Is It Actually Better to Rent or Buy? I Share My Personal Numbers - OkDork.com

Is It Actually Better to Rent or Buy? I Share My Personal Numbers

Is it better to rent or buy?

There’s a TON of information out there.

But most if it isn’t the truth. Or it’s not backed by data.

Everyone has an opinion… but not many people have the numbers to prove their point.

Today, I’m sharing if it’s ACTUALLY better to rent vs. buy.

I sold my condo recently, and I’m going to show you the exact numbers from my sale — and compare it to the cost I would have spent renting.

You’ll learn 3 main things:

  1. Is it actually better to own or rent a place?
  2. Buying vs. investing in the stock market — what’s better?
  3. What you might have ignored about renting vs. buying

Stuff we talk about:

What don’t I know about renting vs. buying? Leave a comment and let me know!

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26 responses to “Is It Actually Better to Rent or Buy? I Share My Personal Numbers”

George Tobin
March 3, 2022 at 1:50 pm

Great story, Noah. My wife and I are starting to have that discussion. I am definitely one of those that would be the first one to say that, "Yes, it's true! Owning a home may put you in a deeper hole than simply renting." I know from experience that the only way to really look at it is to run multiple scenarios. Many of them, in fact. Also, when you buy, that is it...unless you decide to test the banks willingness to take back your property for non-payment of your mortgage. With a rental, well, if the owners decide to offload the property well....then you end up having the hassle of moving, finding a new place, getting used to new neighbors...or, in some cases, a new city.....

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James
March 22, 2019 at 7:25 pm

Great episode and totally agree with your points.

My personal scenario falls outside the mainstream and I'll share it here to offer up another potential gotcha to avoid.

I made the mistake of buying a sprawling antebellum farmhouse in the Deep South that was built in 1860 and added onto many times over the years. Shortly after moving in, I began discovering the unpleasant realities of owning such a property. Re-floor a room? Oh, can't do that because the floors aren't level. Solution. Bring in an expensive team of experts with steel I-beams and hydraulic jacks and concrete blocks and level the floors of all twelve rooms for $25K. Then pick your new floor.

That was just the beginning of the nightmare. After living there for five years, I retired at 55 and thought "OK, now I'll get down to business", hired a crew, opened accounts with local building supplies, fired a crew, hired a crew... on and on. Overruns ran between 100-300% for every aspect of the project. The third contractor I hired, when he came over and looked at the house, said "I took a project like this once, and before it was over I wanted to kill myself". I knew then that he was the guy who could get it done. I was wrong.

You mentioned 'ego' and the role it plays. Couple that with the fallacy of sunk cost, "I can't stop now, look at all I have invested, surely I can get it back..." and you have the main ingredients for a gothic tragedy.

Of course, it didn't end well. When I retired I had a wealth management account. When I finally gave up, it was gone. I filed bankruptcy and surrendered the house (much of it still gutted) and bought a one-way ticket to Bali. True story.

Now I rent a large house one-block from the beach in Thailand for about $300 USD a month. I'm writing a book about that experience, and I read a lot. On the beach.

Yesterday, in my beach chair, I also thought about how I can help you grow Sumo. I have a few ideas. Peace.

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Eddie
March 18, 2019 at 6:58 pm

I want meat!

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Juan aguirre
March 17, 2019 at 12:11 am

Hello, if you had a house (north Austin), actually half of it after a recent divorce, would you sell it or keep it? Would you get in debt to buy out your former spouse and then rent it do it pays for its mortgage or what would you do?

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Daryl
March 15, 2019 at 7:54 pm

That “meat in your mouth” line is hilarious!!!

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Deren Huang
March 15, 2019 at 1:38 pm

I left some comments on the Youtube comment section:

I wanted to do some math for a more realistic picture.

*These are just estimates, I do not have all the numbers*

Mortgage payment as per spreadsheet: 79,000, 2200/mo
I don't know if Noah did a 15 year note or 30 year note.
288,000 @ 4% on a 15 year am = 2130 (this one makes more sense taking calculations from spreadsheet)
288,000 @ 4% on a 30 year = 1374

Paydown for 36 months on 15 year: 44,684
Paydown for 36 on 30 year: 15,843

Interest Paid: 23,007
Taxes: 24,012
Tax shelter: 47,019 ( at 30%, savings of 14,105)

-77842(total money spent from spreadsheet)+44684(Paydown at 15 year am) +14105 (tax savings at 30%)

*-18,853* New total money spent

UPON SALE OF PROPERTY:
72,000 (Down Payment) + 44,684 (Paydown) + 67,500 (Appreciation)

184,184 NO TAXES PAID

RENTER
72,000 invested in stock market with 8% gains
18,700 TAXED

Check my work and let me know if I missed anything

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George Tobin
March 3, 2022 at 2:34 pm

Hi Deren, et al,

Good basic analysis, and thank you. I would like to point out a couple of assumptions on both sides. If the house went up in value after 3 years enough to offset closing costs, then you are at best break even. If it didn't, then closing costs are another disadvantage to owning. I owned a townhouse that was "underwater", mortgage and value wise, for over a decade, and that sucked! Now, in all fairness, when I did sell, after owning it for 17 years, most of it as a rental property, I sold it for 2 X what I paid for it. But, that ROA/ROI was TERRIBLE compared to what I could have made had I simply invested my down payment and the mortgage payments in an S & P 500 or Small Cap Index Funds during the time I owned it (1987 - 2006) On the other hand, one home I did own I bought for $220,000 and less than 5 years later sold it for nearly $370,000, with only about $25,000 in total improvements and with only a 10% ($22K) down payment.

