Renting vs. Buying a Home: The 8.71% Rule (2023)

In Ben's original video, the 5% rule was presented when mortgage rates were around 3%. The 8.71% Rule takes into account the newest mortgage rates of 2023, as well as a slightly higher rate for property taxes.

Refer to the timestamps for all the fun stuff.

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Timestamps

0:00 - The Premise
1:00 - Cost of Home Ownership
1:40 - Property Taxes
2:24 - Maintenance Costs
3:00 - Mortgage Payment
6:44 - The 8.71% Rule
8:28 - Flaws of Rule (DO NOT SKIP)
11:40 - Pros of Owning
13:47 - Pros of Renting
14:57 - The Main Takeaway

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PS: I am not a Financial Advisor, any investment commentary are my opinions only. Some of the links in this description are affiliate links that I do receive a commission for & they help support the channel

[humphrey]

Also did you love the new Outro? Lmk your thoughts!

[bernadofelix]

In my opinion, a housing market crash is imminent due to the high number of individuals who purchased homes above the asking price despite the low interest rates. These buyers find themselves in precarious situations as housing prices decline, leaving them without any equity. If they become unable to afford their homes, foreclosure becomes a likely outcome. Even attempting to sell would not yield any profits. This scenario is expected to impact a significant number of people, particularly in light of the anticipated surge in layoffs and the rapid increase in the cost of living.

[ChristopherAbelman]

Back in the day, when I purchased my first home to live-in; that was Miami in the early 1990s, first mortgages with rates of 8 to 9% and 9% to 10% were typical. People will have to accept the possibility that we won't ever return to 3%. If sellers must sell, home prices will have to decline, and lower evaluations will follow. Pretty sure I'm not alone in my chain of thoughts.

[ProfessorHattington]

Don't forget closing costs (~4%) and home insurance (varies by area), that's money you'll never see again.

[Richmind-irzi]

The housing market is inflated and oversaturated with homes being on the market with astronomical price tags just stagnant for months. It is very clear that or generation will be likely one of the most devastating bubble pops in modern history. Seeking best possible ways to grow 250k into $1m+ and get a good house for retirement, I'm 48.

[RaceBannonChannel]

I've watched a bunch of renting versus owning videos and read a bunch of articles on the topic and this is by far one of the best I've seen.

[OksanaRastuk]

I was stuck on deciding if to continue investing or start paying for a house. I ended up selling my positions and the home turned out to be a fixer upper more than I imagined. I don’t know how long I can keep this up for.

[barbarar]

The non financial reasons for owning are what made me buy a property (currently in the closing stage). As long as I pay my mortgage, no one will be able to evict me and I can finally have a pet. Those 2 things alone are worth all the sacrifices I have made to save my deposit as a single buyer.
And I can finally live alone and not share a house because my mortgage on a 2bed is cheaper than renting a one bedroom apartment

[tellsparck]

Great video as usual, but a major flaw here. When we buy a home with 20% down, that is a 5X leverage to start with (the home values appreciates on the total price of the home, not just the down payment). The appreciation on home price is protected from capital gains tax (up to $500K for a family), unlike a brokerage account. The leverage gets lower as the equity increases (but then, one has built equity...) Another great thing to like about mortgage payment is that it does not increase with a fixed rate mortgage, so inflation will reduce the actual cost of mortgage payment, as you mentioned...

[alexvig]

The most important thing to consider is whether you plan on staying in that area or not for the next 7 years. Raise that number of years or lower it depending on the interest rate and base asset price. Opportunity cost can also hit you if you have an opportunity to earn double or triple the amount you make now, but you're anchored because of the mortgage.

[DePalma.]

I rented until I was 40, it made sense. But now I enjoy owning a home. I feel more financially stable now, with a mortgage😊

[masoodrazaq]

One thing worth thinking about is the product, vs just the cost of the product. In my neighborhood, 95%+ of homes are owner occupied. That means there is almost no rental availability. So if you want to rent vs buy, you might be looking at different neighborhoods and different quality of life. In other words, there are other variables to consider beside the cost of owning vs renting.

[selenagamya]

Simply seeing the listing for a 2 bed/2 bath house set at half a million dollars made me realize moving away from the west coast was probably the single smartest thing I've ever done in my life.

[savvysue]

How about including Home Insurance into the expenses?

[haloe]

I want to point out the fact that when you purchase a home with a mortgage it becomes a leveraged asset. That 100k down payment/ investment on a 500k home would have a higher return then 2% its actualy closer to 10%. The reason is because the whole asset of 500k is appreciating at 2% not just the 100k.

[lordzanik]

Loved Ben's video 4 years ago. This is a great update.

A couple major points I don't think were touched on hard enough though:
1.) Closing costs, vary depending on location and sometimes you can get the seller to cover them but that is market dependent. 2-4%
2.) Home payments are going to stay roughly the same over time but rent also will increase with inflation. Not a great effect in the short term but a massive effect in the long term. This was touched on briefly but I worry most won't have picked up on this part.


Both of these aspects mitigate the cost of the home the longer you are there.

[AstaKristjan]

What happened to SVB is really scary, and goes to show that no corporation, however big, is immune to collapse. I have always had a deep-seated mistrust for corporations. I have plans to pull out most of my money, but don't know what to do with $350k sitting idly. I'd like to go into the stock market, maybe. Any ideas?

[davidlin]

Another “cost” of owning a
house is the greatly reduced liquidity of your assets. It’s very hard to access the 500k value in your home when you need it in a hurry.

[laportafrank]

Taking early notes from Warren as to the importance of sound asset diversification and risk management It can’t be overstated. I’ve been trying to grow my portfolio of $300K for sometime now, I would greatly appreciate any other suggestions.

[superwoke]

This is a good video and I actually made an in depth calculator for myself back in college. I would change a few things.
1. I would add insurance to cost of home you can divide it by 12 to get monthly cost your rent has this build in already.
2. HOA is becoming more and more common and these prices are not set, increasing a lot like, especially in condos, these also restrict your freedom on your house and could have fines.
3. Utilities there are some Utilities the owner has to pay no matter what, usually sewer/trash has to stay in owners name.