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Should you rent or own your home? Host Keith Weinhold reveals the biggest homeowner myths. Complete episode transcript below. Read along. Subscribe to our weekly newsletter here. Resources mentioned: Business Insider: Rent vs. Own: https://www.businessinsider.com/buying-a-home-instead-of-renting-isnt-always-better-for-your-savings-2017-11 Housing Wire: Homeowners Wish They Were Renting: https://www.housingwire.com/articles/49743-quarter-of-us-homeowners-wish-they-were-renting-instead/ Mortgage Loans: RidgeLendingGroup.com QRPs: text "QRP" in ALL CAPS to 72000 or: eQRP.co By texting "QRP" to 72000 and opting in, you will receive periodic marketing messages from eQRP Co. Message & data rates may apply. Reply "STOP" to cancel. New Construction Turnkey Property: NewConstructionTurnkey.com Best Financial Education: GetRichEducation.com Top Properties & Providers: GREturnkey.com Follow us on Instagram: @getricheducation Keith's personal Instagram: @keithweinhold Welcome to Get Rich Education. I'm your host, Keith Weinhold. Is homeownership a sham? Is it a rip-off? When it comes to the home that you live in yourself, is it better for you to pay rent to a landlord, or own that home yourself? For your primary residence, what should you do in your specific life situation? You'll learn today … on Get Rich Education. ——————- Welcome to GRE! From Syracuse, Sicily, Italy to Syracuse, New York and across 188 nations worldwide. I'm Keith Weinhold, this is Get Rich Education. Usually on this show, you learn about how buy-and-hold rental property, when bought strategically - produces wealth. We'll return to that next week, but today ... … it's about your primary residence. And, when we talk about, should you own your home or is it better for you to pay rent to a landlord - think about how important this is. Because whether I've had the chance to meet you yet or not, there's one thing that I definitely know about you, and that is, you are always going to live … somewhere. Your housing expense is one of the biggest financial expenses in your life. Despite that it's such a substantial financial decision for you, some people revert to orthodoxy - this FLAWED orthodoxy where they think that owning is always better. That's not true. I really want you to watch your mind as I tell you this today, because there are very likely a few tripwires installed there … and I am about to hit some of them. So do your best to remain calm … if you must. Though more people are waking up to the fact that renting is sometimes better, I still think that popular culture has long reinforced this misplaced notion that owning is always better. "Are you a homeowner, Greg? No. I rent. Oh." Haha! That's from the classic comedy movie "Meet The Parents". Owen Wilson & Ben Stiller - while Robert De Niro - the future father-in-law was party to that chat where he's thinking that the homeowner is the more apropos suitor for his daughter than the renter is. Look, if you can OWN a home and your monthly housing payment is $2,500, but you could instead PAY RENT on an equivalent home for $1,500 - now your cash flow has increased by $1,000. That's money in your pocket today that could be re-invested at a rate of return. Now with your $2,500 housing payment in this example - that's more than just a mortgage payment remember. When you own, your HOUSING payment consists of mortgage principal & interest, property tax, property insurance, maintenance, repairs, utilities and more. You've got to add all that up to get to $2,500. What about that TIME it took you on HOW to repair the leaky faucet when you owned the home? Factor that in. Now, the homeowner might reply, but at least part of my $2,500 payment is building equity for me. Yes, it is. A minority of that payment is building equity. You'd rather have equity - you'd rather have principal paydown than lose it to interest. And you'd rather have equity than nothing. But, as I've discussed extensively elsewhere - so I won't do that again here - home equity is unsafe, illiquid, and it's rate of return is always zero. You can probably repeat that to me at this point - ha! Also, what's more important in your life? Cash flow or equity? Cash flow is what creates financial freedom. As an investor in the pursuit of freedom, in fact, you want to CONVERT your equity to cash flow. Remember, in this $1,500 rent payment vs. $2,500 housing payment scenario on your primary residence … it's the renter that has the additional $1,000 cash flow and the homeowner that builds the equity. Let me remind you. If you would like to READ along as you listen to the show today or you know someone that's hearing impaired, you can read the complete transcript to this episode at GetRichEducation.com/309. That's GetRichEducation.com/309 to see all the Show Notes and the entire written transcript for this episode. Well, some people think that buying & owning their primary residence is: "LIke paying rent. Except you get to keep it." Well,that has caused millions of people to buy houses that they later regret. I know a young, married couple - Jerome and Jessica - they've got