Buying vs Renting A Home - Dave Ramsey Rant

For newbies, be aware that this is a grossly oversimplified scenario. For one thing, you can't get a mortgage on an investment property without at least 25% down payment. Two, it's easy to see comps for house purchase prices, but it takes a lot of research to understand the comps on rent prices. The trick is to find a place where renting is more expensive than buying, but those places are less common because of this very type of scenario. Three, you have to remember that rent number he's using is supposed to be net income, not gross. So you have to think about costs for taxes, insurance, maintenance and vacancy when you're researching investments. All that said, real estate investing is a good tool for wealth accumulation. But it isn't foolproof.

You need consider repairs/ insurance/ extras.. now 2023 inflatary world 🌍 every country suffering house cost.

My mortgage is $764 a month and my neighbor pays $1650 for rent for the nearly the same size house. I bought mine in 2016. He started renting in 2015 at $1,100 a month

These videos make me so grateful that my father left us property

I'm no Dave Ramsey, but here's my two cents...

ASSUMPTIONS

1. You have to live somewhere anyway.

2. You have to compare apples to apples... In most cases, people will chose between renting or buying equivalent homes. Example: Families that are renting a 3/2 will be looking to buy a 3/2.

We are comparing apples to apples here...

You dont compare renting a 2/2 VS buying a 3/2, or compare between living with your parents rent free with them paying all the utilities and mom paying for groceries and cooking you dinner every day VS buying a home.

If you are making 60k living with mom and dad rent and utilities free, then purely from an investment perspective, there are probably better options.

POINTS

1. Don't buy a home you can't afford... just as you shouldnt move into a rental you cant afford.

2. An equivalent home will ALMOST ALWAYS cost more to rent than buy. Heres's why:

3. When you own, you need to pay the principal + interest + taxes + insurance + maintenance.

But...

4. When an owner rents out their property as an investent, in order to just break even, they will need to include their principal + interest + taxes + insurance + maintenance in your rent ANYWAY. You are paying it for THEM... PLUS they are going to charge you an addition fee ON TOP OF THAT for profit. Savvy investors are not going to overpay for a house during a bubble that will cause them to be in the negative if prices go down.

Yes, there may be situations where the owner has it all paid off and can afford to not charge you the principal and interest... but in my experience, most landlords are not in that situation and will need to include the cost of principal and interest in what they charge for rent... and under normal circumstances, any investor is going to charge you the going rate, even if they can afford to charge you less.

Ex. If a 3/2 in a certain area is renting for $3,000, he's going to charge you $3,000 even if he can afford to charge you less... otherwise hes just throwing away money.

5. In addition, if you rent, you are paying down the principal from the mortgage every month FOR THEM, and they will get that money back when they sell the house. You are paying for THEIR equity on the property.

But... if you own your own home, you are paying YOURSELF that equity every month. It's like contributing to a retirement savings account each month.

6. PLUS, every year they are gaining an additional % of the home's value as compounding appreciation, which THEY keep when they sell the house just for having been the owner.

If you own, YOU get to keep that appreciation every year.

Ex. Lets say they own and are renting out a house that's worth $500k. If it increases in value by just 5% per year, the owner just became $25k richer that year (their net worth increased by $25k), and an additional $26k (now 5% of $525k) the next year, and the next, and the next... while YOU paid for everthing.

Over the long term, houses almost always go up at least at the rate of inflation.

At the end of 30 years, after it's been paid off using YOUR rent money, and when they're 65 years old and their body is broken and they can't work anymore, and they are ready to retire... that house will be worth over 2 million dollars.

They can sell that house, have 2 million in cash, buy or rent something smaller, and have the left-overs to retire comfortably.

Meanwhile, if you've been RENTING that home for 30 years and YOUR body is broken, and you can't work anymore... you have NOTHING. You couldn't invest in other things with that money because you had to pay the rent.

You have nothing to sell to retire with and you CAN'T stop working because you need to keep renting and social security is not enough.

HUGE difference between those two people at the end of their lives...

