What I want to do in this video, about the decision to rent and buy a house for ourselves is to give a framework for thinking. The main result I hope you will get after this video, simply lack of an easy correct answer, rent is always good or that it is always good to buy. For full disclosure, I have a house and I got it for many reasons some of them were emotional, some were frugal. It depends on your personal context, where are you from what part of the world you live in what the current state of the economy is and which rents are compared to which house prices. I hope this video tells you at least about this will give you a framework to think about.
Let's say this house is currently on the market and the market rent is 1,500 per month. 1,500 per month and 18,000 per year. With 18,000; so this is one of the options you have. Suppose that is put up for sale have the same neighboring house and you are able to get it. Let's say the house is $ 400,000 it is the price you can get. You don't have $ 400,000, you do you need to borrow some money. You have saved 100,000 for the down payment. 100,000 down payment. The initial payment. You should take the rest as a loan. You have to take 300,000 loans. Currently, traditional mortgages have a fixed term. maybe it's a 15-year or 30-year mortgage You pay the mortgage every month and mortgaged some part borrowed some part some go to pay interest, the rest will remain to repay the loan. For example, let's say your mortgage payment is 1,800.
1,800 per month. Let's say it can be 1,500 percent every month in fact, your loan is $ 300 and you repay a $ 300,000 loan and then when you repay this loan near the end of the mortgage you can pay the other way you can pay more money every month. Maybe by that time, there are 1,500 percent, because there is so little interest because you pay a lot of money your percentage may be low. This is the traditional way of mortgaging. To facilitate our analysis, I assume that you only take interest loans, just the loan you have to pay while its interest rate and you you can repay your loan as you wish.
Let's say it's just interest. This will simply help simplify things, and if we really want to clarify probably to analyze the work directly and to see how interest payments have changed and to test the loan term we had to take out a long sheet of paper. Let's assume that the interest rate is 6% It is only 6%. This means that annually you will pay 18,000 percent. 18,000 percent; 6% of 300,000. 18,000 percent Now, from where you currently live and depends on your income level. In many places you can deduct mortgage interest from your income, so that doesn't mean all 18,000 returns, if you do, you pay 30% of 100,000 instead of 100,000 per year, and now you are between 100,000-18,000 you will pay your taxes. Your taxable income would drop to 82,000. You will keep your tax rate at about one percent of that. Let's say it's about a third of the reduced taxes you save, so these are reduced taxes. So that's the effective interest you pay After the tax credit, let's say it's $ 12,000. $ 12,000 is out of pocket or effective Effective interest rate. Our work is not over; we know that the house costs.
You also have to pay property tax. Let's say 1% property tax. 1% of 400,000 4,000 property vegas. Property tax. You should definitely look at the house. Maybe you have a gardener. maybe you need to update some things, you get painted things; who can be what they can be. These are generally if you are renting are things you don’t have to pay for; so let's say it can be different, it still depends on the situation. Let's say there are 2,000 a year 2,000 to look at every year. Now the reason I list all of them, and we can obviously go deeper and can think of more details and other things which is more specific to different situations, but this is a list in both cases, essentially things that come out of the door.
If you rent $ 18,000 a year, it just comes out the door; for the benefit of living in this house that's what you have to pay. If you buy, it's just things that come out the door effective interest costs, property taxes, savings. All this will be added, let's see 4,000 + 2,000 = 6,000 + 12,000 = 18,000. Similarly, it is similar to our annual expenses which only go out the door, in each case different, given the assumptions you will have different assumptions, so this is just a framework In both cases, it costs $ 18,000 a year. But we are not finished yet. In this case, with $ 100,000 we didn't talk about what we were doing. Here we had to use it to pay in advance. We still have an investment of $ 100,000 here. 100,000 has been invested, so we can't get that 100,000 here we will get some income, and it depends on what we do with it, If you have a really secure bank account, maybe we get 1% or 2%, but maybe we're investing in something and we get 4%, or who knows what we're doing here but from this down payment from investing this growing money we need to think about what we can achieve.
Suppose you get a 2% return on the dispute. At the level of 2% of annual income; thus, you get an investment return of $ 2,000. Investment income of 100 thousand dollars. Out of your pocket, if you're accurate earnings that you do not have to, or investment income that you do not have use of down payment, against rent and is now 16,000. Now it's 16,000 out of your pocket. Expenses 16,000 per year. Now the way I falsified the numbers in this video, It turns out that for this person to the economy for this year alone, as we will talk for a few seconds, Things may change in the coming years, but only if we can assume for this year These figures may actually mean renting a house. Of course, these analyzes of these figures it changes completely as it changes; If this house was cheaper, if you got less interest, no matter what and suddenly this figure may look better. If the rent was a little higher, this figure if it looked similar, it wouldn't look good If you are not good at investing, that number would be more and would not look good.
The key here is what your out-of-pocket expenses are is to try to analyze. Well, let's see, only psychologically when I take out a mortgage forces me to save, and it is true that this is a compulsory saving. But you could do it theoretically. Equivalent amount you paid for interest or part of your debt, this is your rent and above You can save only $ 300 a month, and put it in the investment pool, and collect a lot of money there after 30 years or to make a lot of money you can have a good amount of money. Rent is always better than buying or that buying is always better than renting There is no very clear answer. It really depends on the conditions. This is an approximate version, We will give a deeper version in future videos.
But there are other things to consider not just items that are outside the numbers. Let's think about what happened in a second. Intangible things that prefer to rent and think of the intangible things you prefer to buy. The biggest reason and for this reason to buy a house a few years ago, to get their durability. There is stability. You can get a lot for rent, the owner pays attention to it, and this is a good neighborhood, but maybe they want to rent it out to someone and maybe they want to move home and you have to move. If you buy a house as long as you pay the mortgage or if you finally pay for the house, you are very good and you can pay property tax and some things you very much guarantee that you can stay there.
Another reason to buy rent is unpredictable; Can be rented; If you are in the rental market really fast, If you live in a place like Manhattan or San Francisco, you say It's nice to be able to say, "Oh, look, I got it," "fixed mortgage payment; that's what I have to pay. Find out what tenants can do after paying off this mortgage There is no reason to worry about madness, because The economy is like that because a lot of people wants to live where your home is. " Then another reason This is not a complete list, this is you you can change and you can develop.
When my family rents, If they changed this bathroom a little, or if they change the kitchen a little, or if they don't paint a wall yellow, looking really nice I can't say how many places we saw. When you buy a home, you can make the same improvements. Not all items are on the purchase side alone. They can also be on the rental side. If you live in only one area, and if you want to understand the flatness of the soil, neighborhood or without a better understanding of things you will not want to commit to the house, so you may want to gain elasticity. Rental variability. To continue buying and selling homes The costs are high, especially the cost of mediation costs and what is not; elasticity may be pleasing You enter a 6-month lease, a 1-year lease.
Once you understand something, buy a house or in another neighborhood you may want to rent, and, as we saw earlier in 2003-2008, sometimes you have flat bubbles, and and sometimes this economy goes crazy and housing is becoming more expensive. The apartment is relatively expensive The apartment is extremely expensive compared to rent. One more great result, it all depends on the context. Hope to think about the purchase decision with this lease creates a little frame..