increases. So all favorable things for us, our home equity is building all throughout this time as well as our potential. Home value is building all throughout this time, and so is our savings. We went from having only 2000 and $600 toe. Now, in year six, we have $61,000. Much better place to be if we're able to maintain. So that really speaks to the power of saving over time. But I know you want to get through this overview quickly, so I'm going to skip to the next important year in this, which is year 10 or nine and 10. Really? So this is when our private mortgage insurance goes away so we can see that that positive impact on the overall numbers, although it's not a huge number in the scheme of things, it does add up. So we see our savings rate take a percentage increase in your nine and then another percentage increase in year 10. Now we move forward into year 11 to 15 same thing, and I'm just gonna keep going because this is the high level overview and I'm taking us out now. Two year 30 you're 30 is important because this is the year that we pay off our mortgage. Woo hoo! This is an important year. So as you can see, the difference between your 30 and you're 31 is we no longer have a mortgage payment. So that's another $13,680 that gets to stay in our pocket every year, and you can see that reflected in the savings rate, it's going from 25% to 36%. That's a much, much healthier number. Obviously, our ongoing expenses, similarly going from $24,000 a year to $11,000 are ending. Savings are now up to almost just basically $600,000. And then they're jumping up because our income has been increasing over time. And now we're taking a huge jump in our savings rate, and our home equity now is more or less equal to what it was when we first started out. So we've paid off our home. However, we've been having 2% increases compound on the value of the home over time, so the home is probably worth at least $443,000. Now, now, let's go out a little bit further and we go out here. Two year 34. We have our home paid off. So why do we care about this? Well, most people, maybe in the future it will be different. Maybe it's 70 or 75 but for the time being, a lot of people are looking to retire at age 65 so we can see that our income is dropping significantly here. We're going from constant increases in income over time, where we're up to $133,000 now we have a steep drop off to $50,000. And so our savings right now really is work when we're in retirement now. And so we're just about really managing are, you know, trying to manage our money because we're having to go from a very different cost base, too much lower cost base. So there's gonna be some some pretty significant cost savings measures that are going to be needed once we enter into retirement. Um, but unfortunately, things like property tax, home insurance and all these things don't go away. So we always are going to have an ongoing expense. But I like to drop you down and see what does that look like as an ongoing expense. If we were still renting ongoing expenses, $36,000 versus $11,000? Wow, that's a huge difference. And why is that? Well, it's because rents also get more expensive over time as they increase with inflation. And so, while we've had stable home payments over time and our utilities and Internet and all of those things, they basically are they they're the same, you know. You pay for them as a renter, one way or another. And so, though if we take those out of the equation, really, all you have a much more favorable cost base when you own the home. So that's a huge difference. Now let's look out and see for the last period. Where do we end up at the end of this analysis? And I'm taking us all the way out to age ripe old age of 71 right? Most people probably not planning out to age 71 I understand that you know, it's a long ways away, but, you know, we do wanna have Ah, we're trying to make a comparison here for the long term. So you're ending Savings hopefully is $760,000. All right in this example, right, and are ending savings in our example here for the renting option are $698,000. But even if this was the same or a little bit more, that's not what's important. What's important here is the fact that we also have our potential home value of an additional $540,000. Now, this is probably too conservative. But you know, I like to be a little bit conservative around these things. So let's say, you know, this was a three bedroom home, and, you know, now it's just you and the missus, and you know, you're looking to have, ah, simpler lifestyle. Chances are you could downsize to a smaller home for a cheaper price and pocket an additional 102 $100,000 to put on top of this to help you fund your savings in retirement. But let's take a look at the renting option so your income is the same. You're saving starting of the same, so really the key difference here is that your when you first start out, you don't have such a large cash or capital outlay, right? Are ending savings here are still $15,000 versus the $2600 in the purchase option. So if you're not able to pay for the down payment, all of those things, obviously renting is going to be your option. Um, and then if we look at the housing as a percentage of income, it's 28%. It goes down to 24%. Ask after your income increases and then remains like that over time rental payments. Stepping up 10% every five years. Utilities are the same. Internet is X This the same? Um, And so you have the you know, your ongoing Excuse me. You have your ongoing cost base. Now, what's important with this is that you're you also have an ongoing cost base when you purchase the home. But it's going to continue to increase indefinitely when you're renting, because it's gonna get more and more expensive over time, right? We're already Let's let me go back, you know, in year. Well, here, really. You know, we're we're already we're already more expensive, you know, from year 11. Yeah, from your 11 on, you're It's more expensive on an ongoing monthly basis to rent than it is to buy, you know. And so from a financial standpoint, I think it's clear that there's there's a lot more upside to buying than there is to renting. So here, a couple of the key observations, you're gonna have a higher ending savings to start out with the with the rental option. Like I was saying, however, that will change, you know, after the home is paid off because then you're going to be able to save more. And so this is something that you know it's important to keep in mind. It's not the only factor because you're building equity in your home. And so if you decide to sell it, you know you're you're gonna have that additional money, especially if you decide to downsize. While is. If you rent, you're never gonna get that money back. So housing costs of def differ greatly after your home is paid off because you're having staving stable housing payments versus ever increasing rental payments. And that was a difference of up to around $15,000 a year in year 30. You know, $15,000 a year is a lot of money, you know, that's an extra $1000 plus in groceries every single month. You know, that's, Ah, trip to Europe every year or not. You know, it's it's not a small amount, you know. So what that means is, with the same retirement income across both examples, a quality of life is gonna be much greater owning one's own home because of the huge, the cost difference. And if you were to sell your home and downsize in retirement, speaking in retirement, historically speaking, you would have a significant nest egg to help you fund your retirement. Um, and I've used to 10% increase every five years for rent, and it could be significantly higher in some markets. Um, you know, so really, I think it's clear the when you're you have stability in your life when you're and if you're in a market where housing is affordable and that's the huge question mark there, you know, if it is affordable and you you know you're in a place where your income is able to increase over time, and you have some stability, and it's a place that you want to be for the long term. I think it's a very clear answer looking at this, that we're gonna want to be owning our home. You know, it's a difference of hundreds of thousands of dollars when you consider the potential home value on top of the savings. Um, and that's not even talking about all of the peace of mind. You know, in this I haven't even factored in having to move over time, um, for renting because your landlord wants to sell their home or they want to rent it for not 10% more, but 30% more and somebody else is willing to pay that. But you're not, you know, So you're gonna realistically, people move if you're renting multiple times, you know, over. Ah, a long period of time. You know, like we're looking out 40 years. So if you moved every five years, that's eight times right. That's a lot. That's another. You know, that's moving expenses. They add up right there. That's another 2030 maybe even $40,000. You can knock off of this savings number. So long story short, the numbers show. I think fairly clearly that at the end of the day, you're much better owning real estate than you are renting. 