My own math shows that if the $72,000 down payment in the illustration did earn an average of 8%, one would now have $91,000 at the end of 3 years, and around $110,00o if they got into a very mediocre growth stock fund that returned 15% a year, on average. Of course, MANY good mutual stock or equity income funds have done just that, and some, even more than that. So, the $72,000 that you get back from selling, plus the principal you paid down is merely a RETURN of your own capital, and in essence you made ZERO on that money. So, yes, you get back some tax $ as a benefit, but was it worth the ownership factors, hassles and all. DISCLAIMERS: I have both owned and rented, sometimes simultaneously (rental property or sub-letting a part of the home(s) I have owned, so I would have to say I know a thing or two about this subject. Not everything, for sure, but a lot, if I do say so myself.

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Brett Welker
March 15, 2019 at 9:55 am

In your spreadsheet it first appears that you paid cash for your apartment at the top but then there are mortgage payments listed below.

If you didn't pay in full up front, you should calculate the principal/equity gained in the home instead of comparing buy/sell prices.

Renting is great though in bigger cities. My wife and I pay less on a mortgage for 2500 sq ft. in AZ than 700 sq ft. Apt in San Diego. So everything is relative to where you decide to live 🙂

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JD Graffam
March 15, 2019 at 8:01 am

Obvious, perhaps, but worth extrapolating a scenario when buying makes sense, because many who listen or read this won’t do that for themselves. Return on three years is hard or impossible because sunk upfront costs you describe. But buying for long term has much better upside opportunity.

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Joe
March 14, 2019 at 3:43 pm

Love the show, but more importantly - how many comments for free jerky?

Help me please, a man needs his meat!

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Noah Kagan
March 14, 2019 at 4:29 pm

Think you just missed it amigo =/ It's super good!!!

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Ronnie Christopher
March 14, 2019 at 3:36 pm

Good perspective and information !

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Weston
March 14, 2019 at 2:08 pm

Noah, loved this comparison of renting vs buying. I always have just heard buying was better, so the perspective was refreshing! Oh, and I'd love some meat in my mouth too. hahaha! Thanks for the awesome show, I only subscribe to 2 podcasts...this is one of them!

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Ryan Kangail
March 14, 2019 at 1:39 pm

Free meat? Oh yeah!

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Neil
March 14, 2019 at 12:18 pm

Hey Noah, I have read Ramit's material in the past and yet I still bought a home. I'm also in Texas so the property tax and HOA gets you. Went with buying a house and sometimes I regret it because of having to do the regular maintenance and mowing the lawn, but not being woken up by my neighbors reggaetone is nice. I do miss being able to call somebody else to fix things. Great podcast as usual - just out of curiosity if you did the detailed numbers check with interest deductions etc. did you do slightly better with owning?

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Spencer Shaw
March 14, 2019 at 12:08 pm

I dig your podcasts... good pacing, hooks my attention and great topics.

I owned a real estate brokerage for years and that's an industry that needs to be shaken up. Real estate is a speculators game in most cases... totally agree that renting is a better option for so many people.

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Brice
March 14, 2019 at 11:50 am

Love the podcast! Keep making them

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Arun
March 14, 2019 at 11:15 am

Thanks for this. I’ve rented all my adult life but have often wanted to consider buying. But I live in NYC and apartments are so expensive.

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Amyr
March 14, 2019 at 9:55 am

Loved this episode. Really good comparison especially after the episode with Paula.

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Ryan Blake
March 14, 2019 at 9:38 am

Thanks for all you do Noah! This was an awesome pod - one life goal of mine is to get tacos with you one day!!

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Ryan Blake
March 14, 2019 at 9:38 am

Thanks for all you do Noah! Really enjoyed this one!

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Curtis Hemming
March 14, 2019 at 8:17 am

People constantly tell me "you need to buy property," but then they're also quick to say they wish they were renting whenever their fridge or furnace stops working, or when their roof leaks, or their basement floods. Buttttt then it's back to "you need to buy property" a few months later, so people's memories are short. Renting is definitely working for me though!

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Richard Patey
March 14, 2019 at 7:15 am

Property tax in US is crazy. Here in UK it's typically 0.5% BUT if you're renting you have pay it and not the landlord. This makes house ownership way more sense here, although we can't deduct mortgage interest which sucks. PS love you, ship me some meat sticks across the pond 🙂

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Rick Flaute
March 14, 2019 at 5:40 am

A very timely podcast! I am actually considering selling now to rent. This will help.

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Emanuele
March 14, 2019 at 3:43 am

I'm the only one who likes to read an article instead listen to a podcast?

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Dominik Harman
March 14, 2019 at 3:31 am

Hey Noah! Great episode, thank you. My wife and I are currently renting and here in Slovakia there's a social pressure to own a property which we are, for now, resisting 😀 your episode helped.

One quick comment about real estate, it is amazing how vastly different are the monthly gross yields between different properties even on a same street! Real life case from where we live... it kind of shows this business is not as rational as it seems...

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