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 rent to a mortgage payment. This way of thinking about the rent versus buy decision is extremely flawed. Comparing a mortgage payment to rent is not an apples to apples comparison. In order to properly assess the rent versus buy decision, we need to compare the total *unrecoverable costs* of renting to the total unrecoverable costs of owning.

That may sound like a complicated task, but I have boiled it down to a simple calculation.

Referenced in this video:

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[sometheam]

Why am I watching this with $31 in my bank account

[snooppee]

Came here to learn if I should buy or rent.

Learned that I cannot beat this man in a staring contest.

[Greggsberdard]

No financial institution should be allowed to own 40% or more of the single family homes. This recession is paving a way for a monopoly on homes to further rid of the middle class. It would be wise for most Americans to not sell their homes if they're able to.I want to buy houses cheap in 2024 and maybe invest in stocks. When's the best time to buy stocks? Some say they make a lot, others warn the market is risky. Advice?

[DanCooper]

1.7% inflation? 😍 Ah, the good old days.

[sensitiveecoterrorist]

this dude blinked like four times thru the whole lecture i swear to god bro u on another level

[suehwan]

we gonna need Renting vs Live in a Van down by the River comparison

[gavendano]

Ben - it would be extremely interesting to see an updated version of this video using the latest interest rates.

[ivesvaz]

Man this is gold, I'm seeing a lot of comments on the numbers you've used - but people don't get the point. Just being able to pin down which variables to consider in this decision is a game changer, the numbers can be defined by you based on your actual reality - as you said about the investor's profile

[frogery]

what i learned: keep living at home with parents

[fazdoll]

I am just mesmerized by those cute little swaying pine trees.

[savinayn]

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!

[iujzziq]

You have made a very valid example about opportunity cost. That's something not many people talk about

[samknobeloch]

"An unrecoverable cost is a cost that you pay with no associated residual value..." The term is easier to understand than the definition

[jtstanley]

Takes a shot every time he blinks.. still sober

[billowspillow]

Thinking of owning a home as only a financial and wealth-building decision is part of the reason that the real estate market is out of control these days. The primary reasons I own my house are familial. There's no way I'd have ever weighed my options of using my downpayment to buy my home vs. investing it into the stock market and continuing renting, even if the latter scenario was more lucrative.

[NZLion]

I already knew I would never be able to afford to buy, but this has given me the tools to understand just how far out of my reach that really is.

[sailingfromsamsara]

As a 30 year veteran of the financial services industry I’ve had this discussion many times. Your approach is top notch.

[jobe]

As an older man, the wisest thing I did was buy a humble hidden home on a large property. No way would I have the energy or money to keep paying escalating rents in my old age. Think about your future self as an old and weak person one day. You will need a place to live that is paid for.

[tushartgi]

I think the increase in rent needs to be considered here. During initial years, owning might look expensive but then in GTA market people have started making cash surplus due to almost fixed EMI and a lot higher rents now.

[LarryAnthony-utok]

For me, I believe retirees who struggle to meet their basic needs are the ones who could not accumulate enough money during their active years to meet their needs. Retirement choices determine a lot of things. My wife and I both spent same number of years in the civil service, she invested through a wealth manager and myself through the 401k. We both still earning after our retirement.