7. In addition, as a homeowner you can deduct the real estate taxes and mortgage interest reducing your taxes every year. If you rent, you can't do that.

8. Finally... if you own, you can also rent out part of your home or get a roomate while you are living there and it will cover a large part of your total costs or even maybe close to your entire expenses. If you get into a financial pinch you can do this until things get better and you still keep your home and the equity.

Long-term, as your primary residence, unless you're getting free rent somewhere else, owning is a no brainer... as long as you don't mind having to worry about the maintenance and aren't foolish with what you buy (more on that below).

Even if you want to move, you can keep the home, and use the profit you make every month towards your rent somewhere else... PLUS your renter is building your equity with each payment... PLUS you keep the appreciation when you sell...

Just don't be foolish...

1. Don't be emotional and buy during a bubble with super inflated prices. Are the properties in your area going up much higher than the rate of inflation? Are they priced at rates not affordable by the average working class family in that area? There might be something wrong. Don't be emotional and buy a home you shouldnt.

2. Buy as far below your means as you can so you have money left over... Don't buy the biggest, baddest house you possibly can and stretch yourself to the point that you won't have any money left for savings, or for when something goes wrong. Again, don't be emotional and buy a home you shouldn't.

So why doesn't everyone buy?

The #1 reason is probably because they can't save up enough for a down payment...

I got a 30 year fixed term in [email protected]%. I am glad I didn't wait to be able to afford a 15 year fixed term. I would be several hundred thousand dollars behind where I am today. I appreciate Dave's mindset about debt, but his hard stance on 15 year fixed terms needs to be fixed. I can always pay off early to reduce my interest payments, but I will likely never see 2.75% rates again. That ship has sailed. The rule should be: if you plan to live somewhere long term, then get yourself out of consumer debt, save up your nest egg and emergency fund, and then get out of rent into a mortgage that you can afford. Otherwise you are just paying for someone else's assets or interest payments (renting).

i am not broke!!!!

Every person should have home ownership in their sights and should be planning to towards that. That is having a 10% deposit saved that you should start working on at least 3 year before going to the market. Owning a home will always be better than renting every day the sun circles the earth. Dont be in your 60s retired trying to find out where the rent payment is gonna come from on half the income, which is what most retirees who have pension end up with. Be smart!

Adjustable rate mortgage advice aged very well lol

This is four years old, but I would like to see if someone chimes in on my situation.

We’re a military family. We bought a house in WA state 2020, for $445K with a 2.63% rate no money down

We had to move in 2023 and we decided to sell it. We made $105K after laying closing costs. A very unique situation indeed

We moved to El Paso where both my wife and I would be taking a pay cut.

We tried to buy a house but ended up backing out at the last min.

The lender could only get us 7% rate on a va loan, and the money we put down would be to buy that rate! We would’ve had a $2700 dollar mortgage not including property taxes

We decided just to take the loss and rent.

We figured we wouldn’t replicate our success we had in WA, and who knows what things would look like a little under three years from now.

We own a home. It’s a nightmare and we are thinking about selling and renting again. The maintenance is ridiculous and I want a break!! New HVAC, new water heater, new windows, remodel bathrooms due to black mold. I am just done!!!

Well this aged well

“Demand for rent is high.”

No, demand for housing is high.

Most people want a house, but are settling for a rental. Because they are stuck paying $1200 for a 2 bedroom, but the bank won’t give them a loan for $800 a month.

Must depend on the market. I've been paying $1100 a month for my house for the last 7 years. The same house to rent is about $2200 a month now. That's has been climbing steadily since I quit renting basically the same house. I doubt the price to rent a comparable price will ever drop below $1100 a month.

If he had recommend people buy with a 30 yr mortgage keeping the other variables the same, so many more people would have bought at 60% of today's prices and at half the interest rate.

“Not true” my man, the rent here is 2k a month, for the cheaper ones while houses are 500 a month for mortgages.

you are simply wrong or lying

Dude is living in the stone age 😂. Renting and house prices are insane esp CA. Most people are house poor lol