3. Rent vs Buy Financial Deep Dive 1:2: it's welcome to the section on the financial analysis. I'd like to do a deep dive here and walk you through this spreadsheet and explain it in detail for you. All right, so let me go back up to the top here and break this down. So going from the top, we have a judge. I've started this analysis for and just put in aged of 32 for the person. Um, I think that's kind of in the median between the age bracket, where you would potentially be in a position to and looking to buy a home. So if we look at between kind of 28 to 35 ish 35 being a bit of a cut off year when we consider that most people are retiring at age 65 although these days who knows? Maybe by the time we're in retirement age, it'll be more like 67 or 70 or 75. Who knows? But we're going from today's average we say 65 being the year minus 30 years for your typical fixed term home mortgage, and that brings you to 35. So using 32 here and then period, I've got your one out through year 40 actually, because I am doing a long term analysis here, and I want to take you through loan payoff and through retirement. So we have looking and seeing that we have an income here of $75,000 a year, and I'm gonna have this available as a resource for you so you can go ahead and download this and then input your actual income. This is before tax. And so, whatever that is for you, and then we'll see what your housing expense as a percentage of income is, Um and that's something that you'll be able to calculate. You're starting saving. So whatever amount you have in savings right now and then savings rate. So this is something that I go through on a different course around affordability. But, you know, just understanding of your monthly income. How much are you saving? That's pretty tip. Easy to do. Actually, you just look and see how much your income increased each month over time, and then you look and see how much you earned. And then you divide the amount you saved by the amount you earned, and that's your savings. rate. And so you really want to have a savings rate, which is well above 10% reason for that being and again, I going through this in more detail in another course. But if you think about it logically, right, if you take 10 parts and you're spending nine parts of that every month and you're saving one part of it. So saving spending, 90% saving 10%? Well, if you don't have any income, for whatever reason, let's say you lose your job, you know, restructuring, etcetera. Well, you're gonna have to work nine months in order to be able to live, right, and so for one month. So that's not a sustainable, you know, practice or financial practice. And so we're running to have at least 15%. And it's, you know, it makes a huge difference just a couple of percentage points over the long term now. So if we look at our purchase price, I have a $250,000. That's for a lot of markets in the U. S. That's well on the low side, Um, and for some markets, that's a you know, a fairly average price. So again, you can put in whatever price is reasonable for your market, your earnest money and down payment. That's where you'll put that in there. Ah, and then you'll also want to see what that usually we'll talk about in terms of percentages . What? Your down payment percentages so you can figure that out. Ah, your loan amount is gonna be your difference, Really? Between what your earnest money and down payment is and then closing costs are amount is an amount that you have to pay to the bank and other third parties, including the government, in order to close the loan or for a loan origination. And so that's animal. Also, that you can you can find out it's usually around. It depends on where you live. You can call a title company nearby, you or ah, mortgage officer. And they'll be happy to tell you, um, you know, 2% is a fairly standard amount, which is what I've used here. Ah, and then your interest rate. This is something that again fluctuates over time. So you want to check in and see It depends on your credit score. So I have a sample credit score here. 6 90 is not bad. It's kind of in the middle. It's definitely not good. I think it's considered to be a mediocre credit score, and then your mortgage period in years is gonna be 30 years. Um and so we're gonna look at that. You know, if you able to get that down to 15 again, you'll be able to save a lot more, but obviously be paying that much more every month. So then we have our mortgage and interest payment. So this is the monthly amount times 12. So you're looking at spending 1100 $40 every month on your mortgage, and then because you're only paying 5% down, you're gonna have to get something called private mortgage Insurance or P M. I. And that's an amount that goes to basically ensure the lender against your default. For you. It's completely wasted money. It's something that if you don't have to pay, don't pay it. Um, I made sure that I didn't need to pay that, because who wants toe lose $1400 every year for, you know, supporting the bank and insurance companies? Yuck, right, All right, property tax. This is something that is gonna go up over time. So you need to be aware of that because your home values typically are going to be increasing over time with inflation and taxes Go hand in hand with that. Remember, only things certain in life are death and taxes. So then you having home insurance in mice. In this scenario, I've said that because we're living in a competitive housing market and competitive insurance market. And I'm assuming that you're not living the you know that this home is not in a high risk area by any means that the prices of this is going to remain stable over time. That may or may not be true, depending on where you live. But the point of this analysis is not to be accurate to the dollar to the scent, it's to be directionally correct. We're trying to answer the broad question. Are you better off buying a home over the long term? Or you better off renting a home over the long term. So don't get too bogged down whether oh, I think this is, you know, a couple $100 off here there. I think this is a percentage off here there because to be honest, it really it's It doesn't make a difference in the in the scheme of things for the answer, then we have maintenance again. I've I've put in numbers here, you know, for depending on the home that you bought, this could be high. This could be low. So it's all this is a what if and I've taken you know, what seemed to be somewhat reasonable numbers around this, um, again, it could be significantly higher or lower, depending on the home that you buy. Home improvements as well are completely subjective. You know, if you feel you need to add a new patio where flooring or window or whatever, that's completely within your control utilities is something that does tend to increase over time. And so that's something that I've accounted for and then Internet again. You could have other things like TV. It's that you're bundled into this and then I have moving expenses. So if we add up all of these things, right, so your moving expenses is your Excuse me, Your upfront investment is your earnest money and down payment, and you're gonna pay in order your earnest money first. And then when you get to closing about a month or so later, you're going to get to your down payment, and then you're gonna have your closing costs at the time of closing alone. Um, and so you're going to pay for all of that, and then you're gonna have a moving expense again. I've put in a number here. Go ahead and put in a number that makes more sense for your situation. Um, if you're only moving once, which is not typical, but it you know it's you can put it in a zoo many times as you want again. Even if you moved 10 times, it's still not going to changed the result of this analysis. And also, if we consider if you're moving that much when you're owning, you're gonna moving at least that much. If you're renting as well, and then we have what are ongoing. Expenses are, and that is our mortgage and interest payment. That's our private mortgage insurance property tax. I have not put in any homeowner's association dues. If that's something that's applicable to you, obviously, that's something that would go in here. Home insurance, maintenance, home improvements, utilities and Internet. So what you can see from all of this. Also, if you really want to get a good handle on cost of ownership and what it would take you to buy a home If you're still renting right now, then you're going to need to do quite a bit of homework. You know, you're gonna have to look at homes that you would be interested in to first come up with the purchase price. Then, based on that, you're gonna have to figure out what your savings are. Well, I mean, that's that's fairly easy. But basically what you can afford in terms of down payment and closing costs, right, And that's that's a quick call to a mortgage institution or some online research on your part. And then when you're going, that's when you're gonna get to this total upfront amount for plus whatever your moving expenses were going to be. And then through that, you'll understand all of these other expenses. But you're gonna have to reach out separately for private mortgage insurance, which is also linked to your credit score. So the better your credit score, the better off you'll be. Property tax is something that you can get from Realtors, or you can get from your county departments. Uh, Kenny, tax department, Um, home insurance. Your I need to get a quotation for that maintenance and home improvements. You can go online and look for your area or talk to people in, you know, your neighborhoods, etcetera, that you're looking at buying and understanding what that is. Um, And then also, you know, Internet and utilities. Once you get to the point that you're actually looking at homes and you're talking with owners or agents, they'll give you the information around utilities. And, you know, you pretty much know what the Internet's gonna be. So that's not so much of a big one. Um, and then we can see what are ending. Savings is right. So we started