George Kamel - Why Buying a House May Not Be For You

Episode Date: November 10, 2023

You hear all the time that renting is a waste of money. But I’m not so sure about that. So today, we’re crunching the numbers to help you decide whether renting or buying a home is right for you. Links:  Check out the Ramsey Mortgage Calculator: https://www.ramseysolutions.com/real-estate/mortgage-calculator This episode is brought to you by BetterHelp. Give online therapy a try at https://www.betterhelp.com/george and get on your way to being your best self. Preorder George Kamel’s new book, Breaking Free From Broke, and get more than $100 in FREE bonus items.  EveryDollar budget deal: I love a good deal, and when you sign up using this link, I’ll hook you up with a 14-day free trial and $15 off your first year of the premium version of EveryDollar. Learn more about your ad choices. Visit megaphone.fm/adchoices

Coke versus Pepsi, iPhone versus Android, toilet paper over versus toilet paper under, like a psychopath. These are some of the great debates of our time. And today we're talking about another great debate, renting versus buying. Although lately, there seems to be a lot of people on Team Buy, and they're about as vocal about it as NSYNC was in the 2000s.

And in 2023, are you getting back together or not? Is the reunion tour happening? Quit playing games with my heart. This guy's crazy. You hear it all the time, especially from Uncle Terry at Thanksgiving. Renting's a waste of money. You should buy a house ASAP. If you're going to be making monthly rent payments, you might as well be building equity. And that's not even my least favorite quirk of Uncle Terry's.

It's the multiple periods after every word and a text message. Just use a comma or move on, Uncle T. But I'm old. I'm sure I'm not going to care. Punctuation aside, is Terry right? Is it stupid to rent? Spoiler alert. No.

Look, there are plenty of things I would consider to be a waste of your money, like playing the lottery or buying a $7 bottle of water at the airport. But renting, not always a waste. But just like all the big financial moves, there's a time and place to do it. So in today's video, we're going to go over the pros and cons and crunch some numbers to help you decide whether it's better to rent or buy. But first, crunch that subscribe button, like this video, and share it with Uncle Terry, so he'll finally stop verbally harassing you at Thanksgiving dinner between bites of cylindrical cranberry sauce and congealed salad. And if you like congealed salad, you're wrong. I don't care if it's a tradition in your house.

cottage cheese and jello with other things shouldn't exist. You're disgusting. There's always room for jello. All right, before we get too far into this, if you've got consumer debt in your life and you don't have a down payment saved, you are not in a position to buy a house. Period. Don't do that to yourself.

But if your finances are in good shape, you need to do a couple things before pulling the trigger on that three-bed, two-and-a-half-bath fixer up or on the corner lot with mature trees. Nobody likes immature trees. Unless they make those fart noises with their armpits, that one still hits. I can't do it while shirited. You can't do it while shirited. I shorted.

So the first thing you got to do is crunch the numbers, like actually calculate the cost of renting versus buying. Here's how. First, figure out the cost of renting by searching online for rentals in the area you want to live. Now, this should give you an idea of the cost of rent plus utilities and other fees. But watch out for hidden fees. You may need to call the apartment complex or landlord to see if they tack on extra fees for parking or elevators or garbage pickup or even pet fees, which you're going to want to know about if you're planning.

on bringing along your lizard terrarium. It never been on animal planet, they're not even famous lizards. Here's an example. We found this two-bed, two-bath apartment for rent in Nashville, Tennessee, for $1,786 a month, which is actually pretty close to the average rent in the U.S. Now, that includes utilities and a parking spot. But there's a $70 application fee and a $250 admin fee. And if you want to park in a covered garage, that'll be an extra $130 a month.

And if you're like me and have two French bulldogs who rely on you to keep them alive and well pampered? Well, you'll have a one-time pet fee of $400 and monthly pet rent, which is an extra $20 a month per pet. Now, that could be problematic, since most pets don't even have jobs, except Doug the Pug. Homie's still out there getting that bag. Love you, bro. So add in two pets and prime parking, and your monthly payment is more like $1,956 a month after a $720 upfront payment. And that might be okay for you, but make sure you know exactly what you're getting into. Now, to figure out the cost of buying a house, do a little scrolling on Realtor.com to get a ballpark price of houses you like and that you can afford.

