The Science of Flipping - It's Cheaper To Own Than To Rent

Starting point is 00:00:00 All right, so a report just came out by Adam Data, which is a very reliable source of information that is more affordable to buy and own a home than it is to rent in over 58% of the counties in the United States. What's up everybody? Welcome back to the Science of Flipping podcast. I'm your host, Justin Colby. And that report, that report makes me think a little bit. And I want to make sure that we touch on this subject because it's actually really apropos of what's going on in the market and why so many people are still looking to buy even though people are saying the market is crashing. Now, this report really does a deeper dive about specifically they're talking about three bedroom homes, right? And these counties are all counties that have a median or under price point. Now, you could argue what the median

Starting point is 00:01:06 price point is because different reports say different things, but I'm going to make the judgment of roughly $350,000 to $375,000 is roughly the median price point across the U.S. Again, different reports are going to report slightly differently, but that's just about where we stand. So this report that came out from Adam Data, which is, again, a very reliable source of data, is saying that it's actually cheaper for people to still buy in today's economy where the prices of homes have skyrocketed drastically than it is to rent. Now, they also report that in the other parts of the country, in much larger cities, it is going to be cheaper to rent, which again, funny they say that because when I was thinking about moving to Miami, it was something that was very much top of mind. My wife and I went back and forth about, hey, are we going to rent a property? Are we going to buy a property? And the reason we even contemplated this was because I was living in Scottsdale or Arizona. So we were really going to have to buy sight unseen, where it's a lot easier to rent sight

Starting point is 00:02:15 unseen. And then you can figure out where you want to be. Now, end of the day, because I do this for a living and I'm buying virtual all the time, I know more than the vast majority of people who would try to do that. So I felt a lot more comfortable with my ability to find a home for myself and my family than I think most people would. But it was a decision we had to make. And one of the reasons we had to make that decision and why it was so difficult was because rents in Miami, which support this report I'm speaking about, actually is insanely high. Like not justifiably high to rent a three, four or five bedroom home or condo in Miami. And the vast, well, I don't want to say the vast majority, but a big component of that is how many people are still almost two years into this COVID thing.

Starting point is 00:03:07 They're still flocking down to Miami, Florida. Now, cryptocurrency actually plays a little bit of a role in this. If you've seen anything in the news, because Miami is trying to brand itself as like the Wall Street version of New York, right? So this is for crypto. So there's just a lot of things happening in cities like Miami. The same can be said for much larger cities. But it is something that people really need to think about. If you've ever heard me before, listen to my podcast, follow me on Instagram, YouTube, or otherwise, you have heard me say this. For the vast majority of

Starting point is 00:03:41 people, I don't believe they should own a home. And I know I'm going to get my haters for this. I genuinely think people buy homes for the wrong reasons without taking into account things like maintenance. Just maintenance alone. them lose any tax benefit that they would get and potentially stretch them financially to the point where they potentially put themselves in harm's way. Take a roof or an air conditioning or a pool. These things take maintenance. And when something happens in a big way, such as my roof, I had to replace my half of my roof, by the way, half of my roof was $20,000. A lot of people, for the most part, buy a home not having the amount of money it would take to repair that. And that's really where my standing is in large part coming from. Now, the next phase of that is because most people are employees. Most people don't have an opportunity

Starting point is 00:04:42 to earn more money. So for them, the property taxes, the maintenance, the repairs, and then the other stuff that goes along with having a house like furniture, et cetera, a lot of people don't take that into account. All they think about is being able to pay for a mortgage. Can I afford my monthly mortgage payment? So that's why I would say the vast majority of the people, I believe it would be easier for them to rent, right? No headaches, they just get to cut a check every month and that's all they essentially have to pay for. That's how most people think about buying homes

Starting point is 00:05:15 is as long as I can afford my mortgage payment, then I'm gonna buy a home. Well, I would tell that person to rent. Yes, you're not gaining equity. Yes, you don't have anything you own. Yes, you don't get the tax write-offs, but you're not really buying for the right reasons. You can't afford the home, right?

Starting point is 00:05:33 So that's part of the reason why I really am, in large part, not in support of people buying a home. I would rather that person take the five or 10 or 20% down that they're gonna pay on their home and go buy a rental property and allow the rental property to pay them income and get the tax write-offs from the depreciation of that rental property. And now their money is helping them make money versus just buying a home so you can say you bought a home and really you're just not doing it for the right reason.