out with $25,000 now we're down to $2620. Yikes! Right. That is a lot of money that went out in one year. However, we got some home equity out of that. And so how are we looking at Home Equity Home equity here? We're saying that it's D 28 So it's our upfront investment amount minus are moving expenses right cause that doesn't help us. Plus, it's what we paid over the course of the year and mortgage and interest payments, except that interest payments are not part of your home equity. That's money for the bank, right? And so that's why I have 0.73 arm taking 73% and that's a graduated scale over time. So as this, the course of the loan goes on and that's the way that loans air structured. You're gonna be paying Mawr and MAWR towards the interest and less and less towards the principle, and that gives us. And then we get down to our potential home value. And I'm saying, we're assuming here I should say that we bought our home at market of Price or at market value. We didn't get a good deal and we didn't buy it cheap and we didn't over pay as well. So if you can buy under market value right then you would see a plus here, right? So if we if we bought for 250,000 but our home value is actually $280,000 then we're already ahead right, and that's that's a huge part about being a savvy buyer and, you know, waiting for the right opportunities and looking out for the right opportunities and networking and things like that hitting the road, you know? But for the purpose of this example, I'm saying that we bought at market value. And so then why have broken this out in five year increments? And that's, you know, I could have done it in 10 or 20 or, you know, a number of different ways. But looking at it in five year increments in the way that the reason I did that is because typically over to long term, we see inflation being something around 2%. And so excuse me. So if we see inflation being something around 2% then it's going to be increasing. And you might say, Well, it should actually be calculated as calm pounded every year, 2% increase. But that's not what I'm trying to showcase here. What I'm trying to showcase is that over time that prices increase and it's, you know, prices are sticky, right, and so they don't always increase. At the same time, you know you might not get an increase in your Internet um for five years, and then all of a sudden you get an increase. So that's why I'm doing it in these increments. So when we get out to your tent, I'm saying that we're getting a 10% increase in income. Hallelujah. Ah, and we're seeing that that is, decreasing our percentage of housing expenses, a za percentage of income. And then our savings are increasing this whole time, right? So are starting savings for the next year is the same as our ending savings for the end of the previous year. Our savings rate is improving, right? Because we're spending less money on housing because we're earning more money now. And I'm assuming that the people that are buying this home are putting away the additional money that they're earning in savings because they understand that saving for their future is important and they're not going out and spending more money in the real world. Yes, we do spend more money when we make more money, right? And so that's something that you have to keep in mind and trying balance. So it's probably not going to be a really 2% gain, but hopefully it is some gain there. Right? I have all of this blacked out because this is a one time investment or things that are related to the one time purchase. And so they're not relevant information for later on in this scenario. Analysis. Okay. Now, the nice thing about buying a home is that even though we have in inflation and prices increasing over time, our mortgage and interest payment on our fixed loan is not and so that stable throughout the course of this loan, um, and we see that we were still paying for private mortgage insurance, our property taxes. I've increased 10%. Um, the other expenses. I've maintained the same except that I have increased our home. Excuse me. Have increased our utilities by 10%. Right? And so we can see now that we are paying a little bit more. Yep. We're paying run $600 more in ongoing expenses are ending savings just in year six. Right are already at $61,000 because we're focused on savings, which is awesome. And we have 70 almost $74,000 in home equity and our potential home value compounding at around 2% a year recently, it's been compound home values have been compounding much higher than this, but let's take a long term perspective here. I didn't say it's 2% where we're already have plus 20,000 $26,000 right? So now let's move forward into the next relevant year, which is your 9 10 And this is where we are paying off our private mortgage insurance because we've reached 20% home equity. So that's awesome. We now no longer have this expense going on from your 10 and we're paying for it for around four months in year nine, and so we can see that our savings rate is taking a percentage increase each time, approximately and our say and therefore our savings amount is going to increase together with that. Now, if we go out to the next bracket, we can see similar thing, our savings rate or excuse me, our incoming again, increasing 10% our housing expense as a percentage of income decreasing our savings rate increasing over time and our overall savings are looking very nice now, right? So let's let's go out further now and let's go to the end of the loan because That's the next major change in events. You can download this if you if you feel like you need to go through it in more detail. Police feel free to do that. So were in year 30 now, right? Our income again has been increasing at 10% increments the whole time getting into your 31 again. We're taking a nice jump. Our housing percentage of income. Our excuse me, Our housing expense as a percentage of income is going from 20% down to 9%. It's a huge drop. Why is that? Because we're not paying this $13,680 anymore from year 31. 4. Rent vs Buy Financial Deep Dive 2:2: we see that our property taxes still increasing. Um, and the home improvements, etcetera. These amounts are also increasing over time. Big difference here being that because we're no longer paying the mortgage and interest payment that are ongoing, expenses has now decreased from $24,000 toe almost $12,000 a year. And now, when you look at our age, we're at, you know, we're already 61 62. And so that's gonna be a nice bonus for us in retirement, which is just a couple of years around the corner. We can see that are ending savings in your 31 are already at 600 almost $50,000. Our home equity is now at the amount that we paid for it. So the helmets completely paid off. But our potential home value is we're already at $452,000. So that's a $200,000 difference, right? That we would not have gotten if we had been renting the home right? No, if we go out two years 65 I'm assuming that our income is going to decrease significantly were saying now that it's just $50,000 a year could be more. Could be yet less. You know, who knows? It's very individualized situation. You see that it's now housing as a percentage of income is jumping up to an even higher amount than we had previously. Um, we still have, you know, we have significant savings. And I'm saying that basically, now we're we're having to organize our affairs so that we're able to live within this $50,000 right? So we're only saving 5% of our income, right? So this is going to be a significant drop in terms of, ah, standard of living, if you will, and so we can see that this is our ongoing expenses. You know, again, it's around $12,000 and now let's go out to the end of this analysis. So Year 40 right, and we're maintaining the same income now because we're in retirement. Our savings or grad are still increasing over time, but at a much, much less amount. But at the end of this analysis, we have home value of $541,000 if not more right, and if the market isn't good, it's our home we don't need to sell. But if the market is good, will have the opportunity to sell, and we can then move into a cheaper home. You know, downsize, if you will, may be moving to a smaller home and we'll have another couple $100,000 potentially on top of our savings that we can add that will make life much, much easier for us in retirement. And that can go to increased savings. That could be something that we passed down to future generations, or it can be a lot of, you know, it can help make it so that our maybe we're not saving money. But we're OK with the fact that we're not saving money because we have this nice cushion with us, right? So we don't have to decrease our standard of living so much. Maybe we can travel or do some other things that we've been wanting to do for a long time. All right, so let's look and see. How does it How does it work out for the renting option? Right, So income is the same. Starting savings is the same. Savings rate is slightly different, and our house, but in our housing expenses. A percentage of income is also going to be, you know, different here, right? It's a bit cheaper. So we're starting out with a bit cheaper rent. Um, oftentimes what you'll have is you actually be cheaper to have the mortgage, but you can have it. I mean, it it can. It can go the other way around as well. But typically it's cheaper to have a mortgage than it is to rent. But let's just say that it was theoretically cheaper to give rent a little bit of an advantage because it needs all the advantage that it's going to get right. So really, the only benefit to renting from a financial perspective is if