Then after you've had a good cry, head over to our Ramsey Mortgage Calculator. I'll drop a link below. What you're going to do is plug in the home price and your down payment amount to figure out the monthly payment. That includes your principal, your interest, property taxes, homeowners insurance, HOA dues, PMI, you name it. Then you're going to want to tack on about 300 bucks a month for utilities like electricity, gas, water, sewer, and things like internet and trash collection, which could add another

hundred bucks a month. Side note, don't forget the actual act of buying a house costs money. There are fees, closing costs, inspections, appraisals, realtor commissions, so you've got to run the numbers here. So let's take an example of a $300,000 home. With a 15-year mortgage at a 6.25% interest rate with 20% down, your total monthly payment should be about $25.50 a month. That includes taxes, insurance, and HOA. Then you're going to add on an extra $400 for utilities and other services, which puts you at about $3,000 a month all in. Now, if you put down less than 20%, you're going to have additional private mortgage insurance, that PMI, on top of all that.

Now, if those numbers make you want to throw up in your mouth a little, you may need to look for a cheaper house or keep renting for a while while you continue saving up a bigger down payment. But think about that, three grand versus that $1956. Suddenly, that apartment doesn't look so bad. And monthly costs are not the only thing to consider here. You've got away the pros and cons of both buying and renting. Let's look at the pros and cons of buying. Pro. One good thing about buying a house is that if all goes according to plan, you will own the house.

That's pretty cool. Now, when you pay a rent, that money doesn't build any equity. When you pay your mortgage, your money slowly but surely goes toward owning your home outright. It's mine. All mine. Another pro. You can cash in on appreciation. You see, your house will probably increase in value over time depending on your market and how well you took care of it.

So what you buy for $300,000 today could sell for $400,000 or $500,000,000, $500,000. on down the road. Another pro, you could get tax advantages. Some of the costs that come with owning a home, like property taxes, mortgage interest, might be deductible if you itemize. Now, this may not be a huge deal, and it doesn't apply to many people, since most people do the standard deduction now. But hey, credit where credits do. Credit? What goes that kind of credit? Another pro, you have freedom to renovate. Okay, you're going to feel like a baby chip gains at this point. You can do whatever you'd like to your house. Maybe you're into Barbicor, and you want to paint your house hot pink from top to bottom. There's no landlord to stop you, although if you've got a spouse, they might have something

to say about it, and possibly the HOA, and you'll have to answer for your actions at the pearly gates, which one would hope are painted Sherwin Williams, pearly white. One would hope, if the gates are pink, I'm just saying I'll be shocked. I'll be shocked. Gasp. Another pro. You have more privacy. It seems like the drywall and apartments is the thinest dorm room toilet paper.

And I don't want to hear Gary and Linda arguing over who's going to win the voice, okay? By the way, it's definitely going to be Sorrell. they have the voices of little Gen Z angels. Having her own house means you don't have to hear it. You can just sit there and peace and quiet. Just you and that 10-pound weighted blanket and that three-pound bag of Sower Patch kids that you're still working through.

I'm not doing well. Let's move to the cons of buying. One con, it's harder to relocate. See, when you buy a house, you're putting down some roots. And if you have to relocate to Boise for work or you get the sudden urge to live in Canton, Ohio for a while, we've all been there. You'll have to sell your house

or rent it out or prep it to stay vacant for a long time. So moving becomes a lot more difficult than just renting. And pro tip, you usually want to stay in a house at least three years to avoid losing money when you sell it. You want that house to appreciate in value, and you don't want to pay capital gains if you sell it within the first year or two. So if you don't see yourself living in the same spot for a few years, don't buy a home there.

Another con. You have more expenses. The average homeowner's insurance is $1,582 a year for a policy with $350,000 of dwelling insurance. Meanwhile, the average cost for renters insurance is just around $173. per year. That's a big difference. And then you've got to think about property taxes. According to data from the U.S. Census Bureau, the median yearly price homeowners paid in property taxes is $2,690. Now, on top of that, throwing utility bills, repairs, maintenance, upkeep,

and those monthly expenses start to get pretty high. There's also the possibility that you've got HOA fees to pay for or a flood policy that could add to those costs. Another con of buying, you're the landlord. Now, that might sound nice at first, but just wait till a strong Nor'easter takes a ranch from the neighbor's maple tree and relocates it to your now leaky roof. That could be a full-on crisis that could drain your emergency fund. But when you rent, you can just stick a bucket under there until your landlord fixes it. And as a homeowner, you're also responsible for things like mowing the grass and pest control and cleaning the gutters.

