Renting vs Buying a Home: The Rule of 18

#rent #buy #realestate

In today's video, we talk about how to determine if you should rent or buy a home using the Rule of 18.

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0:00 Intro
1:59 Rent Considerations
6:30 Buy Considerations
1-:36 Rule of 18

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[ChaimS]

I realize it's not the stage of life you're in right now, but I would recommend in future episodes factoring in kids. Once you're married with kids there's no such thing as splitting rent with roommates, and the intangibles skyrocket. Having to deal with landlords when you have kids, especially little kids, can be an absolute nightmare, and while a single person can deal with a couple weeks of not having heat because the landlord's slow on the uptake, once you have little kids that's simply not an option. Those intangibles are a huge consideration once you reach that stage of life.

[katrinacool]

Insurance and property taxes. I live and own a home in the Florida Keys and my windstorm/flood/homeowner insurance policies have tripled in 10 years. That's the downside of owning. Not to mention maintenance (appliances, heating, a/c, water heater, roof, decking etc.) and other issues that occur with home ownership. I'm lucky to have an electrician husband and to be very handy with tools. We had our stilt house on the water built 15 years ago and I've already replaced my central a/c, all my decking and railings and all my appliances as nothing lasts. At least I have not had hurricane damage. Something to consider but rents here are astronomical so I'm not complaining.

[VincentBurke-ivxj]

The landlord doesn't make repairs for free, it's built in to the rent.

[GhostOO]

I feel like interest rates should affect the rule of 18 in some way, right now a $100, 000 loan will cost you $7, 000 per year in unrecoverable payments to the bank per year, but the rule of 18 would say you need to spend less than $5, 555 per year on renting a similar place for it to be worth while

[nikogio]

I recently compared my cost to buy vs rent over a 30 year period. Buying a 500k would cost me a over 1.7 million over the 30 years. This cost included closing cost, seller cost, property tax, maintenance/upkeep, Insurance, PMI. On the rent side my total cost total cost was a little above 700k(including renters insurance). The extra money i wouldn't spend on a mortgage i would put it into a retirement account after 30 years my investment grew to over 3 million. On the home with average increase in value I would be able to list the home for just a hair above 2 million, after all expenses i potentially would clear 250k before taxes(this happens only if i sale my personal home which after that point i would be homeless 😭).

[johnsfinancetips]

Is anyone in the market to buy this year?

[rangeless]

Good advice. Love the simple and easy to follow format. Keep it up John.

[gutierra]

I think we need to think renting as an opportunity to live in a place you like with the school district you like in this particular market which trying to buy it is really expensive. and this rule give you a good idea on what you should be doing (rent vs buying).

One thing I do not agree completely is that you are paying your landlord and losing money, yes that's true in some part but if you get the location, you wanted and you have a great leaving experiences I think is worth taking that into consideration.

Also, when you buy a house, and you pay your mortgage you are paying the bank for the money they gave you (and it's not fully your house until you pay it in full. Its own by the bank :) ) and more than 80% of that payment goes to taxes insurance and interests, so the actual payment on the house is really low at the first 10 years I would say.

[migui]

I had not heard of the rule of 18 before today--thank you!

[xiphoid]

Funny, there is the 1% rule on investment property (ie. Buying a home to rent out). The rule states, the monthly rent the property should be able collect should be should be 1% of the property price. So if you are investing in a house to rent and it's selling for $500k, then simiar house in the area should be renting for $5k/month.

[yinumzhou]

I have a little trouble following your assessment of the opportunity cost of buying a house. Your video says the opportunity cost buying a house is not investing in the S&P 500, but if you don't pay the $2000 mortgage, you'll still pay a similar amount for rent. In other words, you won't have the $2000 to invest in the stock market. Am I missing something?

[mauricelhoover]

What if the differential comes out to be exactly 18?? Any tips on that ?

[jasonsmith]

I know some homeowners absolutely don't keep up with their home maintenance.
don't repair the roof, back yard
looks like a homeless encampment, so SAD!!

[TheKingOfCasuals]

Rent is the most your going to pay. Mortgage is the least you will pay

[harisjaved]

Stock market did pretty good for me, 11.9%

[CaptainProx]

Neighbors I would say are a bit of a worse issue for apartments than they are houses. Mostly because you’re so much closer together and things like music, noise, smoking, trash, etc effect you more than a spaced out home would

[makaeo]

Thanks for you videos John. I appreciate the content you put out and would like to get my credit to the next level in my life in my circumstances. That said, I live in Hawaii and that means a lot of what you say does not apply the same to the average person in Hawaii.

I'd like to suggest you cover specific areas, Hawaii, Florida, Nevada(specifically Las Vegas), and Texas. I believe a lot of people are looking to move to these places or buy here, but this means specific situations that differ from average information, and all the people looking to move or buy there would specifically benefit.

[bulldustpapa]

is the 18 the same for all types of properties? (single family home vs townhouse)

[fontamufor]

Please could you teach me how to invest in real estate?
Thanks.

[AlexKilpatrick]

If you want to see what societal pressure can really look like, tell people that you've decided to NOT have kids...