you look at our ending savings, right, because we're not having to spend all of this 22,000. Excuse me. $20,500 upfront. Our up front expense is going to be the deposit and advance payment and advanced payment is gonna come out of it and deposit. Hopefully, we're going to get a portion of that back, right? But we're gonna be moving, you know, a number of times most like I've only put us in moving at once. Um, but realistically, you know you're gonna be moving a number of times if you're renting a lot more than if you would be buying. And so typically anyway, So really, if anything, it's gonna be worse. I didn't put in all of that because it doesn't even really matter at the end of the day, because you'll see pretty soon, right? So the main benefit here is that you don't have this big upfront cash outlay that you need . So if you don't have savings, really, all you can do is rent, right? And so all of the other calculations air similar. You know, I've our income is the same over the entire time period. Our savings is going to be increasing these calculations or the same rent. This is the important point, Right? Rent is also going to be increasing every number of years. I have it increasing every five years. So here we're seeing a 10% increase again, depending on your market, could be more could be less. But I think this is fairly reasonable. And then utilities were the same as above. Internet is the same as above when you're buying. So really, I'm trying to do as much of a apples to apples comparison here is as I can. So let's just go ahead and go out to the year of retirement, right or excuse me. I went a bit for do far. Let's start out with the year of where you're paying off the loan, right? So now we have no loan in your 31. Our ongoing expense is $11,923 for the purchase option. The ongoing expense option is now it's up to a whopping 36,000 505 $59. Why? Because our rents have been increasing over time every five years. A 10%. Why would they increase over time? Well, if the crossed of if home prices increase over time in line, or at least or above inflation over the long term that we can assume that if someone was to buy a home 30 years later, get a mortgage on that and then try and rent it out and not go backwards, that their cost would be significantly higher. And so that is a cost pass alone. The second part of that is because people also need to make money. You know, there needs to be a return on risk. So it's a risky proposition to buy a home and try and rent it out to people, right? They could trash the home. A lot of things could happen. The market could tank. So you know it's not a risk free investment. And so you need to have some sort of compensation or return for that, right? And so it's only natural to assume that your rent is going to increase over time. This is assuming that your market can sustain that. But if anger, if income is also going to be increasing over time than you know, and that that's an if. But you know, if we look it, if we compare rents 30 years ago to what they are today, this is This is very reasonable, right? And so we see there's this huge difference over time with the cost of living, and now when we go out to the end of our analysis and we look and see housing as a percentage of income is making up 70% of this person's cost or this person's income, right, so of every of the $50,000 that they're also making in retirement. They're spending a huge amount of that. They're spending $40,000 of that just on housing, which is crazy, right? I think we can all understand that that is not a sustainable living practice, right? So how much better off are the by people that bought well, They have Maurin savings, which is nice, but above and beyond that, they own a home right, which is stable. They have pride of ownership. They don't have to worry about getting kicked out because the owner feels like they want to sell. So they're having better peace of mind and quality of life. And now they have a couple extra $100,000 to play around with if they decide to downsize in the future and if they don't want to, they don't need. They don't need to, and they have a much less you know, they have a very different cost base. Look, this person is spending around $13,000 a year versus $40,000 a year. How long are their savings going to last? I have given them the great benefit of the doubt here, saying that they're going to be ableto still save 5%. But really, I think we all know that that's not possible, right? I mean, you're not going to be able to survive on after taking well, even after you take out. This is before tax. So once you take out tax, you're already you have a couple grand left for transportation, communication food, right? We all know that that's not sustainable, so their savings realistically are going to be decreasing over time. So this is a non sustainable model. I've tried to give them as much benefit as I can, but really, it's It's actually a much uglier scenario that what it looks like so short. Well, law, you know, kind of a long answer, but I think we can all understand that you're much better off owning a home versus renting over the long term. 5. Rent vs Buy Financial Summary: all rights for the financial perspective. We're going to do a separate video where I do the deep dive into the financial simulation of over the long term. Are you better off to rent or to buy? But in this video, I'd like to go through some of the other factors as well as a summary. So the 1st 1 being historically speaking, we can expect housing prices to at a minimum keep up with inflation, if not far exceeded. So this is The'keeper's Schiller Home Price Index, which is a price index of the national home prices across the United States. And it's a general measure off the cost or the price of homes over time. And so you can see this is the blue line and it's grown, you know, significantly over time. You know, if we're talking about from even the 19 eighties, you know, that sounds like it's a long time ago, but, you know, that's only really you know, 19. Let's say we go back to 1985. That's only 10 20 really 30 years ago, right? And when we consider the length of the typical home loan of 30 years, really, it's you know it's it's a reasonable time period to consider. So when we think 30 years, if we're going back to around 19 well, it's a little bit further now. But let's say we're going to let's say even go out to 19 90 even, right? I mean, I'm fast forwarding a little bit here, but, you know, you're you're going up from 400% increase since the start of the index to we're going up here we're already at, you know, this is up 1200% so it's a three time increase now. I'm not saying that necessarily in the future that the price of real estate is going to increase three times to what it is today. You know, nobody knows that nobody has that crystal ball. That being said, we've seen that the consumer price index has increased steadily over time and that housing prices have at times slightly lagged beneath it. Right, But in general, it eat, at least is staying close to it, if not exceeding it by a large measure. And so we can use that as a base reference for understanding what real estate prices will likely be like in the future. So if we take ah, long term perspective on inflation at around 2% right then we can project over time. What are housing? Price is likely to be fairly conservatively, and we can see here that housing prices have obviously increased far above and beyond what the rate of inflation has. Um, the other side of that coin is the asking price for rent, and we can see that again going back to the 19 eighties. What used to rent for a little under $350 is now going for $700. So that's in 30 years. You're seeing the cost of rent doubling again. Is this going to double again in the future? I don't know. But it seems to be reasonable that over time, as housing becomes more expensive and as interest rates rise, that in order to provide housing for people that they're the cost of doing that is going to increase and therefore rents are going to increase. You also have inflation, and inflation is eating away at the earnings or the rents that the property owners are receiving. And so over time they're going to also increase their rents as long as inflation is in rising and it also obviously depends on the rental market. But generally this is the trend that we're seeing because with more uncertainty in the world. And you know all of this disruption which is going on in across many industries, with technology and robotics and automation and AI and deep learning etcetera, that the availability of high income earning jobs plus people's ability to save right, because if you're graduating with a lot of student debt, that's also a challenge in order to be able to save, because that's money that, instead of going to saving for a down payment, is now going to pay off student loans. And so the you know, the millennial generation, which I'm also a part of, you know, has a much more difficult time, you know, and some people may say, Well, it's everyone's always had a difficult time, but regardless they're having a difficult time, and we're seeing that it's more of a challenge for younger generation to save. Um, given the different cost burdens that they have in just a couple of facts around that we see that 42% of millennials have not begun saving for retirement. This is according to go banking rates dot com. 28% of people over 55 have no retirement savings, right? And one in three Americans has $0 saved for retirement. So this is not, you know, a picture of where we want to be. We're trying to position ourselves through