Renting vs. buying a home (part 2)

Learn more: http://www.khanacademy.org/video?v=QA2TBiIsdT0 Factoring in appreciation and depreciation into the rent vs. buy decision.

Here is an easy way to stop paying rent or own a home that doesnt waste space or have a big impact on the environment. MORTGAGE FREE AND DEBT FREE. Getting o…
Video Rating: 4 / 5

49 comments

  • Christopher Jones

    You can make a lot of arguments on the numbers, but the two glaring points I see and believe to be true is 1. You don’t own that house until you pay it off. 2. You are essentially trapped to the home and the market which anyone can see is unpredictable. He doesn’t even delve into the fact that even though people say their house appreciates in value well does it really? It’s a tangible object made of tangible products like wood and metal all of which degrades over time. Which means extra money!

  • D Lauzon

    45k / year. 6% is the annual interest rate. The interest will go down every year because it is calculated on the outstanding principal (750k at the start). But like he was saying, you are mostly paying interest instead of principal at the start of making mortgage payments, and so for the first while it’ll probably be close to 40k per year.

  • Raul A.

    That’s APR interest, Annual Percentage Rate, so $45k every year.

  • Maria Joao Silva

    thanks for this…

  • John Halford

    I have a really burning question. You say, multiple times in this video, that you would be paying $41,000/year as a home owner. This factors in a 6% interest rate on the $750,000 that you borrowed from the mortgage company. This 6% totals out to $45,000 (as stated in the video) which makes up a huge majority of your payments. My question is, do you have to pay 6% interest every year to the mortgage company? Or is that $45,000 spread out over 30 years?

  • MrApplewine

    Where is part 3? Also, he forgot that houses are a depreciating asset, and he didn’t factor in repairs over 30 years, which will be much more than 15k. The house may have a higher numerical value in 30 years, but that doesn’t mean it has a higher real value. 30 years is a long time for inflation to make numbers go up.

  • kurtharris21

    I don’t argue that putting the amount of a mortgage into secondary investment vehicles is more profitable in the long run; however, anyone who has a mortgage SHOULD be putting additional money into other investments. But most people who rent CANNOT afford to put other sums into investments.

    Is that $700k before or after the stock market crash? 🙂

  • Jason Solinsky

    You miss the essential point of the video. Spending $2000K per month and investing a small sum is MUCH CHEAPER than buying the same house which will cost more by any measure in many places (including here in NYC).

    And about that $70K real estate investment. Had it been invested in the stock market, it would now be worth over $700K.

  • kurtharris21

    Jason, how many people do you know that can afford to pay $2,000/month in rent AND throw additional money into a separate investment? Even if they were to invest the extra money on the side for 30 years they’ll still end up paying more than someone who had a loan amortized for 30 years because of housing appreciation. A $70,000 home 30 years ago now costs $275,000.

  • djdansk

    He plays devil’s advocate on the renter’s side but what if you had a 30 year mortgage at 3.6%?

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  • Jason Solinsky

    This is wrong. You no longer have to pay rent because you have invested additional money (above the amounts in the video) in paying down principal. If the renter invests the exact same amount, he will likely wind up with MORE value than the home owner after 30 years. He could buy the home in cash at the end of that time and have tons left over. (Unless real estate appreciates faster than stocks over a 30 year period which is wildly unlikely).

  • Spencer Blaylock

    His analysis also fails to take into account inflation which highly favors buying a home. Even using his amounts, assuming a 2% inflation on a 15 year loan, buying a home will make sense after 9 years. (More equity – expenses than interest – expenses). A 3.23% (U.S. long run average) inflation rate will make both a 15 and 30 year loan better after 2 years.

  • Spencer Blaylock

    This is why the California housing market was all screwed up. You can run the numbers all you want want for Idaho, and it never makes sense. It is pretty rare that you will find a rental that has lower rent than a 30 year mortgage, much less 50% lower than a mortgage.

  • kurtharris21

    Think again. You’ll be paying rent until the day you die while a homeowner only pay “rent” on money for 15, 20, or 30 years. After that they are rent free and can choose to do whatever they want with the freed up cash. I know very few people that can afford to make a rent payment each month AND put the same amount (or a $250k amount) into investments. Over the long run buying will always trump renting.

  • kurtharris21

    You also will pay rent for the rest of your life while homeowners live rent free after a 15, 20 or 30 year period.

    What’s more costly in the long run?

  • kurtharris21

    He’ll be paying his rent for the rest of his life! That’s 60+ years of rent paying for someone in their 20s. While those who get a mortgage have only 30 years of paying “rent” on their money and another 30 years of free rent!

  • kurtharris21

    Over the course of many years: owning a home is always > renting a home.

    After 30 years I will live the rest of my life rent free while you continue to waste tens of thousands of dollars a year in rent. I will be sitting on a 6 figure asset (my home) while you have no comparable asset.

    The large LARGE majority of Americans do not have a 6 figure amount of money to set aside in an investment vehicle, which makes your entire argument inapplicable.

