Renting vs Buying Your Home: The Ultimate Showdown

This is the 4th iteration of this popular webinar, and was hosted by AJ Ayers and John Owens, of Brooklyn Fi. They took on the age-old question: Is it better to rent or buy a home? These are the takeaways, as well as some resources to help you in your decision-making process.

Key Timestamps:

NYC: A Real Estate Rollercoaster of a Case Study (03:45)
The Interest Rate Saga (06:07)
Team Rent: John's Top 10 Reasons (11:45)
Team Buy: AJ's Top 10 Reasons (20:35)
Q&A (35:10)

Setting the Stage:
Basic Facts and Assumptions

Home values increase about 3% per year on average

Average rents increase about 2% per year (except in NYC recently)
Average homeownership duration is 7 years
Assumed 8% annual return on stock market investments

The New York City Real Estate Rollercoaster

Manhattan studio apartments: 8% annual rent increase

Average Manhattan studio rent: $3,604
Median Manhattan rent across all types: $4,667
Brooklyn also seeing 8% year-over-year rent increases
Unprecedented rent increases pushing some towards buying
Advice: If you have a good deal on rent, consider locking it in
NYC traditionally a great city for renters, but dynamics are shifting

Current NYC market described as a "shit show" for renters

The Interest Rate Saga

Recent rate cut by Federal Reserve: 0.5%

Historical perspective on interest rates
Potential impact on housing prices and affordability
Current rates still higher than what many are used to
Housing supply issues stemming from 2008 financial crisis
Mismatch between economic textbook theories and current market reality
Possibility of housing prices increasing as rates decrease
Advice to consider buying now if you're definitely in the market
Importance of understanding true affordability, not just what banks will lend
Medium sale price for homes in July 2024: $430,000 (near all-time high)
Housing supply remains tight, affecting market dynamics

New York Rental Prices: A Zillow Deep Dive

Zillow offers comprehensive data on rental prices and market trends

Includes median rent, monthly and yearly changes, and rental unit numbers
Useful for landlord negotiations and market understanding
Manhattan median rents around $4,000, studios averaging $3,600
Brooklyn also seeing significant price increases
Overall NYC rental market described as "expensive"

Team Rent:
John's Top 10 Reasons

10. Browsing Zillow is a hobby, not an investment

Housing is ultimately a cost, not an investment
Don't get caught up in keeping up with friends
Not every home on Zillow is a good investment

9. Buying a home is more complex than you think

Requires a team: attorney, broker, inspector, mortgage lender, financial advisor
Emotional rollercoaster during the buying process
Especially challenging in popular markets

8. Low transaction costs for renting

No 20% down payment required
No real estate commissions or closing costs
Fewer surprises and unexpected expenses

7. Property Taxes & More Issues When You Buy

You can always move if your rent goes up, but you’re stuck with your mortgage
HOA fees can get to $1,000 or more per bedroom
Home assessments can equate to not-so-fun surprise fees.

6. Diversification advantages

Buying concentrates wealth in one asset
Homes are not liquid assets
Renting allows for more investment opportunities, like for your business.

5. Homes aren’t always great investments

Often a huge time and money sink
Success stories often omit costly details (hundreds of thousands spent on repairs/renos)
Price appreciation typically not huge, and it’s an illiquid investment

4. Nobody keeps their house the way it is

When you feel the NEED to renovate, you’ll probably go over budget
Many people forget to consider these expenses in their analysis

3. Selling your home can be hard and expensive

Can take a long time to sell
Potential for unexpected obstacles and expenses (e.g., liens and renovations)
Strain on life plans and relationships (Leaving the house for 23423 showings)

2. Cash flow considerations

Owning has many extra costs beyond mortgage
Rent is your ceiling, mortgage is your floor for housing costs
Easier to adjust housing costs when renting

1. Flexibility for life changes

Quitting job, relationship changes, moving cities
Renting allows for quicker, easier transitions
Selling a home can complicate major life changes

Team Buy:
AJ's Top 10 Reasons

10. Access to cheap or gifted capital

Banks more likely to loan for homes than other investments
Family members more willing to gift money for home purchases
Opportunity to leverage significant amounts of capital

9. Mortgages are awesome

Mortgage interest deduction
Property tax deduction (with some limitations)
Up to $250,000 tax-free gain per spouse when selling primary residence

Quick Lesson: How Mortgages Work (slides 32-34, all are charts)

Early years: Payments mostly go towards interest
Mortgage interest often tax-deductible (up to $750,000 loan)
Interest portion decreases over time
Rates significantly impact total interest paid
Example: 3% vs 6.75% rate difference = $30,000 more interest annually
Advice: "Marry the price, date the rate"
Refinancing possible if rates decrease
Higher rates dramatically affect monthly payments
Example: $2,000 difference in monthly payment between 3% and 6.75% rates

8. Automated savings mechanism

Good for people who struggle with saving
Less likely to skip payments due to consequences

7. The Market: potential to pick a winner

Opportunity to find great neighborhoods or get deals
Possibility of significant appreciation in certain markets
Example: Buying in Austin, Texas in 2009 (sell for a huge profit or avoid the 30% yearly rent increase)