Renting vs. Buying a Home: The 5% Rule

Please note that while this content is broadly applicable, it was originally intended for a Canadian audience. You can’t compare …

46 thoughts on “Renting vs. Buying a Home: The 5% Rule”

  1. Buying you lock in your payment for 30 years…
    Based on historical rent inflation.
    In 30 years rent will be double your mortgage payment.
    After 30 years rent will be 10x your monthly tax payment.
    The house will also be worth double…
    Buying is almost always better as long as you don't buy a money pit or buy in a crappy area.

  2. After selling a couple homes in 2020, I'm anticipating a housing crisis in order to buy inexpensively. As a backup plan, I've been thinking about purchasing stocks. What recommendations do you have for the best time to buy? On the one hand, I keep reading and seeing trader earnings of over $500k each week. On the other side, I keep hearing that the market is out of control and experiencing a dead cat bounce. Why does this happen?

  3. This is a really good video. Unfortunately, I'm not sure how useful it will be. I would argue that the person who would benefit the most from this video, if they had the knowledge to understand the various topics you are discussing, wouldn't need this video in the first place.

  4. Great work pointing out the cost of equity invested and that it can be invested in the market. Too many laypeople don’t understand this and make terrible financial decisions based on flawed reasoning.

  5. THIS is the summary of the rent vs buy decision I’ve been trying to figure out for years. The rental income vs mortgage payment calculation never made sense to me. But this is much more logical and makes far more sense. Thank you for simplifying this!

  6. Your explanation makes it more complicated than it should be. Buying a home is a life with roots, renting is always like temporary living, constantly face relocation. Buying is always better even it's not affordable.

  7. No property tax in Canada? No insurance cost in Canada? No maintenance cost in Canada? Too many important items are missing from your calculation.

  8. I don't understand why folks don't consider a house as a physical asset not dependent entirely on the stock market or the federal reserve. Surely that has to account for something when comparing with rent given that rent money is entirely sunk cost. Now depending on when and where you purchase this asset, you can get phenomenal returns.

  9. You also have to figure increase. In rent prices via a fixed loan added to inflation actively bringing down the worth of your loan. When the dollar is worth less, you owe less In that now current market. There is no benefit to renting, in fact the prices typically increase.

  10. Don't know about the US, but in some other countries you pension can easily be tenfolds smaller than your salary in the "economically active age". So, you buy anything that can lower your monthly expenses while you can, even if it's mathematically proven to be more costly. Imagine being retired, but still having to pay rent that is higher that your whole monthly income 😉

  11. I think one really should look at the demand for their area and the expected rate in which housing can likely grow in that area. That will determine if prices will likely keep going up, level off, or go down. And that can inform one on whether it’s a safe bet to buy a house in that area.

    It’s obvious but also important to remember that if you buy, you can lock down your mortgage costs for up to 30 years in the USA and you could eventually outright own the house and only have to pay property taxes and maintenance. You can also use a house as a business by renting out the extra space that you don’t use to further cut your costs or even cashflow an appreciating asset.

    If you rent, you can’t pay off the property and your rent price will typically go up In according to the supply and demand for your area as time goes on. You might be able to sub-lease what you rent but your landlord will likely increase your rent payments or not allow you to sublease if the price is below market rent. Renting also doesn’t include all of the closing costs necessary to transact a home sale/purchase which is an advantage for renting. Especially if you aren’t expecting to remain in your area long term.

    Also each area has different rules on property taxes, rent control, and different weather conditions which will effect your likely expenses. I think the square footage, land area and age of a property and HOA fees are much more useful indicators of expected maintenance costs than a percentage of the home’s value.

  12. Buying a house is always better than renting. When you rent you're paying off someone else's house. When you buy you're paying off your house. I can think of nothing worse than paying rent in old age. You're subject to the going rates and rent never decreases, it always increases. Rents in my area of CA are sky high – upwards of $2000/month depending on what you get. That's $24000+/yr in rent you're shelling out to pay off someone else's mortgage. What's worse is rent never ends whereas eventually you pay off your mortgage and are then house payment free. Of course you still have property tax to pay but part of rent you pay goes towards the landlords prop taxes so you're still paying someone else's bills.

  13. Nice video. I lean real estate personally but I think the important thing here is to do one or both but don’t do nothing

  14. Great video! it’s hard to nail down specific predictions for the housing market is because it’s not yet clear how quickly or how much the Federal Reserve can bring down inflation and borrowing costs without tanking buyer demand for everything from homes to cars.

  15. What if we invest 100000 dollar buy a property and then refinance it we get our money back and then we own the property then I can use that money to buy another one, in this way real estate is better then stock

  16. This video has some good points, but it doesn't factor in leveraging the money (the fact you have a big asset growing with comparatively minor capital invested). Sure, you pay interest but this heavily changes the numbers.

  17. Wow! I think this is a great video. However, I'd like to add a couple things. One, if you pay your house off, you don't need to pay rent anymore. And, nobody can kick you out, unless they have an army or a bunch of people with guns. And, I'm not sure about Ontario, in USA, interest is tax deductible, which, depending on your income bracket, could amount to another percent or 2. I think most rich people buy homes and real estate … but, I'm not rich and never really tried. Anyway, that's just a couple thoughts.

  18. I wonder cost of renting will go up at least the same as raise of home + tax
    While home owners pay less every year

  19. This fails to take into consideration that you are paying into an asset when you pay your mortgage and property value appreciation. When you are renting ALL of your money goes to your landlord,

  20. If you get a house for the sole purpose of investment then it may not be the best (maybe you would be better off renting it). But if you are also buying… then you are getting something. You want a house, you get it, you get something you want, something you use, just like buying shoes, a tv, a car, etc. It may not be the best investment but it is probably the best thing you can buy.

  21. What an absolutely top-notch video on the topic. Rational, thorough, informative, and accessible. Bravo sir, and thanks.

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