How I grow my money by Renting vs. Buying a home (The 5% Rule)

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Steve Antonioni is not a financial advisor and nothing in this video should be construed as investment advice.

[Riggsnic_co]

More and more people might face a tough time in retirement. Low-paying jobs, inflation, and high rents make it hard to save. Now, middle-class Americans find it tough to own a home too, leaving them without a place to retire.

[nathanandtiffany]

As a Doctor (of physical therapy. Don’t worry I don’t make money like an MD) who several years ago decided to rent a nice apartment and sell their home and put that money into their investments. As well as save nearly 50% of my income towards my retirement early. I completely agree with what you’ve done here. We did this similar analysis when we were homeowners and came to the decision that owning a home only saved us about $3000 a year. However the amount of time and energy then went into maintaining that house far exceeded the value of $3000 a year. Renting has given me back so much of my personal time and that has a tremendous amount of value too. Nice job.

[toddspangler]

I was about to argue until you said owning a home under 400k might make more sense. :) My 1st home was 85k, paid it off in 10.5 years and turned it into a rental. It has now made back all the money I paid for it and is worth around 125k now.

[FlyingSolo]

I think another important point that was missed is that rent goes up just about every year whereas payments are fixed for the life of the mortgage loan. Short term, this is not a big deal. But once you get to a place in your life where you are on a fixed income, it becomes problematic and financially straining to continually pay higher and higher rents.

[lapostropheATLA]

What a funny opening! I once bought a house with mortgage and realized, I only pay for interest for for the first few years. I finally pay my mortgage and move to another country. I decided to rent, and then Friends start to question me, when I will stop renting and buying a house. I told them I’m not interested based on my experience owning. A house, and they just rolling their eyes. I think the pressure from society is shaping the mindset that owning a house is an ultimate goal of life.

[DanielKauffman]

Think the most important factors in this decision should be: 1) rent if you are planning to move or your home requirements will likely change in the next 5-7 years 2) rent if you do not have enough money for a down payment

[MichaelAmsel]

The big thing nobody seems to talk about when it comes to home ownership is that even when your home does increase in value, and you’re able to sell your home for perhaps double what you paid, you still need to go and buy another home! Unless you’re able to own 2 homes simultaneously and rent one out while it builds equity and eventually sell for profit, you will always be in a mortgage situation.

[pitabread]

13:15 As a former Toronto resident, that joke was a knee-slapper.

[DavidMiller-dudy]

I believe everyone should own stocks. stocks have consistently proven the best way for the average person to build wealth over the long term. I bought my first house from its proceeds.

[DanielKauffman]

A few things. There are tax deductions in the U.S. for interest paid on a primary residence, so the true cost of capital is lower than 3% and only paid on a portion of the home based on how much you borrow. Also, your down payment is typically leveraged. So, the total home value might only increase 3% per year, but with only a 20% down payment, that's the equivalent of a 15% return on investment (3% ÷ 20% = 15%). Additionally, you likely have pay capital gains taxes on your stock market returns reducing that true return to below 6%. Finally, a purchase is mostly a fixed cost and some of the unrecoverable costs decrease over time like interest as you pay down your principal. However, rent almost always increases annually and you aren't even guaranteed a place to live after your lease term expires. So, I hope you enjoy regularly looking for a new home and have lots of friends and few belongings that you have to move.

[aubreymcgovern]

Great video! I'm still undecided about crypto. I'm a big fan of gold, which I used to hoard to protect my money from the Wetherspoons and the student union bar. However, I ended up selling all the gold I accumulated and now I want to put it into a safe investment. I want to see what it's worth in 5 years. If you had £500k and you weren't allowed to leverage, would you buy physical property or REITs?

[Mexicobeanpole]

I can not even imagine if we had rented for the last 40 years living in a Florida beach area. We’ve bought 5 houses. All the least nice house in a great neighborhood and lived in them for 2-3 years while fixing them up. So, 6 or so months of renovating. 1.5- 2.5 years of enjoying them and then selling for tidy profits. All along investing 20% of our income in the market. Now, at retirement age. We have a dream house in our dream neighborhood and no mortgage.
Plus market income. The bulk of our wealth has been through this real estate strategy.
Not to mention the quality of life. We rented for 2 years of that time due to a job transfer. Money out the window. No sense of “home” or pride of ownership. No pets allowed. First house was sold out from under us and we had to pay to move. Rents raised.
I haven’t even mentioned the fact that it’s much, much more expensive to rent than to own in a Florida beach town. No brainer for us.
Another thing you didn’t mention is we’ve made our house to suit us. Our style. Our hot tub and pool. Our whole house generator. Our style of roof. Our home is one of our home runs in life.

[elias]

Eventhough the annual growth of a property is less than the stock market, you are still taking advantage of a significant 80 percent leverage that comes into play by investing into a property. The annual growth value/return is based on the total asset.

Part of the 5% cost can be removed by renting out your basement.

[KLYSM]

That's why if you're on the younger side, you shouldn't own a home, you should own investment property.

[chasingcuriosity]

what you missed with the property value increase vs stock market percentage is that you get the percent increase on the whole value of the home, not just your down payment. So if you put 5 percent down and get a 3 percent return that is actually a 60% return on investment. In essence you are earning a return on the banks money.

[jonathonl]

Man I've just discovered your channel! I love your work and LOVE the sounds you use in your videos.

[ericr.]

I just sold my house of 24 years and am now renting. I was looking for some buy-rent evaluations and found your video. Nicely done. One thing that I found missing though is that you don't address leverage. With 20% down, you're leveraging that additional 80% compounded over time with tax deductions for the interest. And, in comparison to other leveraged equity investments, there's no margin calls if things turn south for awhile. For most average people, home ownership has historically been, and continuities to be a path to wealth.

[samsmith]

When you have a morgtage your landlord is the bank.

[nayaclark]

“The whole reason we grow wealth in the first place to gain happiness in one way or another” that’s a key thing to remember throughout all of this.

[NolanMatthias]

Interesting concept, however it seems that the 5% rule ignores the returns associated with the leverage of having a mortgage. For example, if you put 20% down, and property values grow by 3%, the return on your down payment isn’t 3% it is 15%, because you are getting 3% return on the entirety of the property value not just the down payment. Granted you will have unrecoverable costs, however even if they are similar to rent the return on your cash will be far greater than stocks.