Should I Rent or Buy a House?
Transcript: Should I Rent or Buy a House?
0:00 Okay, so today what I want to talk about is the debate on renting versus buying a house. This seems to be getting, you know, people all up in a huff and so I want to go through that today.
0:11 So again, my name is Phil CFP®, CERTIFIED FINANCIAL PLANNER™ with Foundation Wealth Planning.. This is the question that I get about if I'm renting, should I buy you know, what are the kind of pros and cons of that?
0:26 So if you liked the video, you know, like it, I'd love to have you follow me on the channel. So anyway, now that's a lot of the way.
0:34 You get a lot of benefits from both. So if, if you're renting, I get the question a lot of, you know, am I throwing money away?
0:41 Am I wasting money? And, you know, yes and no there are major benefits. It's to renting. One of them would be the simple flexibility of it, right?
0:54 You can your lease terms are much shorter typically, you know, year to year. So as, as life changes you know, you, you may move different things happen with the family.
1:06 You get a new job, and you're able to move much quicker. And if you got to break a lease it costs much less than a week.
1:14 So you got a lot of flexibility built in there that I think is really underrated. You also don't have to put a lot of money down for a down payment, right?
1:23 You just put a small deposit down and you don't have to put a very large chunk down for a down payment.
1:29 So you get to keep a lot more of your cash flow. And a big thing on, on the monthly cash flow too, is that the rent that you pay is often, oftentimes, the most that you will pay in a month, right?
1:42 You may have some occasional things like you need to change a light bulb or whatever. Your light bulb is not going to do that, but you're not going to have any other major outflows of plumbing or heating that you're going to have to deal with as a renter.
1:55 You're also not going to, you know, have increases in your property tax or insurance, which if you've been owning. In a home recently, you've seen how tax and insurance have gone up a lot over the last couple of years.
2:05 So you're really locking in you know, much more predictable costs. Now, of course, every year when you renew your, your lease, it could go up a little bit, but potentially after the extremes or as much of a surprise as some of the other things.
2:18 And if it does, you just, you have to find a new apartment and you just go find a new one.
2:22 So, I think when you compare flexibility, lower upfront costs, lower maintenance costs better predictability, renting is a really solid choice.
2:32 Now, are you throwing money away by not building equity, right? The main positive of owning a home is you're going to be building equity in that house.
2:40 So and, and if you don't know what that means, when you're building equity, right, you get a mortgage payment, you put some money down and then, as you're paying down that mortgage and the gap between what the house is worth, so say the house is worth $200,000 and you put, you, you know, had a loan for
2:59 180,000 because you put 20% down or 10% down, I guess you put 20,000 down and you got $180,000 loan as that home value either stays the same or maybe appreciates over time, but you're paying down.
3:13 The mortgage, that difference between what your mortgage balance is and the value of your home is what the industry would call home equity, right?
3:22 So you're building that equity up as you pay down your mortgage and that is a huge thing. The average net worth of a homeowner versus a renter is significantly higher and a big part of that is if you include, you know, the net, you know, the equity in your house.
3:38 It really adds a lot to your financial stability and financial future. So building equity is a big thing. And so yeah, you're not doing that if you're renting you're right, but you're also, you're, you're able to be patient and you can build in other ways.
3:54 Because of course, when you're, when you're going to buy a house, you got to pay for all the repairs. Oftentimes your, your mortgage payments, kind of the minimum outflow.
4:02 And by the time you pay, again, additional taxes and insurance pay to fix up the roof, pay, you know, time to rake the leaves or pay someone else to rake the leaves or mow the grass.
4:14 There's a lot more time and money that goes into maintaining a house. But there is major benefits of building equity and just really beyond that building a sense of community and ownership in your neighborhood, in your city.
4:26 There is just such a, a major, major benefit to that. And so you're going to be, you know, again, financially speaking, I think you should be looking to buy a house, but you don't want to over, over buy, right?
4:38 I did a whole video a little while back about how much mortgage you can get. But you're kind of generally trying to keep it in that about 20% of gross income, keep your payment around there or 25% of your take.
4:50 Home pay, that's going to all be around, around the same ballpark. That's going to be, you know, keep you from being house-poor, but I did a whole video on that, you can reference that one for a little more details there.
5:02 But if you keep your payment reasonable, you put a good down payment down, you're going to really be able to build equity and I think you want to be able to do that sooner than later, if you're able to, right?
5:13 If you're in a stable situation. One thing with the flexibility on renting is, that's a huge value if you think, your life is a little bit in flux, you don't know for sure if you're going to stay in a place, because it does cost a lot of money to sell a house and move and that's maybe not thought
5:33 about as much. So yes, you're gaining equity, but if you're not going to be there a while, it can get really expensive.
5:38 To sell a house, both with kind of the upkeep to get it show ready and to sell, and then the commission costs to sell it, there's a lot that goes in there.
5:47 So you want to keep that in mind, but if you're going to stay in a place a while, you're stable and you want to build some equity and ownership in the area, you definitely want to look to buy a house.
5:58 But don't feel bad if you need rent, it's a really good option for a lot of people in a lot of situations.
6:06 And one other kind of tangent point I want to put in there is I get, I see a lot of people lamenting how much home prices have gone up over time and that is true.
6:17 There has been a disconnect on, you know, the average wage versus the average home, home prices seem to have outpaced wage growth.
6:27 But the other thing that's happening has been kind of the inflation of the home size. If you go back to the 50s and 60s, a home would be more like 1000 to 1500 square foot.
6:38 Whereas today they're going to be much more closer to 2000, 2500 square feet and beyond. And so the size of the home is at least 30 or 40 percent more if not in most cases or in some
6:51 Cases the average home is double or close to double of what it was, you know, 50, 60, 70 years ago.
6:58 So look at, look at that too. You want to, if you can find a house that's a really good starter house, and I know it makes it hard because they're not building the starter homes as much anymore.
7:05 The starter home is more like 2000 or more square feet. And the older homes are the ones that, you know, are smaller.
7:12 But if you can find a home with good bones. I talked to really about, you know, kind of what to look for when you buy a house in a good neighborhood.
7:19 But looking for one that's a little smaller, you know, it's okay if you're going to buy a house to kind of get in the game, build the equity, learn how to take care of a home that it's a little smaller.
7:28 That's, I think that's a big point is to not buy it off more than you can chew. And you can get a house, but you got to be small about how to do it.
7:36 And you don't have to be buying the perfect house, the largest house looked a little smaller. That's what they did years past and it made it more affordable.
7:45 And it still is more affordable today to look at a smaller house, even if it's not perfect. So that's just kind of a side tangent on the whole point of this.
7:53 But again, renting is not bad. I think long-term it doesn't make a ton of sense, but in certain situations of your life, it makes the most sense to rent.
8:03 But good. It's just something to position. We're able to buy when you're able to. And I hope that helps. Let me know if you have any questions feel free to reach out or, or, or put a comment down or email me.
8:14 All right. God bless.
Phil Francois, CFP®
Foundation Wealth Planning
phil@foundationwealthplanning.com
https://www.foundationwealthplanning.com/