two kids. They wanted to move from snowy Anchorage, Alaska to Las Vegas, Nevada. They had lived their entire lives in Anchorage and were tired of the snow and wanted some heat. You think that they might discover an overcorrection problem, btw? Vegas is in the middle of the Mojave Desert. But anyway ... They had owned their Anchorage home for five years before they put it up for sale. That was the first home that they ever owned - starter home. Had they been renting that home - they could have moved where they wanted to in as little as a month. But as homeowners, by the time they made all the make-ready repairs to the home, got it listed for sale, had to repeatedly prepare their home for showings - meaning they had to intermittently get their home in pristine condition to make it look good for showings - uprooting their lives every time … they finally sold it in 4-½ months by the time their buying got their financing in order & inspections & appraisal & the deal actually closed. If Jerome and Jessica had been renters instead, they could have been on their way in a month. Plus, over the five years, their home appreciated a little, but not enough to offset the 4% closing costs when they had bought five years earlier, all the maintenance & repairs that they had put into place DURING the five years they lived there, plus then they then had to pay a real estate agent a 5% commission when they sold. They not only lost money by owning, they lost time, they lost mobility. They didn't have liquidity. For Jerome and Jessica, they got a lesson. "Paying rent is not the same as throwing money away." Well, I can tell you, Jerome and Jessica moved to Vegas one year ago now. They have been renting from Day One there, they're still renting, and they have no plans to buy in Vegas anytime soon. "Paying rent is not throwing money away" because you get the BENEFIT as using that space as a home, a place to sleep, prepare food, eat, shower, study, entertain - how in the world is that throwing money away? It isn't. You know that I've told you on this show before that paying rent is not throwing money away just like the five hour flight that you took from Boston to Phoenix last year wasn't throwing money away. No one called it throwing money away when you paid $500 to "rent" that airline seat for five hours. Why, because you had the BENEFIT of travelling somewhere. Sheesh, how far are people going to take it with this nonsense that "Paying rent is like throwing money away?" Your gym membership is $50 a month. But you didn't get to take a set of the 40-pound hex dumbbells home after six months of membership did you? Gosh, how far would you take this nonsense line of reasoning? You like to go mini-golfing? I'll bet that you paid some portion of your fee to rent the put-put club and a little orange golf ball for two hours. How are you going to think - that you now expect to own equity in a put-put golf club that's all nicked-up and was used by 80 different people? Sheesh, that's ridiculous. You had the benefit of a gym membership because you're healthier. You had the benefit of mini-golfing because you like some recreation. You didn't throw money away. What about renting an RV for a week? You didn't throw money away. You had the benefit of using it. This whole misguided notion that paying rent for a place to live is throwing money away is a … replete farce. But that also doesn't mean that renting your primary residence is always better than owning either. Well, let me give you some numbers here. This will help you debunk that notion that - ad infin-I-tum, homeownership is better. Look, in a place like Manhattan's Tribeca neighborhood, a small apartment has, just for simplicity, say a rent-to-value ratio of three-tenths of one-percent. That's a lousy deal if you're the landlord and an awesome deal if you're the renter. So, what that means is that market rent is only $300 per $100K worth of property. That's that three-tenths of 1%. That ratio might then be $3,000 of rent on a $1M apartment in Tribeca, Manhattan. But look, in a place like Memphis, Tennessee or Little Rock Arkansas, the rent-to-value ratio might be a full 1%. Now see, if you're a renter here, you'd have to pay $1,000 for every $100K worth of property. (Not $300 like Manhattan) Well, in that case, it makes more sense for you to own your home. BTW, it also then, makes sense for you to own Memphis real estate & rent it to others - because for every $100K of Memphis property you own, you'd RECEIVE $1,000 in rent. You'd RECEIVE a full 1%. Generally, on the coasts, it's better to pay rent for your primary residence - and in the heartland, it's better to own that real estate - whether you're renting it to others OR living there yourself. But there are so many more considerations here than just numbers and geography. So, what else makes sense to your specific situation? And before I go on, please don't think that I'm "against" the real estate AGENT industry. That's not true. Gosh, I'll stand up for a GOOD real estate agent when it makes sense. For example, when it comes to selling your home, you might not want to pay a 5 or 6% sales commission to an