You'll either have to deal with these things yourself or hire someone to do it, and either way, it's going to cost you some time and money. And by the way, there's always something to fix around the house, and those costs can really add up. No! No! My cats are ruining my life! This episode is sponsored by BetterHelp. Hey guys, it's George.

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All right, enough hemming and hawing about homeownership. Let's move on to renting and look at the pros and cons. Pro, you can move easily. It is so much easier to get out of a lease than a mortgage. So if you're tired of renting in Elkhorn, Wisconsin, you can just pack your bags and move 88 miles to a new apartment in the big city. In Chicago? No, Sheboygan.

Another pro. You don't have to pay for maintenance. If the HVAC is on the fritz or the gasket seals break on that fridge, it's not your monkey because it's not your circus. or in this case, your house, which could feel like a circus. Not my circus, not my monkeys. Another pro. It's cheaper in the short term. Think about it.

You've got virtually no maintenance costs. Renters insurance is way cheaper than home insurance. And the moving costs are lower since you just pay a small security deposit instead of a giant down payment plus closing costs. And once you're in, you don't have to pay high HOA fees or private mortgage insurance. All you have to worry about is that rent payment. Now let's look at the cons. One con, rent will go up.

Yeah, even if you found a killer deal, chances are your rent's going to increase year after year thanks to inflation, competition, and rising property values. And also, maybe some corporate greed. Another con. You have no financial incentives. No tax deductions, no equity, no rising property value. So even though you're spending your rent money on an important living expense, you might feel like you're not making progress with your money. Another con.

You don't have the freedom to renovate. No little chip gains for you, my friend. Sorry. Now, would the bathroom look better if the towel was not the, the exact color of an earthworm? Sure. But whether or not your landlord will approve of changing it is another story, especially since they'll be the ones paying for it. And even if they let you do it, you're going to have to undo it when you move, which is going to cost you. So after you've crunched some numbers and weighed the pros and cons, there's one more huge thing to consider, and that is

location. You see, if you really want to live in the city or a part of town with good schools and crazy expensive homes, renting might be way more affordable than buying. But if home ownership is more important than living in the nicest part of town. You could buy where prices are more affordable. I hear homes are cheaper over by the pit. Do you live down here? What? What? Yes.

So back to the original question. Is it better to rent or buy? Well, my take is it's better to buy when you're ready. I think it should be a long-term goal for all of you to eventually own a home one day. But in the short term, for many of you, renting is the right choice right now. Until you're out of debt and built up your emergency fund,

Renting is definitely the way to go. Don't let anyone fool you into thinking otherwise. Renting shows patience and responsibility as you get your financial house in order and save up for that down payment. And you can't compare monthly rent to monthly mortgage. It is not apples to apples. Home maintenance, repairs, more expensive insurance, increasing taxes, and often pricey HOA fees, make home ownership a huge financial burden if you're not prepared. And think of it this way. Rent is the most you'll pay, while leaving you with less risk and more flexibility. The mortgage is only the beginning of what you'll pay due to all the expenses I mentioned above.

And listen, I'm a big fan of home ownership, but I beg of you, do not buy a home before you're ready. But I want you to have a home one day. Buying a house and paying off that mortgage early is a huge part of your wealth-building journey, and it also gets rid of your largest fixed expense, a mortgage payment. So don't listen to the naysayers who guilt and shame you for being a renter,

okay? The best time to buy a house is when you can actually afford it. Also, be sure the PITI, principal, interest, taxes, insurance, is no more than 25% of your take-home pay on a 15-year fixed-rate mortgage. Now, is that extremely difficult with the current housing market and interest rates? Sure, but the math hasn't changed. And if you're throwing 40, 50, 60% of your take-home pay towards living expenses, you're going to have a bad life. You're going to be broke with a lower quality of life unable to save for other financial goals

and retire with dignity. So tread with caution and rent happily until you can buy. All right, hope this video is helpful, and I hope it squelches all the grumpy comments from haters like Uncle Terry who love to tell you that renting is a waste of money. But spoiler, it won't. They'll keep doing it. That curmudgeon spirit is the only thing

that makes them feel anything these days. Sad, I know. As always, make sure to like, subscribe, and share this video with your friends and let me know in the comments if you or someone you know actually has pet lizards. I'm just curious. Like, why?

I mean, I guess it's better than having a cat, but not my much. I mean, I don't want to pet a lizard. All right, that's it. Thanks for watching. We'll see you next time.