Why you SHOULDN'T rent a home

What's up, guys? It's Graham here. So, a week ago, I made a video titled "Why You Shouldn't Buy a Home," and I got so many comments taking that title way too literally without watching the context of the video. Which, by the way, the entire point of that video was really just meant to be a cost analysis of the pros and cons of renting versus buying, and then which option would be the cheapest for you depending on your own situation. But with that, I started getting a lot of requests to make a video on the opposite end of the spectrum—why you should not rent a home and why instead you should buy a home, and how that can make you a lot of money in the future.

So, that is exactly what we're going to be doing. Now, here's the thing. Let's get this out of the way early on: If you're planning to buy a home with the intention of just keeping it a few years and then selling it, then generally speaking, renting turns out to be a lot cheaper. Because you won't be saddled with all the transaction costs of buying and selling real estate, as well as all the repairs and maintenance that go along with that. That's just the reality. For anyone claiming I'm trying to manipulate the real estate market so I have an easier time renting out my own properties—come on, like that's just stupid. I don't even have any vacancies right now, so there would be no point in me trying to do this.

Outside of that, though, on the other hand, home ownership can be one of the best financial moves you will ever make, not to mention a lot of the other benefits that just go along with owning a home. So, here's exactly why you should not rent a home, why you should buy a home, and why you should smash the like button for the YouTube algorithm if you haven't done that already.

At first, before we go into the financial aspects of owning a home, let's go over some of these surface-level arguments that you just can't put a price tag on. Like, first, when you own a home, you're never gonna have to worry about a landlord ever telling you what to do. Like, this alone can be a huge motivator for people to go and buy a home rather than rent because we've all seen some really crazy landlords out there. I swear, I'm not that crazy; I'm a good landlord. I'm not that crazy. But for real, though, not having to deal with a landlord could be priceless.

As a real estate agent now for over 10 years, I often explain to my tenants that entering into a lease agreement is a lot like going into a business relationship with someone that you barely know. Even though you have the entire outline of the agreement in a written contract, it doesn't prevent the landlord from going and making your life a living hell. I've seen everything from landlords just randomly showing up at the property, or driving by, and then complaining that the tenant is leaving too many lights on, or this tenant is over-watering their garden, or they start freaking out if their rent is like one day late.

I've seen everything! So many people are just not fit to be a landlord, or they let their emotions override everything logical because they just can't interact with people. Don't get me wrong; there are certainly some great landlords out there—they do exist—but usually, a lot of people at some point don't want to deal with the landlord and want to be the one in control, calling the shots.

Now, secondly, when you own a home, you can do whatever you want. Like, if you want your walls painted purple, well, go ahead and do that. You want to change out your kitchen tile to something nicer? Well, go ahead and do that. You want to smash the like button for the YouTube algorithm because you didn't do it the first time? Well, go ahead and do that! But when you're renting a property, however, any material change done to the property during your lease agreement must be agreed upon in writing between you and your landlord ahead of time. And if your landlord goes and says no? Well, then you don't do it; otherwise, you're in violation of the lease agreement.

Now, absolutely, some landlords are way more chill about things than others, like repainting or landscaping, but I have seen so many landlords just turn neurotic over the tiniest things, or they add on so many stipulations to something that it just isn't even worth it anymore. But when you own a property, though, just do whatever you want! If you want to build a halfpipe in your living room, just go ahead and do it! Home ownership gives you the ultimate freedom to really just do whatever you feel like.

Third, anytime you buy a home, you're never gonna have to worry about being evicted or having your landlord just ask you to leave. If you ever want the stability to know that you're not going to have to need to move a year from now, then buying a home is the best insurance to have. Now, in most areas, unless you're under rent control, a landlord can evict you without just cause. That means that a landlord, for whatever reason, if you're on a month-to-month lease or your lease agreement is up, can decide, you know what? They don't want to rent the property anymore; they want to move in themselves, they want to raise the rent, they want to do something else with it—whatever it is, they have total control over that.

Whatever the reason is, you have no protection against this without a long-term lease agreement. But even then, at a certain point, your lease is going to be up for renewal, and then at that point, it's really at your landlord's discretion. So there's always a chance at some point in the future that your landlord is just going to ask you to leave, and you're gonna have to suddenly move, at which point it could end up costing you more money if the rents have gone up.

Fourth, speaking of that one, another huge advantage of owning is that you're not gonna have a landlord who is trying to raise your rent every single year. That, unfortunately, is probably one of the biggest downsides and biggest unknowns of renting—it's just how much is that place going to cost you next year, the year after that, and the year after that? Now, most good landlords try to strike a healthy balance between keeping a good tenant happy while also still charging a very competitive market rate. But don't be naive to think that if some area just skyrockets in value and rents go up an absurd amount, that the landlord is not going to want a piece of that.

And if you're living in a rent-controlled property, then a landlord will almost certainly raise your rent each and every year to the maximum allowable; otherwise, they're just leaving money on the table. On the other hand, when you have a mortgage, your cost is going to be relatively fixed for the entire duration of your loan until the home is paid off. So, as long as you don't have a variable interest rate on your mortgage, your cost is going to be exactly the same each and every month, so you know exactly what to expect.

