The best rent vs buy calculator I've ever used - https://www.smartasset.com/first-time-home-buyer/affordabili...
Renting vs. buying a home
41–50 of 155 posts
Re: Renting vs. buying a home
#42maybe I missed something but it seems like he ignored the house value.
Even if we assume that the rent & the house price remains the same of 30y, after 30y you end up with a house that worth $1M & spent ~$15K more per year. Over 30y it's $450K in cash vs owning a house of $1M, meaning buying the house was the right decision.
Where is my mistake?
Re: Renting vs. buying a home
#43One of my favorite interactive pieces from the NYTimes is a Rent vs Buy calculator which is very configurable: http://www.nytimes.com/interactive/business/buy-rent-calcula...
The numbers are very inflated against buying. 10% closing cost, 1.35% property taxes, utilities only if you buy, another 1.35% annually on maintenance/renos/insurance. Who is paying 2.6% of their property value each year on those things? Who gets utilities for free with their rent. That calculator is very dishonest.
In the UK some people get some or all utilities "free".
It'd be interesting to see a UK version of the calculator that took into account the local housing agreement rent prices, which are the maximum prices that can be paid for properties within an area by benefits.
Re: Renting vs. buying a home
#44maybe I missed something but it seems like he ignored the house value. Even if we assume that the rent & the house price remains the same of 30y, after 30y you end up with a house that worth $1M & spent ~$15K more per year. Over 30y it's $450K in cash vs owning a house of $1M, meaning buying the house was the right decision. Where is my mistake?
> after 30y you end up with a house that worth $1M
In his video, Sal Khan did an apples-to-apples comparison: He compared the net out-of-pocket costs of (i) an interest-only mortgage in which you build no equity, and (ii) renting, where you likewise get no equity.
If you also want to build equity in your house, in addition to merely paying the interest, then that's an additional out-of-pocket cost (which unlike the interest payment is not tax deductible).
That's not to say his numbers are realistic approximations. But his basic approach to comparison seems sound.
Re: Renting vs. buying a home
#45Two issues.
- I'm currently paying $2,300 for a $500k house. I think his rental rates are way off.
- In a free market, rental rates are supposed to adjust to make it such that an individual is indifferent between renting and buying. If it was that much more expensive to own than to rent, the landlord would never rent the house out!
Re: Renting vs. buying a home
#46I'm amazed to see how many scientists are in here. Lot of math, lot of graphs, lot of speculation but nobody even mentioned that we are, before technicians, people. We have desires, we have daily routines, we have habits and we have a psychological environment and background.
Renting will effectively (as the video outlined) leave a surplus of money in your pockets. Which you will use to buy the latest gadgets, to pay the latest cool service, to take fancy trips around the globe, to hunt the last ever living rhino in Africa or whatever else. BUT, thinking in perspective, after 20 years you will anyway have 0 cash in your pockets AND no house. Until your health and job keep up, this might be fine. In case of need you will just be f---.
What you are really doing, when you buy a house, is forcing yourself in saving a liable equity for you and your family. Not only it will free you from any rent after 30yrs, but you'll also have a tangible good and you'll leave something for your children and relatives. Not even mentioning that, in case of extreme need, you'll be able to sell it.
Not sure how the concept of "house" might differ between Europe and the US and i realize that if you buy a really crappy built house, my arguments might not be valid. But where i live, houses are built to last centuries and they are by far the best way to responsibly spend your money.
Doing a Khanacademy video advising people in renting vs buying is just SO wrong. The video itself is not only rounding numbers in a bad way (IMHO), but it's also giving a superficial and quite-not-always-true message.
Horrible.
Re: Renting vs. buying a home
#47I really don't think the bay area is a good choice to make an argument for the average person against buying.... $3000 a month seems too small for a house in the valley, maybe a 1,300 sqft apartment? Also, how out of touch is this guy? Who the fuck has 250k in the bank? certainly someone who would probably own property... maybe even renting it out to this guy...
