Why Buying a House Makes Zero Financial Sense | My First Million
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Renting can be a better financial choice than buying, even if you can afford to buy. Equity is often cited as a reason to buy, but it's not always the best investment. Renting can offer more flexibility and freedom than owning a home. Owning a home is not the only path to wealth, and renting does not mean you're poor. Many people rent by choice, including the speaker and potentially the person being spoken to. [Why Buying a House Makes Zero Financial Sense | My First Million](https://www.youtube.com/watch?v=PgzoCpt7KpY) ## Set Your Rich Life Intentions 1. Running the numbers is crucial, as sometimes it's financially beneficial to buy, and other times it's financially beneficial to rent. 2. Buying a home is not always more profitable than renting, especially when considering historical data. 3. Investing in real estate, such as apartment buildings or developments, can be a great idea, but buying a home for personal use may not be the best investment. 4. Historical data shows that the appreciation of homes purchased has been around inflation rates, typically around three and a half percent. 5. Recency bias can lead people to believe that recent trends, such as rapid home appreciation, will continue indefinitely. 6. Being a great investor requires looking at the big picture and not getting caught up in short-term trends. 7. Despite owning a home, the speaker believes they have made more money by renting than they would have by owning. ## Don't Mistake Luck for Skill 1. Luck plays a significant role in success, and it's important to acknowledge when things work out due to luck rather than skill. 2. Buying a home can sometimes be a result of luck, as in the speaker's case when selling their home. 3. Renting can provide a sense of freedom and relief from the responsibilities of homeownership, such as maintenance and repairs. 4. Renting a furnished home can reduce the burden of owning and maintaining a lot of possessions. 5. The speaker prefers not to own a lot of stuff and enjoys the convenience of calling someone to fix things in a rented home. 6. While the speaker likes to fix certain things, they prefer not to deal with major electrical or home maintenance issues. 7. The speaker's goal is to never set foot in a Home Depot again, highlighting their preference for the convenience of renting over owning. ## Do the Math: The real cost of Owning 1. The speaker initially focused almost entirely on numbers when considering buying versus renting. 2. They found that in San Francisco and New York, it was significantly cheaper to rent than to own equivalent properties. 3. In New York, the cost to own a property was 2.2 times more than the cost to rent a similar property. 4. The speaker factored in various costs, including taxes, maintenance (assumed at 2% of the property value), opportunity cost of the down payment (assumed at 7%), HOA fees (common in New York), transaction costs (estimated at 4% for buying and selling), furniture (better quality in owned properties), and renovations (more common in owned properties). 5. Future growth assumptions were used, with 3% for rental growth and around 3.5% for owning (including appreciation). 6. After calculating the costs, the speaker chose to rent and invest the difference, which has resulted in significant savings over the years. 7. While the decision was initially based on math, the speaker acknowledges that emotions may play a larger role in the decision to buy a home in the future. ## Buy for Desire 1. The speaker's goal is for money not to be the primary consideration when making important decisions, including buying a home. 2. They prioritize their desires over financial considerations, even if it means losing a significant amount of money. 3. The speaker uses their approach to money in other aspects of life, such as their wedding, where they saved for over a decade to ensure cost was not a limiting factor. 4. They emphasize the importance of prioritizing personal desires and happiness over financial concerns in certain situations, such as buying a home. ## Pay in Cash and The 10 Year Rule 1. The speaker views buying a house as a luxury purchase, not as an investment, and is approaching it as a pure desire. 2. They follow a rule of being able to pay in cash for any large purchases, including a house, to ensure discipline and avoid debt. 3. While they would consider a mortgage if the rates were favorable, they aim to have enough cash available to pay for the house outright. 4. The speaker believes in living in a home for a long time, ideally 25 years, to make the purchase financially worthwhile. 5. They explain the financial implications of buying and selling a home, including the significant interest payments in the early years of a mortgage. 6. Family considerations, such as having children and school districts, factor into their decision-making process. 7. The speaker emphasizes the importance of experiencing different living situations, such as renting various Airbnb properties, to determine what features and lifestyle they truly desire in a home. ## Ramit and Sam's Dream House 1. Ramit has a very specific and growing list of attributes he wants in a home, treating it as a luxury purchase where he can get exactly what he wants. 2. His list includes an efficient kitchen, a fancy bathroom similar to those found in luxury hotels, small bedrooms, a mudroom for packages, and multiple pavilions for separate functions like an office and guest house. 3. He emphasizes the importance of testing out living situations, like renting different Airbnb properties, to determine what features he truly desires in a home. 4. Ramit values having a home where family members can congregate, as he believes it fosters a stronger family bond. 5. He recalls advice from his father to not get too big of a house, as it can lead to less family interaction. 6. Ramit's ideal square footage for a home is around 5,500 to 6,000 square feet, with dedicated spaces for work and hosting family. 7. He emphasizes the importance of having a simple list of values to remind oneself of what is truly important when considering large purchases like a home. ## Sam's War on Stuff 1. Sam is methodical about buying a home, treating it as the largest purchase of his life and spending more time researching than on other daily or weekly purchases. 2. He believes that people should be more intentional about their purchases to avoid accumulating unnecessary stuff that can clutter their lives and consume their time. 3. Sam's rules for daily purchases include buying for life, preferring to reduce and reuse rather than recycle, and being intentional about what he acquires to avoid clutter. 4. He emphasizes the importance of simplicity and intentionality in purchasing decisions to avoid mental clutter and maintain a clear mindset. 5. Sam and the host discuss the significance of the items people own and how they reflect their identity and socioeconomic status, highlighting the importance of being mindful of what one accumulates. 6. Sam values cleanliness and a clutter-free environment in his workspace, finding it essential for his productivity and mental well-being. ## When to Over Spend 1. Sam discusses the concept of luxury being that which can be repaired, emphasizing the importance of buying quality items that can be repaired and reused. 2. He shares an example of buying expensive shoes from Brunello Cucinelli, a high-end Italian brand that offers free repairs for their products, even though the initial cost is high. 3. Sam highlights the value of being selective about purchases and buying items that are meaningful, rather than focusing on quantity. 4. He mentions the importance of regularly decluttering and cleansing your space to maintain order and mental clarity, noting the emotional attachment people can have to items even if they are not used. 5. Sam and the host discuss the challenges of letting go of items and the impact of clutter on mental well-being, noting the importance of improving habits related to cleanliness and organization. ## Millionaires Who Rent 1. Sam emphasizes the importance of running the math before making a decision to buy or rent a home, and criticizes the idea of blindly buying a house without considering all factors. 2. He discusses the value of renting in certain situations, such as when location or schooling is a priority, even if it may not be the most financially profitable decision. 3. Sam highlights the need for people to calculate all aspects of their financial decisions, including factors like family needs and personal desires, not just focusing on financial freedom. 4. He notes that among his high net-worth friends, those who are savvy with personal finance tend to rent, suggesting that understanding the financial implications of housing decisions is key. 5. Sam points out that in many cities in America, it is currently more expensive to buy than to rent, contrary to the common belief that renting is "throwing money away." 6. He encourages listeners to analyze the housing market in their own cities and not to blindly follow old beliefs about homeownership, but to take a fresh look at the numbers for themselves. If you enjoyed this checkout [My First Million](https://www.tubopedia.com/posts/My-First-Million), and [Renting vs Buying with Ben Felix](https://www.tubopedia.com/posts/Renting-Vs-Buying-A-Home-Ben-Felix)