EEVblog 1430 - Rent vs Buy - My $400,000 MISTAKE!

Dave goes through the real calculations of what it ultimately cost him to rent an office vs buying an office back on 2015.
And on the importance of being your own bank, compounding interest reduction, paying off your loan early, and offset accounts for cash flow benefits.

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#Realestate #Investing #Mistake

[bigclivedotcom]

I've always considered renting as the equivalent of paying a mortgage, but with nothing at the end. You're really just funding someone else's lifestyle.

[albertbatfinder]

I bought an office for my software company against the advice of absolutely everyone. “Your business is software, not real estate.” Well, it was the best decision ever. One thing the accountants don’t weigh up is that if you have a lull in business, you’re more likely to walk away rather than fork out monthly rent. If your mortgage payments are low or indeed if self-financed, you can ride out the hard times. In very hard times, I even rented out a few desks. In business for 30+ years, not rich, but autonomous.

[nameredacted]

Dave holds the unique distinction of nearly bankrupting his business with impulse purchases of

[mozkitolife]

Alternative title: "I lost $400, 000 because of a window".

[peterhaan]

You have forgotten to add your million dollar asset, the dumpster room!

[johnalexander]

Next do "going to the casino in 2015 and putting $330 000 on red vs $330 000 on black".

Property prices in Johannesburg, 2015 - 2021: 0% growth, if you're lucky.
Property prices in Vegas, 2015 - 2021: 100% growth.

Now the real "luck"

Property prices in Vegas, 2008 - 2021: 400% growth
Property prices in Johannesburg, 2000 - 2009: 1000% growth.

I'm not saying don't invest, I'm just saying be careful, and know the risks.

[BenHeckHacks]

You still have to sell it to realize the gain. Lot of folks in America sitting on hundreds of K of gains, wanna sell but there's nowhere to go that wouldn't just immediately eat those gains.

[MichaelAddlesee]

Executive summary: 1) Buy instead of renting if you can 2) Learn the value of compound interest 3) Spreadsheets are great for weighing up your options.

[Cornz]

I lived in rented accomodation for 14 years, in that time myself and my ex spent £80, 000 on RENT.
I took my inheritence and used it as a deposit on my OWN house, my 13 year mortgage is £100 per month LESS than the rent i was paying for a house that was never mine. Not to mention the poor quality maintainance the landlady applied to the house. BEST thing i ever did was buying my own place.

[wobblysauce]

A video on the bank/loan structure would be great. The stuff they really need to teach in schools.

[jordanb]

A bit of a shallow comparison. Being 400k up is entirely due to property appreciation, which has done very well recently, but is by no means guaranteed. You'd have done better buying, sure, but what if you ran the same math in America in 2007? You'd have gotten shafted by the GFC. It'd have done better than your current route with stock investments, for sure, but the property market in australia has been on fire recently; There aren't many things you can do to make up for a leveraged investment doubling in 6 years.

[DrB]

We don't have offset accounts in the USA. You would have to take out a HELOC or refinance to take equity back out.

[TofuInc]

Very interesting. Lots of differences between the US and Australia. For instance the IRS does not allow "Offset" Mortgages here like the UK and Australia have. Personally what we have done is our business "rents" it's space but we have purchased the building, placed it under another LLC and sublease it out. We are effectively getting a free building this way and it's separate from our main business. Buying is almost always the better way to go. We are attempting to purchase another building as well where the cash flow will be used to build out server infrastructure to be leased back to our original business and generate even more revenue. Doing it this way allows more revenue to stay in the business and build equity vs giving it to the government via taxes.

I really wish this kind of stuff was taught early on to kids/young adults. It's the only way to break free of the 9-5 hamster wheel and be able to enjoy life.

[nixxonnor]

The ~$ 400k "losses" are mainly the result of the increase in value of the next door, 75 m2 business unit from $330k to $700.

[pocoapoco]

If you definitly say that your emotional well being was better having a window, then I'd say that is actually worth the $400k.

[radry]

*potential 400, 000 since you couldn't predict how the value appreciated.

[FilamentFriday]

Hindsight is always 20/20. Also you’re not including your 50sq meter office went way up in value as well. So that was a good investment.

[mlefe]

Hi Dave, thank you so much for the video!
I'm a bit confused, though, as you can argue that most of the "400k" comes from the asset appreciation (going from 330k to 700k equals 370K) --> this right there is where you would have won if you had decided to buy.
What I missed is... did you invest the extra cash you had from not buying? (i.e. the cash profit plus you had, plus the money you didn't put into the initial loan, plus the added money you put on top of the loan interest, etc.) --> all that extra cash just "sit around" without producing more money for you?

[wpherigo]

Dave - we all make bad choices for the best reasons. Engineers (in particular) do this because we are so smart!

[brad]

Renting vs buying always depends on your situation. Buying almost never makes sense within 5 years.

To me, it makes more sense to build a shop next to my house rather than rent. Building the barn is marginally more than the rent for 2 years.