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  • Recently I had an argument with a friend about whether you should rent or buy.

  • He did his best to convince me that renting is absolutely waste of money, it's like burning

  • money because why would you rent when you can take a mortgage, you might overpay a little

  • bit but you will end up owning the house at the end.

  • first of all, I really don't understand why do people think that renting is a waste of

  • money, I mean you are actually getting something in return for your money, a place to live

  • in, its like a service, when you are getting a cab, for example, you don't think of it

  • as a waste of money because you are getting a ride.

  • So renting a place to stay is a service as well, But the point that most people make

  • is, you have an option of buying that house so why on earth would rent.

  • What I have realized is that most people do not consider all the factors when they are

  • comparing renting to buying.

  • Of course, it's going to be different for everyone because we all live in different

  • countries and cities.

  • Interest rates and house prices are different everywhere and it's impossible to generalize.

  • However, there are certain factors that would affect everyone, regardless of where you are.

  • There is an opportunity cost that most people simply ignore although that its one of the

  • most important factors to consider when buying a house.

  • And its probably the reason why buying a house seems like a much better option.

  • Let's say you are buying a house for a half a million dollars that you could rent for

  • 2000 dollars.

  • First of all, you will have to make a downpayment of let's say 20 percent which is going to

  • be 100K dollars in this case.

  • Let's say it's going to be a 30-year mortgage with a monthly payment of 2430 dollars.

  • At first look, it seems like there isn't much of a difference between buying and renting,

  • buying obviously seems like a better deal, but when you consider other expenses, such

  • as taxes, insurance, maintenance and so on, it will easily cross 3000 dollars.

  • and now let us take a look at the opportunity cost.

  • First of all the 100k downpayment that you made could be invested.

  • To make matters simple, we will assume that you will invest in an index fund with an average

  • rate of 8 percent.

  • On top of that, since you will be paying only 2000 if you are renting, you will invest the

  • remaining 1000 dollars.

  • Here is a little calculator that will help us do the math.

  • Let's enter the numbers and submit the results.

  • With the help of compounding, you will end up with almost 2 and a half million dollars

  • and all the benefits that renting comes with.

  • Such as mobility, In my case, for example, I don't wanna be tied to a certain place,

  • or even a city, at least for now.

  • As long as I am liking it here, I am staying, the moment I realize that there is a better

  • opportunity elsewhere, I am moving there.

  • But here is the catch!

  • That will work out only if you invest every penny that you would otherwise pay for your

  • mortgage.

  • But what usually happens is that, when you decide to rent, you probably will skip your

  • saving payment because every time you will have an emergency or a reason to spend that

  • money elsewhere.

  • Let's be honest, it's much easier to skip your monthly contribution into your savings

  • account than your mortgage payment.

  • That's exactly why buying is much better than renting for most people.

  • Most people aren't much into investing so what happens at the end of the day is that,

  • your friend who took a mortgage will end up with at least something while you will have

  • nothing at the end of the day.

  • Of course, these numbers aren't 100 percent accurate, your rent, for example, isn't going

  • to stay like that for 30 years.

  • It will increase by at least 3 percent, so does your other expenses.

  • There are a lot of interesting video on this matter on youtube where they show you the

  • exact math, but to be honest, when it comes to your case, you should look at the numbers

  • in your city and do the math and most importantly, if you chose to rent, are you confident that

  • you have the discipline to keep investing the remaining amount.?

  • Why don't you let me know in the comments below?

  • Thanks, guys for watching and I will catch you in the next one.

Recently I had an argument with a friend about whether you should rent or buy.

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A2 US renting rent buying mortgage payment waste

Here is Why Renting isn't A Waste Of Money!

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    Sophie posted on 2019/06/04
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