Renting > Buying according to Khan Academy

I agree especially here in Texas.

 

I stopped watching after he presented a scenario with a 4 percent return rate on a CD account.

all numbers after that are skewed.


stop posting.

 

Think this is from 2008 (maybe earlier), so yeah, the numbers might be a bit different. There are a couple of other videos that go further into this (including a spreadsheet where you can fiddle with numbers). Here's the site for this on Khan Academy itself (complete with comments/discussions):
https://www.khanacademy.org/economi.../renting-v-buying/v/renting-vs--buying-a-home

 

I wouldn't think this would be much of an issue in Houston due to house prices being so dirt cheap.

In California or the Northeast there is no right answer due to all the unknown factors. The biggest of which are the number of years staying put in the home, amount of money put down, amount of unforeseen maintenance on the house, amount of increase (or drop) in home value.

You're basically gambling in these parts of the country if you're buying a home as an investment.

 

i missed it because he is using numbers that do not represent reality even in Silicon Valley.

I indulged in another minute and got to " I don't know what a good interest rate these days is, 6 percent?"

why doesn't he crunch the numbers using a .9 percent return rate on the CD and somewhere around 4% for the interest rate?

his presentation is completely arbitrary.

I see... that's why

 

Not sure how dated this video is, but it does show how much better off many people would have been in the mid 2000s if they had rented instead of bought. I'm seem to remember 6% CDs at the time. Wish I was older around that time and had more money to invest. Not to mention most of people who bought then also lost a lot of value in their home.

 

Here's the spreadsheet (the one in the third/final video I think). You can tweak the numbers (the ones in yellow) to whatever makes sense at the time (house in California vs Texas, HOA fees, insurance, return on cash, etc.):
http://khanacademy.org/downloads/buyrent.xls

 

there are a lot of factors in determining which is better. in the end, it's a lifestyle choice. if you have a family you're more in need of a house than a couple who has no kids. but the old adage that renting is throwing away money is false.

a lot of people don't see the irony in having been able to save for a down payment while renting and then end up being house rich, and cash poor.

i'd rather own cash after 30 years than a dilapidated house.

 

The video was uploaded on Mar 15, 2008. The OP should have stated that.



Khanacademy.org is an excellent resource and he was 100% correct.

 

This guy's scenario is unrealistic. You can't find a 1m dollar house to rent for $3000 a month, that's about what it costs to rent a 300-400k home here in Houston. I understand the guy's point, and it is very subjective due to individual circumstances, but it's not always better to rent or buy. You still need to take into account the market conditions, and try not to buy when the market is inflated. Buying in a down market makes a lot of sense because you can recoup the interest costs when you sell the house for more money than you paid.

I did check on a few homes using www.har.com that were asking 3000 a month in rent, and their HCAD appraisals had their market values from 300-350k. So saying a $3000 a month rental house would be worth 1 million is just insane. That totally throws off his numbers and would require him reducing the home purchase side's costs by about 60%.

 

Stocks will return 10% per year until 2018.

 

Renters pay the property taxes and the mortgage and the repairs. They just do it over equal installments.

The home owner pays them in unequal installments.

If you live somewhere for long-term, buying is usually the better way to go. Higher risk, higher reward.

 

$3k/mo in San Francisco will get a 1-bedroom apt. these days.

The analysis cannot, of course, be generic.

Khan stuff is fine, but it's not a work of genius and it's not a silver bullet. It's just a pile of better-than-average educational videos. It's really great that it's out there as a resource (as others will post below), but it's not gospel, if you will.

 

The simple solution to this is to buy a house you can *actually* afford. It seems most folks like to get the biggest damn thing they can afford. And that's pretty much all they can afford after that. Stupid.

 

It's the same thing in Texas. You still have to maintain your house, pay property taxes, pay interest (if you don't own it outright), and pay fees associated with buying and selling. Owning a house just costs a lot of money. I would never expect to make money owning a home.

 

I am a home owner, therefore my biased opinion disagrees with that of the video.

 

Agreed. I actually put my numbers into his spreadsheet and came out ahead as a buyer.

I bought a home that costs less than I could afford to pay honestly. And it will benefit me if I have an income problem.