ACCOUNTANT EXPLAINS Should you Rent or Buy Your Home

If you are dreaming of purchasing your first home - you may be wondering if it really makes financial sense to own a home rather than simply renting.

I ran the calculations and I was surprised to find what the best option was based on the current real estate market and interest rates.

In this video, I will go over common misconceptions that people have when buying vs. renting and why it’s flawed, I will run through the numbers on whether it makes financial sense to own vs. rent, as well as other important considerations you should know.

00:00 Intro
00:26 Common Misconceptions
02:27 Is it really better to own vs. rent? Assumptions Used
04:32 Two Scenarios
04:47 Scenario 1 Calculations
09:58 Scenario 2 Calculations
13:34 The better option?
14:00 Other important considerations

Disclaimer: Note this video is not financial nor accounting/tax advice and should be used for entertainment purposes only. Consult with your own financial advisor, accountant and/or tax advisor for advice related to your specific situation.
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Gabrielle is a CPA and Tax Expert, as well as the founder of Balance + Wealth CPA, a licensed CPA firm that specializes in Tax. Prior to starting her business, Gabrielle worked as a Tax Manager at one of the Big 4 Accounting Firms for 7+ years, advising Fortune 500 companies. Gabrielle posts weekly videos on personal finance, business finance, and tax tips.
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[Brodin-idre]

Asking a real estate agent whether you should buy a home right now is like to asking an alcoholic whether they think you should have a drink lol. Homes in my neighborhood that cost around $450k in sales in 2019 are now going for $800 to $950k. Every seller in my neighborhood is currently making a $350k profit. Simply unreal. In all honesty, deflation is what we require. The only other option is for many people to go bankrupt, which would also be bad for the economy. That is the only way to return to normal.

[Bob-bepj]

One item that is not included is the transaction costs of buying and selling which are significant.

[dedrickbroussard]

The best part of owning a house is the ability to do with it what you please, and not to have to answer to a landlord.

[Kelly_kit]

Totally worth it! Bought my house in 2017 for $625K, paid off the mortgage by 2023, now living rent-free!

[BobSmith-pwjz]

Great detailed breakdown, all the real-world examples made it more understandable too. It's good to know the answer still pretty much comes down to "it depends". I still occasionally see some people state "if you're renting you're just throwing your money down the drain", but it's clear that renting or buying can both be valid options, depending on the scenario.

[paulpaul]

Your analysis was very good. In my opinion, one of the main benefits of home ownership comes in your retirement years once the 15, 20 or 30 year loan is paid off. You no longer have to worry about the burden of the monthly payment whether it be for rent or loan repayment. Of course you still have maintenance fees, taxes and upkeep to worry about.

[dicklambert]

This is a pretty straight forward example in the economics of buying a house and renting. Unfortunately, the reality is buying a house is more complex than just running the numbers. For instance, when you are buying a house you will consider affordability, the facilities in the area, are there good schools for the kids, how far away is it from home and the list goes on. Also for simplicity sake, there are many factors that are not considered in home ownership such as cost of maintenance, if the roof needs to be replaced, plumbing or HVAC work that is a major expense. I also want to point out that your behaviour changes depending if you're renting or a home owner. For instance, you tend to buy more stuff like more furniture, lawn mower, leaf blower, basketball goal or even own your own pets when you own a home because you tend to have more freedom to do whatever you want whereas if you are renting, your mindset is always set to consider your landlord's policies which is more limited that when you own your home.

[nickphang]

Owning is better in the long run!
Rent will always goes up and up!
Wish I had done it at younger age!

[PatriusW]

I'm in the position of thinking of buying my first home at the moment so this is really helpful! Thanks Gabrielle :)

[ChaseWBenson]

I'm so happy and grateful to have finally found an in depth local creator such as yourself. Mostly all knowledge when searching this type of stuff it's always US based information, or it's from another province. It's a shame it's not cohesive system for all of our country, that'd be so much easier. Haha

Thanks for the helpful knowledge Gabrielle. :)

[MikesFinancialEdge]

Great video Gabrielle! I teach a personal finance class at a college and take time to talk about many of these same items. This is a really informative and detailed video covering the topic. Nice job!

[Beth]

Such an excellent video! As a real estate agent in Hawaii, there are different assumptions I'd use for calculations, but you covered all the bases really well. Every location, neighborhood, and home will yield different results and real estate will not always be the best investment when compared to other options. It depends on so many factors, which you mentioned. Thank you for the video!

[ICanCreateThat]

The biggest variable is the rising cost of rent and inflation being passed onto the renter. A mortgage payment, insurance and taxes could be $3, 500-$4, 500/month for a typical house here in Seattle. BUT rental prices are increasing constantly and as you said, if the landlord gets a bug up their butt, they can force you out into a competative rental market and you'd be screwed. This is happening to my aging parents right now since my dad tried to say that renting is better than buying for so long, and now we are having to consider a multi-generational household to keep them housed.

The other thing not considered is wage increases. Most people's wages increase over time which works for the benefit of someone with an existing mortgage. That mortgage stays the same with a fixed rate loan. And you can use those wage increases into home improvements or like in Seattle, a DADU to bring in additional rental income and an increase of the housing supply which is greatly needed in this city. Plus, you have equity.

And adding along with other folks chiming in, you have a place you can personalize and settle into. Landlords very often get upset if you nail a hole in the wall or paint the walls any color other than a shade of white. I've lived like that for decades and its depressing for a creative individual.

[wbussman]

Thank you for that rundown. It helps me rationalize my doubts.

[fiattenebris]

Thank you for the great explanation! One factor I'd consider (which you took into account with the disclaimer about the assumptions) is that even though using the historical rate of return for equities might make sense for the sake of simplicity when calculating the opportunity cost, I would presume most people don't keep their savings in a 100% equities portfolio, so this could make the option to buy even more advantageous comparatively.

[michaelle]

Thanks Gabriel for the excellent video on buying vs renting comparison...keep up the great work...👍

[hdmonge]

Gabrielle, you are a gem. Your videos are very helpful. Thank you.

[whooaaapppp]

Thank you for this informative video Gab, you're amazing!

[rasicule]

Great video!

My projections would be slightly different. If real estate prices are expected to rise by 3%/yr, I would also expect rental prices to rise by the same amount. Also, I would hesitate to assume 9.1% returns on equities, a few years ago I remember projections by Vanguard estimated growth to be subdued and they were projecting something like 5.5% - 8% through the 2020s. My estimate (or guess) would be more like 7.5% returns.

I suppose my projections would put buying well ahead of renting in most cases.

[Ride-an-animal]

In Canada, the mortgage has to renew every few years so your mortgage cost will vary a lot depends on the rate. If you can't afford your home during the high inflation period like now. You have to sell low and incur losses. Everyone is comparing the high to low market but not everyone is selling on high and buying in low. When you are selling, someone is buying so the timing is made make or lose the money