education, preparedness and hard work. Toe have a solid financial foundation, tohave enough assets and income to have plenty of, you know, opportunities and quality of life in our elder years. And so obviously you know, the people that are watching this are most likely not going to be the ones that are in this bucket. But it's it's the bucket that a lot of Americans are in. And so we really need to make sure that we're setting aside money for retirement. And part of that is making sure that you're not over paying for your housing because, yeah, you only have so much income and you have to allocated across different things. And you also have to eat and, you know also have somewhat decent life in the process as well. So what are the What is the summary of the analysis that I did well over the long term, and some people might say, Well, duh, this is obvious, but you're much better off buying, and if you can afford it right, you know you need to be able to afford it because you don't want to overextend yourself and then not be able to afford any sort of downturn. Right people overextending themselves is why so many people lost their homes and a good number of people went homeless during the great recession was because they bought more than they could afford. And when housing prices decreased significantly and their ability to earn was hampered or decreased significantly, they weren't able to keep up with their payments. Right. And so this is the whole affordability aspect of that. I don't really go into that. In this course. I have another course which focuses on real estate affordability, you know, so that you make sure that you're not overextending yourself, but it's a very, very important concept to understand and know where you're at. Um, and I'll just say one thing on that quickly. You know, when you're buying, ideally, you want to make make it set up everything so that if you needed for whatever reason, to move, um, or, you know, because of job, family, whatever it is that you could in a short amount of time, put your mark your home on the rental market and have it rent for an amount which is greater than all of the costs. So your mortgage repayment if you're having private mortgage insurance, p m. I being able to cover that the homeowners and renters insurance maintenance costs all of these things. So you want to be able to make sure that you're able to cover costs. That way, you're in a very strong position, and you know that, you know, even if you've bought your home. But now you're having to move for work or whatever reason that at least your home is, you know, paying itself off. And now it's turned into an investment, right? Ah, and an important point to keep in mind around this is you may not even, you know, hopefully you're being it. You're in a situation where you're able to pay off. If you have to move right, you're able to pay off your mortgage on a monthly basis. But what people don't always recognize up front is that rents increase over time, right? So you might not be making a lot of money in your one. But in year 345 when you're increasing the rents to keep up with inflation and you've increased it another 10% and then another five years later. Now you've increased it another 10%. Yes, you might say that you are only keeping up with inflation, but it's all the same. It's money in your pocket. It's money which is above and beyond your fixed cost space, right, because your mortgage ah, and interest payments are fixed. You know, we live in a competitive market, so there's a good chance that you're your insurance costs will remain comparable over time as long as you're you know you're buying a decent home. So I think that's something that's that's worth keeping in mind. And then also right now we have, you know, a fairly low, historically interest rate. So now is a good time to if you're able to find a good bye and you're able to afford it to make use of that. But obviously, you know, if interest rates go to 10 15 20% that's gonna change the equation significantly began owning second point owning a home you benefit from asset price increases over time with their at above inflation. So we went through this and an earlier slide. But asset prices have over the long term, increased, you know, at a at a rate which is close to long term inflation. And in recent years, the last 10 plus years, home prices have increased much, much above and beyond inflation. And so it's an asset that will increase in price for you. And as you pay it off, you're building your home equity. And so this gives you the ability in 0.3 that you can downside. So let's say we've lived in the home for 30 plus years and you know, the kids air out of the house and we don't need such a large home anymore. Well, you're going to be able to sell your home for amount significantly more than you paid for it, most likely because inflation again is a really thing, and it's cut its reduced, the purchasing power of the money that you have, and so you're going to be able to pocket a neck strap 102 103 104 $100,000 for retirement. And what's also nice on top of that is, if it's your primary residence, there's a tax exclusion on that. So the first, as of today, for a married couple $500,000 of profit on your home or your primary residence is all tax free, which is a huge benefit. That's just money straight to the bank. So if you do downsize and go to a smaller unit, that's that much more money to help you in your retirement or travel or passing it down to future generations or paying for your kid's education, etcetera, etcetera. Next point, you have stable housing costs with a fixed rate mortgage rate, because your mortgage and interest payment are the same throughout the period of the loan. However again, you're having ever rising housing costs, and so your cost of rental is going to increase over time. And so while it may be cheaper to rent potentially or it maybe it's not much cheaper to rent. Um, when you start out, if you look out over a 30 year horizon, it's much, much more expensive on a monthly ongoing basis. as we've seen. And this is something that you have to pay as a renter indefinitely, right? You don't get a break in your old age when your income has decreased. And so that's another really important point is that you know, we need to plan for our increase income decreasing as we age or after our retirement. And so we want to have the lowest cost base possible. And really, owning your home is the you know, besides living with, you know, friends, relatives, you know, kids, etcetera is really the only way to do that. And so, you know, last point being you haven't asked that they could be passed down to future generations. So again, maybe not. A lot of people were thinking out this far, but it's, you know, it is an important consideration as well. 6. Rent vs Buy Quality of Life: or REITs. Next is quality of life perspective. So I'd like to share with you some anecdotal stories as well as some thoughts on how renting versus buying impacts one's quality of life. So when I was growing up, my parents had to move at least three times until they got their own home due to the owners deciding to sell. And, you know, I was really little at the time. So I don't remember it a lot when I was talking with my parents, you know, and we were looking at buying in our home. They made a point of stressing the fact of how important that is and how much peace of mind it provides to own your own home. Because on most rental agreements, you know, it's just 30 days notice, right? You know, maybe it's two months, but still, you know, So you really your 30 days away from getting kicked out of your place at any point in time , you know, And that is something that you have absolutely no control over. You know, typically, you know. So the owner decides to increase rents a couple 100 bucks and you can't pay it. Guess what you're out. You know, the owner decides that they now want to sell it because real estate prices air high or they've gotten offer. Guess what? You're out, you know. So there's there's a lot of scenarios where the owner can dictate the terms and decide whether you leave or stay. And so it's something that you have no power over as a renter. And it's something that, you know, I've seen right next door to where I'm living right now. We had some people that out of town owners on the home, and they decided that they want to spend more time in the town that I live. And so the people that were renting their unit they received, I think it was two or three months notice. But still, you know they're working full time. They have little little kids. They now have to go and try and move. There's an expense associated with that which they have, you know, which is all on them. There's disruption to their daily life, you know, etcetera, etcetera. It's a huge headache and hassle, and if you have, you know, a lot of stuff, it just makes it all the much more difficult and, you know it adds additional stress. And so that happens when real estate prices rise. Because if you're let's say, you're renting a home and you bought at a, you know, a competitive rate, but not a great by. And you know, realistically, after you factor in all of the costs associated with owning a home and renting it out in a competitive market, the margins are pretty slim. So you're really probably only looking at making ah, $100.200 dollars, maybe $300 a month per unit, right? Um, and so that's not a lot of money, right? So if we talk about $100 over year, that's just 1200 bucks. But if it's 10 years later from when you bought the house and now you're able to sell it for $150,000 more, well, maybe it makes more sense for