🎥 Full episode where we unpack this more: [ Ссылка ]

Everyone always talks about owning a home and how renting is just throwing money down a drain. Yet, we dont talk about the unrecoverable costs associated with home ownership.

Unrecoverable costs are not referring to your mortgage payments but to money spent on property taxes, maintenance costs and the costs of capital (mortgage interest + opportunity costs).

Depending on where you live, renting might actually make more sense financially.

Thanks to Ben Felix's videos who explained this concept (the 5% rule) super well on his YouTube channel (highly recommend watching if you’re considering buying: [ Ссылка ]

Context: this clip is around more expensive housing, so all of this depends on additional factors like location of course. There's an elasticity to rental pricing, you can't just raise it indefinitely, or else people will stop renting and either move further out, or buy.

What you're describing makes sense on the surface level, but just paying off the mortgage doesn't take into account the mortgage interest rate (literally 6%+ right now), and on-top of that, you have 2%+ in property taxes (e.g. Austin), and say another 1% just to cover annual expenses (saying lower % because home prices are higher).

So here we are at ~9% in annual costs that are totally unrecoverable (interest/expenses/taxes). On a $200k home, that's ~$18k/yr, AKA $1.5k/mo rent would cover your mortgage and unrecoverable costs.

But now look at a $1m home, which is more the neighborhood that we're talking about in this clip, same holds true for $600k+ which is what living in a city is going to cost, minimum.

So on $1m, that 9% is $90k/yr in unrecoverable costs. Okay more like $70k because you had to put a nice $200k down payment to purchase the house (but that's $200k less that you don't need to borrow), that said, there's an opportunity cost of that $200k not making 7–10%/yr in the market (S&P500 or super safely in bonds right now at 5%/yr).

All of that said, the landlord can not charge anywhere near ~$70–90k/yr for rent for this $1m property, so in-fact the landlord loses money by renting, they'd be losing money living there too, but at the end of it, in 20 years, they own a $1m home that they paid $1.6–2m for and they have an asset that they hope appreciated more than they lost.

#rentvsbuy #investing

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