Starting point is 00:06:05 So I digress guys. I went on a little tangent here, but again, this report says that home prices are actually moving up faster in appreciation than both the rents and the working wages. However, the working wages are moving up faster than the rents. So basically because the housing prices are jumping up at the fastest rate ever, right behind that, and not right behind that because the housing prices are going crazy, but the working wages are second to that. And from there are the rents. So for the average worker, it's more affordable for them to own the home versus than to rent if that makes sense because they're actually making more money combine that with very low interest rates and potentially a very low down payment and the point is made that at the average median price

Starting point is 00:06:57 point with the average income worker it will be cheaper for them to own the home now the same report does mention more of what i kind of believe, which is the bigger cities, a million people or more, renting is a more affordable option for all the reasons I stated before, such as property taxes, maintenance, heavily on maintenance, any type of HOA you may have. And just the overall understanding of you're going to have to furnish it and there's water and the bills. Like when you rent, it's just however much a month, $2,000, 3,000, 4,000, 5,000, it's just that. The report is stating that 35 out of the 42

Starting point is 00:07:36 remaining counties, it is actually better to rent such as San Diego, New York, Phoenix, which that wasn't always the case Orange County California Chicago Los Angeles and in many other cities interestingly enough if you actually break all this data up the article is very data-driven if you can't tell if you actually break all this data up the West is by far the least affordable for both shock Shocker, California. It does turn out that the Southern

Starting point is 00:08:08 and then the North Midwest, it tends to be the most affordable for both. And again, shocker. This is why I'm still buying rentals in those places. And lastly, guys, this report basically is talking about how the pendulum is actually swinging towards rents which means more people are going to turn out to be renting than they will be buying homes which what this report is stating is that they are gonna actually this is

Starting point is 00:08:34 gonna be some of the reason why you're gonna or some pricing easement, if you will, that the prices are not going to be appreciating quite as fast. Cause when a property does hit the market, it's just not going to be able to sell just because it's the only thing on the market because people are starting to move more and more into rents, especially under the West coast and to the East coast. So again, guys, I think this report was really good. Very timely is 2022. There's a lot of more and more into rents especially under the west coast and to the east coast so again guys i think this report was really good very timely is 2022 there's a lot of what ifs and thoughts and opinions about what's going to happen in the market and i'm one of them to try to voice at least my opinion but i do a decent amount of research and i'm actively buying and selling

Starting point is 00:09:19 deals each and every day and so what i want you to do is if you're trying to make a decision on what to do, you just need to really look at your finances. The reality is it's all irrelevant as long as you can, you know, afford your lifestyle, right? So for me, I bought a million plus dollar home here in Miami because I can afford that home plus dealing with the roof and plus whatever else. We're doing some other maintenance around the home. And so, you know, that I can afford. So that relative to paying roughly six to $7,000 of rent, which is what we were looking at in Miami, it made more sense for me to actually buy on top of which the appreciation on top of which, you know, my debt pay down, principal pay down. So for me, it made more sense. However, I was not opposed to renting because the amount of money down that I could have went and bought rentals with was pretty staggering, right? I put a decent

Starting point is 00:10:16 amount down on my home. So I would tell you, you need to figure out what your threshold for your finances is. And there's no wrong thing to do. I like the idea of being an investor. I like the idea of renting where you live and buying rental properties, making more money, which can pay for your rent, for all those that don't necessarily agree with this. Plus, you get the write-off of depreciation of the house, and you're making money that can afford the rental of your home.

Starting point is 00:10:43 And if you can buy a hundred rentals and not own your home, that to me is a win because you didn't have to come out of pocket. So I digress. If you guys haven't yet started subscribing to me on YouTube, make sure you go over to youtube.com forward slash Justin Colby, subscribe, look me up on YouTube, Justin Colby. And if you haven't yet given me a five-star review on iTunes, I would greatly appreciate it. 2022 big things are coming. They're in the works right now. Super fired up for you guys. Go out and crush this year. I'll see you on the next episode. Peace.

The Science of Flipping - It's Cheaper To Own Than To Rent

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