you for where you're at in your life to take that chunk of cash instead and sell the home. So that's what a lot of people do. Uh, I had a friend who whose parents and they needed to move for work, and so they tried to sell their home, and they weren't able Teoh. And so they had to incur double expenses for rent and mortgage. And so this and they didn't even rent out their home right. And so they had the financial wherewithal, although I'm sure it was a you know, a significant strain to be able to do that. And that's why I stressed in an earlier video that if you are going to buy right, try as best you can to be a smart buyer and figure out what you could theoretically rent it out for if you needed to. That way you're in a much stronger position, right? If you ever do need to move for work that you know that you can go ahead and rent out your home and pay it off or have someone else paid off, so then you're really net neutral, right? You're not paying for your home and additional rental. You're paying for a rental and someone else is paying off your home, so your at least, um, you know, it's It's a new expense, but somebody else is paying for your home so your it's a it's a net zero off, except that your home is going to be an asset which is increasing in value over time, right? And hopefully you're making more money with your job and so your savings rate is increased and you're able to to put more money away for retirement or your kids education or other things that matter to you. Um, and so if something happens to your earning ability, you're much quicker to be on the road with renting versus owning. And that's because of the foreclosure process. There's a lot of laws and rules and regulations about lending institutions for closing on home buyers, right? There's protections in place for that. So if you were a renter, you get 30 days, maybe 60 days notice, and then you have to leave. Or alternatively, you're not able to make rent for one month, two months. How long you're gonna be able to last, you know, really, three months until you know it's it becomes apparent that you need to leave. Um, and I'm sure there are complications of, you know, with kicking people out, you know, and that's obviously not a situation that you want to be in. But you have. You have more rights as a home owner and you're able to, you know, the foreclosure process is different in each state. In the state, which I live, it's at least six months, but there's also room for negotiation there, and in most situations the banks don't want your home. They want you to pay off your loan, and so they're willing to work with you. And so you know, if you have six months, you know, hopefully you're in an area where there are jobs and you can at least get something coming in. Because, remember, you're paying less for your mortgage than you're paying for your rent, you know, nine times out of 10. And so, if you're able to, it's it's a cheaper option for you, you know as well. So you're better off in all of these scenarios, from a quality of life perspective to buy versus rent 7. Renting Vs Buying Affordability: All right. So what if housing is unaffordable for you? And that could be a function of the fact that the area you live in is very expensive. Or it could be a function of the fact that you're still, you know, maybe starting out in your career or you've had some downturns and you don't have the savings that you need or the income that you need to buy the home in the area that you want to live in. And so, from our financial review, we've seen there is a very big and very really impact on wealth building over the long term when you're able to buy versus your rent because you're building home equity throughout the process. Ah, we've seen that inflation increases over time except for Japan. But in general, inflation increases over time at a rate of at least 2%. And so when you're getting 2030 40 years out, that's going to be a significant difference. I've seen some figures where they looked at housing from the 19 seventies and then put that into $2015 then what the actual price of real estate was. And it was tens of thousands of dollars above and beyond inflation, which is something we also saw in the financial section as well. So this is a very real thing on, and there's also a very real impact toe wealth building. If you go the other way and you overextend and you buy a home that you can't afford, you know, so you don't want to be paying 35 not even 35. You know, 40 50% of your income on housing is really not sustainable. If you, you know, you use up all of your life savings for paying down the earnest money and the down payment and the closing costs. Well, you know, if if you lose your job or, you know there's some unexpected large medical bills, etcetera, etcetera, then you know it's gonna be very difficult for you to keep your home. So you want to make sure that you buy when you're well and ready, and it makes sense for you financially. Um, additionally, you know, we've seen with quality of life as well, you know, it's much nicer to have one's own home than to always be renting in getting on, you know, kicked out or having to move every, you know, number of years. So really, there are, you know, two large options that I can see you. No one is to stay in the same area, whether that be the same neighborhood or the same general area or even the same city, and the other is to move away. So if you're staying in the same area, what you could do, um you know, would be toe a living, a smaller unit, reducing costs. You know, tiny homes are a thing these days. So our small, well designed apartments, you know, if you really, really feel like that's the area that you want to be in long term and however based on your income, the affordability isn't there. You know, maybe that's that's an option. You know, this probably doesn't need to be said, you know, working to increase income, you know, maybe changing jobs. Um, I'm sure everyone's always trying to optimize that, uh, move to a cheaper part of town. You know, Hopefully that's still ah, you know, a decent neighborhood. I'll show you in a little bit, you know, depending on the neighborhood prices. Very significantly. You know, hundreds of thousands of dollars. So just, you know, increasing your commute time, you know, can have a very large impact on the affordability of a home. You can try and find some foreclosures, and then you could also dio what a lot of people do, which is by with the intention of renting out a room to a friend colleague or on a site like Airbnb. Indeed, there are services out there now start ups where they'll help you with your down payment if you can't afford it with the understanding and agreement that you're going to rent out a room in your home on Airbnb and they will take a portion of that income until you've been able to pay that off. So that could be a good option, you know, to help with the affordability. All right, The other option is moving away, you know, and some of the questions that arise around that, you know, can you maintain your income comparatively in a cheaper area? And when I say comparatively, what I mean is, you know, obviously between let's say New York and Boise, Idaho, you're going to have a difference in cost of living. You know, it's gonna cost different amounts for apartments and homes. It's gonna cost different amounts for going out to eat childcare. Um, you know, just across the board, and so your income might decrease compared, you know, moving from New York to Boise. But if your take home savings, if the amount that you're able to save every month increases than it's a net gain for you, right, um, so if you're able to maintain or hopefully increase your income comparatively, and that also is predicated on the fact that you'll be able to find gainful employment and that there's a need or a market for your services and that you're able to find jobs in that area, you know, which is, which is a very relevant question, Um, and then, you know, is that going to represent an increase or decrease decrease in quality of life for you? You know, that's another thing to look at. And, you know, could you see yourself there 5 to 10 years from now? And I know that I did a 30 40 year analysis in my financial section. But the reason I'm talking about 5 to 10 years from now is because of this slide if you look at US home ownership tenure, the average years that the owner stayed in the homes and that it is a very low number when you think about a 30 year mortgage, right, that's a long time. But we can see that it's gone up from 4.34 years in 2000 up to 7.88 years in 2016. But still people are staying in their homes for less than 10 years, less than eight years, even on average. And so you know, you don't necessarily need to be able to see yourself there 30 years into the future, although, you know, because that could be a harder thing to envision. But if you could even just see yourself being there for 10 years, well, then it might be worth, you know, taking a serious look at that. But if we're talking about affordability and we're talking about potentially moving away because you're not able to afford a home in the area where you're living, Ah, this is one slide that I like, which is from business insider. And while the information is a couple years old, it's it's really not changed that much. You know, things basically have just gotten more expensive. Um, And so if we look at the red, the red being that it is mawr expensive than the national average and the dark blue being less expensive than the national average with different shades in between. The, you know, the the kind of easy