  • Marcel Bergler

    Hes like got a Bachelors in Mathematics, another in Engineering and Computer Science, a Masters in Computer Science, from MIT and an MBA from Harvard… Trust him!

  • woo2fly21

    in the long run (eg in 15 years) when you own the house you would only be paying 10k/year in taxes, where as the rent would be 26 (or more) plus you would have a 1m dollar asset next to your name, so wouldnt this be desirable in the long run?

  • Alexandra Rath

    I was raised in a household by a mother who was a realtor, then I became one myself. Home ownership, once established is the idealist way to go, as for now, it is cheaper for me to rent rather than purchase until I can afford the entire home outright. Boardwalk does provide other assets not associated with the responsibilities of owning one’s home, depending on an individuals requirements/conveniences.

  • NeonSloaney

    It depends on your income. Now may be a good time to buy IF you can be assured of paying the loan off. things may be looking down now, but in the future you’ll be in a very solid place because house prices have tended to rise long term. You may getting your house comparatively cheapley if you can pay off the loan in 15-20 years. It really depends on whether you think the housing recession will last longer than 2-3 years.

  • vitchek

    Something feels fishy about taking financial advice from someone who uses a calculator to subtract 10 from 42. @1:49

  • alter3go

    You’ll also still be paying the interest on your mortgage if you have an interest only mortgage. or am i missing something?

  • albert gonzalez

    Not in any means to play devil’s advocate but the rent is extremely low compared to the price of the mortgaged house.

  • jackvincent90

    you clearly dont know what a home is then do you?

  • David Seay

    sorry i couldnt read the card at end of vid 🙁

  • David Seay

    where did you buy this thing at location of the place you bough the half made houses at $100 + get back at me soon

  • g1boy2

    good idea but in some states leaving a dog in this house would considered cruelty so if you think living in something like this is a good idea try sleeping in your car for a night and it would feel about the same as this so could home.

  • sandy jones

    i would buy that for my kids to play in as a cubby house

  • ThickNCurly1

    Looks like they spent a whopping $3.86 for materials for this SHED. I’ve seen Port-a-Johns better equipped than this. Let’s really do the math. you said the 12x 20 shed cost $160 p/month for 4 years ($7,680 smh)…. the upfront cost is $4,152.. spend another $6,000 plus before its actually livable.

  • MrsD7777

    LOL!!! The cardboard sign w/ markers!

  • DaddyMoreBucksTV

    These things are DECEPTIVE. No insulation, barely wires, no drywall, no plumbing, no flooring, no ceilings, no trim, no cabinets, no dryer vents, no paint, no ceiling lights, no closets, no walls, barely plugs, barely switches…. BASICALLY you are just buying a SHED that looks like a home on the outside. Give a handy guy a pile of 2×4’s, some siding, a few pipes, and windows, and with a nail gun and a miter saw, he could hack a shell out like this in a day.

  • shaldana

    An uninsulated shed. Not so good for anyone that gets a winter.

  • MrSpikesterman

    Im thinking to get one myself

  • tryin2lhard

    Wow, wish we could buy a four thousand dollar home like there here where we live.
    Things must be pretty cheap where your at.

  • TechnicallyDrawn

    You can build one for a hell of a lot less with sweat equity by digging into the ground… Done correctly, it is one of the cheapest and most efficient ways to create a livable home for very little.

  • FourtySven

    what about electricity and such
    how does one get by?
    property tax?
    sorry im just new here m8

  • terbeargrooves

    Well, looking at the well-made signage, I wouldn’t give them 10 cents.

  • Curt Miller

    It’s not Mortgage FREE, you said so much a month for 4 years or pay cash

  • Whit Elfner

    I agree with much of what your saying, but walls don’t make a “home”.

    If your young, pitch a tent and build a small place. It’s not rocket science! The plumbing and electric will require code compliance in most places, though some have found no restrictions for places under 150 square feet. “12×12” is a neat book about someone living in a 12×12 place so they wouldn’t have to worry about codes.

    Be sure to insulate, also cover those pressure treated floors!!!

  • 1BlubeTube

    Thanks for the info.

  • 1BlubeTube

    A 25′ x 25′ house would be the smallest that I could live in.

  • Sharon Petty

    This appeals to me!!! I could actually afford one of these! Would have to find a place to put it though. But the tiny houses on wheels cost up to $35,000 or more and no more space than one of these!!! Would need to insulate it and run some plumbing but I think it is doable!

  • Hashtagmakeup

    Buy a bunch and put them together

  • Andrew Dennis

    That’s a matter of personal taste, really. Some people get by on living in a van. It’s home to them.

  • Andrew Dennis

    Have you seen solarcabin’s channel? He makes blueprints for small homes and lives in one himself. I think he has some good ideas.

  • Andrew Dennis

    The title says “How to Buy a Home for $100”. If the title was “How to buy a Home for $100 Down” I wouldn’t have said anything.

  • athatcher85

    i agree but i spent all my savings on a piece of land

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