I don't have any knowledge of the home market in the valley, but I will say that the numbers he uses for interest rates are very off from current real world rates. The method is instructive but the numbers used are so off they don't offer proof one way or the other.
This video was made in 2008, when mortgage rates were 6% and money market accounts were paying close to 4%. Now, mortgages go for 4.5% and money market accounts pay less than 0.5%. In 2008, rent prices were low while home prices were high, too. Today, a $1M house would cost closer to $10K/month in rent. It certainly doesn't pay to rent today, but it's harder to get a loan today, too.
Re: Renting vs. buying a home
#48I'm amazed to see how many scientists are in here. Lot of math, lot of graphs, lot of speculation but nobody even mentioned that we are, before technicians, people. We have desires, we have daily routines, we have habits and we have a psychological environment and background. Renting will effectively (as the video outlined) leave a surplus of money in your pockets. Which you will use to buy the latest gadgets, to pay…
> What you are really doing, when you buy a house, is forcing yourself in saving a liable equity for you and your family.
Yes, there's a forced savings component, but it's expensive in terms of opportunity cost. It's not unlike insurance agents who want to sell you life-insurance policies that have "investment" components to them, when what you really want is to buy inexpensive term protection and put the difference in price into better-returning investments.
Remember that Sal Khan's comparison is of an interest-only mortgage versus renting. If you also want to build equity, well then, that's additional money out of your pocket (non-tax-deductible).
Re: Renting vs. buying a home
#49Slightly tangential:
Conventional wisdom is just that - conventional, and an important thing to teach people is that there are times when convention should be broken.
Back during the height of housing bubble (2006/2007), a friend of mine decided to buy his first home. It was so obviously a "bubble buy" that even before things started to get bad, it was visible from a mile away that he was making a bad decision: He was buying a new construction K. Hov. cookie-cutter apartment in Edgewater, NJ, which was just close enough to Manhattan to tempt those "I'm buying a NYC apartment!" types but just far enough away that there wasn't a real fundamental demand to live there. He got a terrible no-verification mortgage ("liar loan") that we all warned him was trouble. He paid way too much -- something like $600k for a 1BR condo (near Manhattan prices, not Edgewater NJ prices).
When our friends warned him of these issues, when we pointed out that he could rent a very nice 2BR apartment a few blocks away for $2500/month that he and his wife would be plenty comfortable in, when we pointed out he was likely buying at or near the peak of a heady real estate market, he didn't care. His only refrain - over and over - was the age-old:
"But I'm going to be a _homeowner_. You guys are just throwing away money towards rent every month. I don't want to do that."
Fast forward a few years: Not surprisingly, his interest rate reset, his apartment is worth about $400k, and he had to go through mortgage default to get a modification on his loan.
And yet he still clings to his decision - "yeah but I own my place, and it'll even out over the next few years."
Sometimes buying for the sake of buying just isn't the right decision, despite what "we were all taught."
Re: Renting vs. buying a home
#50I'm amazed to see how many scientists are in here. Lot of math, lot of graphs, lot of speculation but nobody even mentioned that we are, before technicians, people. We have desires, we have daily routines, we have habits and we have a psychological environment and background. Renting will effectively (as the video outlined) leave a surplus of money in your pockets. Which you will use to buy the latest gadgets, to pay…
> What you are really doing, when you buy a house, is forcing yourself in saving a liable equity for you and your family. Yes, there's a forced savings component, but it's expensive in terms of opportunity cost. It's not unlike insurance agents who want to sell you life-insurance policies that have "investment" components to them, when what you really want is to buy inexpensive term protection and put the difference…
> Remember that Sal Khan's comparison is of an interest-only mortgage versus renting. If you also want to build equity, well then, that's additional money out of your pocket (non-tax-deductible).
That will save you tens of thousands of dollars/euros in avoided interests over the years.