learning from this is figure out what areas are red. Are you there now or dark pink as well, right. And then, you know, if you're open to moving and that's something that you need to do or you feel that you need to dio then you know, look for areas that are a different color, you know, that are lighter blue or a darker blue and where housing is more affordable. You know, another view on that is this one, and this is at a state level, so it's not as accurate because we're really talking about a city level. But this is looking at the minimum hourly wage to be able to afford a modest two bedroom apartment, and it's broken into less than $15 an hour, 15 to less than $20 an hour and $20 an hour or more so really. I mean, this this tells you a lot right here. If it's in a red state, probably more expensive, right? So look at potentially moving to a cheaper state. Now, if we break that down into more detail, we can see that it varies quite a bit, even within that state. So that's why I don't really like you to go too much off of the macro picture and look in Mawr at the micro picture. Because even if we talk about very expensive state like California, you can see that there's areas where it is quite affordable. However, you know, if most people are living near San Diego or L. A Santa Barbara, you know, San Francisco, etcetera. Those were all the areas that are the most expensive. So you've got to figure out, Are you gonna be able to again, you know, have gainful employment, Have you no good quality of life where you're looking and the white is because, you know, in this analysis they didn't really do a detailed look at the middle of the U. S. Because it's not nearly as expensive as some of the other areas on the coasts. This was focusing on the coasts. But we can see you know that there are areas where there's, you know, good jobs, etcetera, um, and where housing is a lot cheaper, so it may be worth looking at moving. Ah, you know, putting out into dollar figures as opposed to percentages. You know, just looking at the New York District of Columbia area you have on the left hand side. At at one extreme, you have Manhattan with a median home. So this is the average priced home is $1.2 million. And this information is, you know, a couple of years old as well. So it's, you know, it's gonna be more than that now, versus you know, you're just moving, too. Let's just say Queens, you know, And already it's around 500,000 so less than half or you're talking about the Bronx, and now it's $318,000. So again varied, significant difference, even within the same general metropolitan area, right? So again you can potentially move out. And then the question becomes all right. Well, what is a commute like? So this is average commute time for workers who do not work at home from the U. S. Census Bureau. The darker the blue, the longer the travel time. So the dark blue is 30 minutes or more. The white is less than 15 minutes. So really, you're wanting to find a place which is light blue. Now I give you this is a highly detailed map. I don't expect you to internalize this or remember it, the point being that there's you, typically a direct relationship between how close one is to work and how expensive the homes will be. But there's areas, you know, where affordability is. Much better in the commute is not as much. So you're gonna want to take all of those things into consideration again. I have another course that goes through all of this in a lot more detail as well. On if that's something that you're interested in, police check out my other courses, and it also I also talked to how you can save thousands of dollars buying your home, and I actually saved over $90,000 buying a $200,000 home 8. Renting Vs Buying Comparison: So let's talk about buying versus renting, right? So when does it make more sense to buy? So when you're planning on being in the area for the long term, you have a stable income. This is really key and have saved up enough for the down payment as well as an emergency fund and your mortgage payments. And home maintenance costs are within 28% of your monthly gross income. So why 28%? 28% is a number that many lenders use and what they call your debt to income ratio. And this is what tells them how. How much of a home can you really afford? So I think this is a great place to start. Personally, I'll go into this more detail later, but I think 28% is a bit on the high side. If anything, it also makes more sense to buy when you can rent your home out for more than the cost of paying it back and maintaining it. So if you can buy a home for $800 a month in terms of your home principal and interest payments, plus your homeowners insurance as well as taxes, and you can go and rent out that same home for, let's say, 1100 or $1200 a month. You're gonna be able to net 3 $400 a month, and that's money in your pocket. Granted, there will be maintenance and other expenses above and beyond that. But you get the idea that you're able to make money off of it, and that's called positive gearing. And you want to stay away from negative gearing, which is what some people do when they're being in a more speculative mode. And they're just buying the home and looking and hoping that the market will go up and they can flip it in a number of years for a profit. I really don't recommend that. That's how a lot of people got into trouble during the financial crisis. So what does it make more sense to rent? Well, when you're just starting out in your career or your careers change, you've had a significant life event. Um, and you know, your income prospects or, you know, you're not sure where you're gonna be for a while if you're wanting to be moving between cities or wanting to travel, Um, when you don't have a stable job or enough income when you don't have enough savings to pay for a down payment and when you're not ready to make a commitment to an area because it is a big commitment owning a home. And although most people don't stay in the home for the full length of their mortgage period, you are going to need to be there for a number of years. And remember, every time you move, there are significant costs associated with that. So some people are a little bit more visual. So I have done this in another way as a decision tree. So just really starting out here Do I have a stable income with growth and is it replaceable? And if the answer is no to that, then you need to be focusing on your income growth while you can rent what you can afford because we don't want to overextend ourselves. But if the answer is yes to that, then we really like where we're at. Do you want to be here for the next 10 plus years? And I think that's a good guideline horizon to be looking at when you're wanting to see how long you want to be in an area, because if you're looking at being anywhere less than that, it doesn't really make sense in my mind to commit. Because while you could sell five years later, nobody really knows what the market's going to do. While long term trends show that it went up, you know that was not the case for 89 10 8011. So timing does play an element there, just like in the stock market. But so if you don't like the area that you're in, well, continue renting until you find a place that you do like or until your job settles down, or until you know you find a career path that's right for you or whatever that is. If you do like the area, then there's the whole affordability element. So can you afford to buy a home there because you may or may not have an income that's on track with what the cost of housing is there, and that's a serious issue that a lot of people face in more metropolitan areas, you know, are you in the Seattle area of the San Francisco area. The New York area affordability is a realist. You for most people. So if you can't afford to buy ah, home there, then again you need to continue renting or move to an area that's more affordable. So that is why a lot of people rent for a number of years because they want to live in the big city. They want to be in New York or San Francisco, but then, if they're not able to make it work professionally, then it makes more sense toe move back to where you're from, or to another area where it's more affordable and you still have decent employment options . If the answer is yes, then that there's still a lot more steps beyond this. But let's go ahead and start the buying process. So in terms of benefits of buying, you know, what are they? Well, you have. It's a long basically. Buying a home is a long term savings vehicle, and what I mean by that every month, instead of putting away putting money in somebody else's pocket, you're paying down the mortgage or the loan on your home, and that builds what's called home equity. Home equity is the value in the home that's yours that you own. So the more that you paid towards that, the more of the home, which is yours at the end of the day, and then when you go to sell it, you get that much more money. So this is all money in the bank for you, as long as your home value is able to maintain, which is, you know, which is a significant question some people bought at the peak and their home values decreased a lot. And then they had mortgages, which were quote unquote underwater, where the value of the mortgage was greater than the home and a lot of people went through a lot of pain and suffering because of that. And that's that's where the whole affordability element comes in. Ah, and it's really important to understand where you're at in the home cycle. So again, next point stay, you can stay ahead of inflation. I'll show you in a minute. But typically, the price of