agent. Some people would rather sell it themselves and pay 1 or 2%. But what some sellers fail to consider is that an agent might help you get 4% more for it because they know how to reach more buyers, and do it fast, and save you a lot of hassle and uncertainty. So, there's just one example of how I'll stick up for agents when it makes sense. But, getting back to should you own or rent your primary residence, I'm here to help you decide what's best for you. You've ultimately got to decide. I WILL tell you when it's better to be a homeowner than rent shortly. But first ... A recent survey from Freedom Debt Relief shows that homeowners have many regrets when it comes to the purchase of a new home, mostly because they are largely unprepared for the initial cost and the ongoing financial responsibility that comes with homeownership. Of the 1,028 people surveyed, 29% said homeownership makes them feel anxious and stressed, while 26% said the cost of owning a home is a burden and they wished they were renting instead. When it comes to affording house payments, it was Millennials and Gen Z homeowners who said they are struggling the most. Half of these homeowners said property taxes turned out to be higher than they expected, while 52% said their monthly mortgage payments are too high. With renting comes an always-available maintenance team and the ability to call the landlord when there is a problem. Conversely, homeowners have to mow their own lawn, paint their own walls and fix their own leaky faucets. And some of these tasks have homeowners shelling out more cash than they planned, with 59% saying maintenance and repairs are more costly and require more effort than expected, and 60% saying they cannot afford needed upgrades. That said, it seems the idea of owning a home is still attached to the concept of what it means to succeed in this country, with 59% of homeowners saying they believe that owning a home is still part of the American dream. I'd like to add that the survey was conducted "pre-pandemic". Most people think that owning a home is a financial asset. That's debatable. The Rich Dad school of thought is known for saying that, "A home is a liability, not an asset". An asset puts money into your pocket every month. A home is a liability because it takes money out of your pocket every month. Of course, in the conventional sense, a home is in your asset column and it's mortgage is in your liability column. Though owning a home is often a poor financial investment, you still tie up a lot of money in your humble abode. You really have more than two choices in how you live - it's actually more than just rent or own. You have four choices in how you live: you can own your home, pay rent to a landlord, be homeless, or live with your parents – ha! We're only discussing two here: Rent vs. Own. Fannie Mae associates "Home ownership with the American Dream." in their marketing slogan. In America, how many people own their homes vs. rent their homes anyway? About 2/3rds own and ⅓ rent. The homeownership rate is currently about 68%. Well, I've probably got your wheels turning now on "rent vs. own". Let's break things down further. I've got 16 factors that I came up with here for you to consider, many of which you've never thought about before - on this. Often it's an exercise in pros vs. cons for you. Often, it's rationalizing a series of trade-offs for you. The first of these 16 factors is ... Mobility. Many people move more often than they expect. Renting keeps you nimble. With a new job opportunity or life change like marriage and kids, your mobility is an asset. A homeowner that moves a lot gets eaten up and beaten up with closing costs, make-ready expenses, and sales commissions. Kinda like where I told you about Jerome, Jessica, and their two kids. Choice. There are more homes for sale than there are rentals, especially at the higher end. See if you want to rent a high-end place, they're often really hard-to-find, especially in a more rural area. Renting of high-end homes limits your choice. You might feel like you HAVE to buy to get what you want. Equity Buildup. Equity is the difference between what your home is worth and how much you owe on a mortgage. Homeowners build equity; renters don't. Equity is like a forced savings plan. But equity is an awful investment with zero return. Your return is zero because the presence or absence of home equity has nothing to do with whether or not your home appreciates. (Yet you would rather have equity than nothing.) Houses make terrible "banks" - they're bad places to store cash. Liquidity. Though most homeowners build equity, it's difficult to access. To tap your home equity, you must prove to a bank that you qualify again, wait months, incur costs, and you still might be denied access to the equity. Opportunity Cost. Many tie up a 20% down payment or more in home equity. As I've stated, those equity dollars are low-use, zero return dollars. Instead, your chunk of money can be earning a return for you elsewhere. Sunk Cost. This is an overlooked killer for homeowners. I mentioned some of…
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