homes have risen more than inflation has over the long term. It's an opportunity for significant increases in property values. Again, property values have increased over the long term. You can rent it out and potentially gain income if you're able. If you've bought a home, which is oven affordable nature for the rental market, meaning that the mortgage payments as well as the homeowner's insurance and renter's insurance is one product and the taxes cost less than you can rent it out. You can save expenses on moving costs. Moving is expensive. Ah, it costs, you know, thousands of dollars every time you do it. So the less moving you can do, the more money in the bank is for you and then in retirement or later on in your life. You have cheaper housing costs after the loan is paid off. So rent is usually more expensive than taxes and insurance and maintenance. So this is what's one of the better out the payoffs of being in a home for the long term. Opposite Lee, though if we look at the benefits of renting well, you have a lot more mobility. You can move to another city or another area much more easily because you're only in a contract for usually a year, maybe two, and then at the same time, What is your downside? Well, your downside is the deposit you've paid, which is usually two months of rent. Well, your downside of leaving your home, which you've bought, is all of your down payment, which is going to be tense of thousands of dollars. So it's their very different numbers again, so you're only locked in for a fairly short period of time. There's no large out of pocket expenses for down payment, and it gives you a chance to know a new area or save up while you're preparing to buy. 9. Renting Vs Buying Closing: all right. I'd like to share some closing comments now that we've gone through this course and we've looked at the financial impact and different aspects of homeownership versus renting over the long term, we've looked at the impact from a quality of life perspective. We've looked at what happens if you can't afford today the area that you're living in, You know, these are all really considerations. Uh, and it's, you know, it's important to address each and every one of them. Everybody's situation is unique, and so there is no one size fits all Answer. It's important to look at your individual situation and really check in and see what makes sense for you using tools like this. So really, timing is key, you know, and what I mean by that is the timing to purchase the home. I don't want to put too much pressure on people, but if you consider a 30 year loan and most people work until they're 65 you really have until 35 you know, to to go ahead and be in a pit position that you are going to go ahead and buy a home or not, you know, so It doesn't mean that you can't buy a home if you're 37 or 38 or 39. But what it does mean is you're probably gonna have to pay a significant Lee larger amount down on the down payment in order for lending institutions to feel comfortable with that. Um, and, you know, you may not get the same terms, and there could be other complications around that you wouldn't have. So really, you know, you don't want to be buying a home opposite Lee. Um, too early. You know, if your you know if you're buying it as an investment, that's one thing you know, But if you're 25 26 you know, some people have their lives totally sorted out and have great stability and, you know, they just know where they're going to be, you know? But I I personally find at least from the people that I know that that's in the minority. Most people I know have gone through multiple career changes, multiple job changes. They've lived in multiple cities, um, sometimes different continents. And so, you know, change is normal and natural, and it's gonna happen throughout our lives. It's not a function of age. However, you know, we're a lot more interested in change a lot more adventurous. And we're trying to figure out who we are, especially in our career. And you know where our interests and strengths and skills lie and where a market for our skills life, you know, once we get out of school and so you know, you're starting to work at age 22. You know, it's gonna take you a number of years to probably get that figured out. So if you feel you're going to be going through a number of jobs, you know, chances are you're not going to be in a position, especially with savings as well, because you know you're gonna be spending more heavily and you're gonna be earning less. Um, you know, so realistically, most people you know that age bracket is somewhere between 28 to, you know, 35 ish, you know, So again, timing is key. And make sure that you are If you are hearing this before you're in the H bracket, great. You know, you're ahead of the curve. Start preparing early. You know, the more savings you have, the more options you have. If you're able to pay down 20% on your home, then you don't have to get port private mortgage insurance. If you don't have to get a 30 year loan and you can do it in a 15 year loan, you save literally tens of thousands of dollars if not hundreds of thousands of dollars, depending on the price of the loan over the course of your purchase. Just giving away a couple extra, you know, tips here. But that stuff that really makes a big difference over your you know, the long term for your financial future. Um and so, like I was saying, you know, don't buy before you're ready. Make sure you're having that career stability. No, if you like the area that you're in or not and that you have the savings. And really, I think you know, if you've spent the time to listen to this course, you're looking and thinking about home ownership and your financial future seriously and what makes the most sense for you today and you know, 10 2030 years from now you know you got this. You know your way ahead of the curve. You are well prepared, I'm sure already. And you're just trying to hone in and make the right decision. And so, you know, congratulations to you for finishing this course and listening all the way through the end . I hope that you got a lot out of it. If you have any questions or anything that you'd like to clarify, please just shoot me a message, you know, and I'll try and get back to you as soon as I can. Um, I'm really just here to try and help other people in their journey on and so that they can buy right the first time and so that they can No, you know, all right, And and be okay with the fact that maybe it's not the right time for me to buy a home or hey, you know, maybe we need to have a difficult conversation and say, Look, the area that we're living in, it's probably never going to be affordable for us, and we might really like it here. But when we turn 60 and 70 years old and we're in our retirement, we're not gonna have any money, and that's not a sustainable future for us. And that's not any future that we want to give to our Children, either. And so, you know, maybe we need to be moving to a different area where we can still have good jobs. But it's more affordable for us, right? Because if you're having to be putting out a huge amount of money in retirement for ever increasing rent, because believe you, me, whatever you're paying in, what if you think rent is expensive now wait 20 or 30 years. You know it's gonna be a lot more expensive than if you think home prices are expensive. Now wait another 2030 years. They'll be even more expensive than because inflation is a really thing. You know that you can google and look up how much it costs to use to, you know, to use to go to the movies or buy a car. All these things, you know, I talked to my dad and, you know, he was telling me about when you could. You could get a can of coke for, like, five cents or something. Or, you know, you could go to the movies for 50 cents and or you could get, you know, gas used to be under a dollar. Um, you know, those times air long gone right, because inflation is a real thing and it eats away at our purchasing power. Each dollar that we make inflation is eating away at that, and so we need to keep that in mind. It's really important over the long term because it just doesn't go away. It's one of those things that just sits in the background and it creeps up. It creeps up its creeps up. You know, it's like the rising level of the oceans. It's, you know, it's not a big doesn't seem like it's a big deal for a long time until it is, you know, And so when you start thinking in 2030 years spans than 2% compound it annually over time is a significant number, you know, and so you need to be ahead of the game, and I understand where you're at in that in your life cycle. Understand what you need to have in order to be able to afford a home, and you need to understand what makes the most sense for you over the long term, and I hope that this course has addressed those questions for you again. I have another course which focuses just on the affordability element of buying a home. And then I have another course which focuses on the overall home purchase process. And going through the entire flow of that and giving you resource is to help you find the best home for you. Giving you the resource is to have clarity from a financial perspective of of what you can really afford and giving you re sources to help save money throughout the process. So if that's something that you're interested, please take a look at my other courses. Um, if not, I wish you all of the best. I hope that everything goes really well for you and that you're able to find great financial abundance and a wonderful, beautiful home to nourish you and your family. Take care. God bless