Now, beyond that, your property taxes will end up going up in price just slightly—usually about one to two percent each and every year, which is pretty much just the cost of inflation. The same thing also goes with your homeowners insurance: about one to three percent per year, again depending on inflation. And sure, you're also gonna have to pay for repairs and maintenance along the way, but just knowing that your mortgage is gonna be the exact same price today as it is 20 years from now can give you a lot of peace of mind, so you could budget appropriately.

And then remember, once you pay off your mortgage in fifteen to thirty years, then it's essentially like you just get to live there completely rent-free beyond the cost of just like repairs, maintenance, property tax, and insurance. Now, financially, this is where the magic happens in real estate, so we'll talk about what we all want to hear—money!

The biggest advantage that most people have when buying a property is that having a mortgage and owning a property forces them to save money. Now, here's the way a mortgage works: Every month, you'll pay a set amount of money—let's just call it a thousand dollars a month. From that, a portion of the thousand dollars goes towards paying the interest on the outstanding loan balance, and the other part of it goes towards paying down the loan in the form of principal. So, each and every month that you're paying a mortgage, you're slowly owing less and less money on the property until one day, it's entirely paid off.

So, in a way, home is almost like just having a piggy bank because each and every month, you're just putting some money away in your property where it's safe. Now, of course, if you don't pay your mortgage, yes, you will be foreclosed on, but as long as you just continue making that exact same monthly payment, you are going to be saving money within the property. Now, I say this is a good thing for most people because let's face it, most people are either horrible with saving money or don't save anything at all. So, by having a mortgage payment, it forces them to save money in a situation where otherwise maybe they wouldn't be saving at all.

So, in this regard, I really believe having a mortgage can help a lot of people build some wealth. Now, in addition to forcing you to save, owning a home also means that it's likely to go up in value over time. This is also what's known as appreciation, which means the home just appreciates in value. Now, generally, we could expect to see home prices go up alongside inflation, which means that your home value, on average, could expect to go up between one and three percent annually.

But some areas could end up seeing way more than that! Like, consider parts of Los Angeles have been seeing about eight to ten percent per year in appreciation. That means that if you go and buy a $600,000 home and the next year it's worth ten percent more, that means that you just made $60,000 in equity in one year. That's pretty much like someone's average salary in Los Angeles that you just made just on appreciation like that! But when renting, you don't see any of that appreciation. You're still making the exact same payment, but if your property goes up in value, well, you know that's not yours.

Now, another huge benefit of this—speaking of appreciation—is that with home ownership, you can leverage your money. This means that you can own and control 100% of a property while only paying a small down payment and then borrowing the rest from a bank. This means that you can keep 100% of the appreciation and the profit even though you didn't put down 100% of the money to buy it. Here's an example: Let's say you go and buy a $500,000 property, and from that, you put $50,000 of your own money as a down payment, and you borrow $450,000 in the form of a mortgage.

But then the next year, that property goes up in value five percent or $25,000. That means that your original $50,000 that you put down just made you a return of 50% in one year, or $25,000! Where else can you get a 50% return on your money for something just going up five percent? That's a huge advantage of smartly leveraging your money in real estate. You can borrow the money from the bank and keep 100% of the profit while only using a small amount of your own money.

And the benefits keep going because, depending on how you file your taxes, your mortgage interest and your property taxes could be a tax write-off. So, taxes a lot right there! Now, a lot of that really depends if you take the standard deduction or you itemize your tax deductions. But if you itemize, that means you could write off the interest on the first $750,000 worth of mortgage interest. So, that means if you have a $750,000 loan at a four percent interest rate, you can write off $30,000 against your taxes within the first year. And if you're in a 24% tax bracket, that works out to be a $7,200 savings.

Now, the same also goes with your property taxes. Now unfortunately, due to the state and local tax deduction cap of $10,000 a year, you might not be able to write off the entire amount or any depending on your income and where you live, but potentially you might be able to write this off depending on your own tax situation. And again, just to make this clear, none of this is financial advice for entertainment purposes only. Consult a professional and not a YouTuber in their garage making videos on real estate!

But I will say, if you decide to turn that same property into a rental property in the future, then that means all of your mortgage interest is tax-deductible against the rental income, and all of your property taxes are deductible against the rental income, with no limit whatsoever. And that is another huge advantage of buying and investing in real estate. And again, with all of this, the benefits also keep going because if you ever need access to that money and you don't want to sell the property, you don't want to pay taxes on those gains, you could do either a cash-out refinance or what's called a HELOC.

A cash-out refinance just means that the bank will loan you money against the equity that you already have in your property completely tax-free. Now, yes, technically this is a loan, but it's a loan against money you already have in the property. So, it's not like you're going into debt for something—it's really just a net break-even! Because you have the equity sitting here, get a loan for the same amount, and you're left with the exact same amount—except now you have the cash and you don't have to pay tax on this.

That's because, technically, since you're getting a loan, it's not counted as income, and because of that, you don't need to report that on your income tax, which again—no taxes! Which I'm a fan of—not paying any taxes, if at all possible legally, of course. And that's what I've done, by the way, to get access to hundreds of thousands of dollars that I can then go and use to reinvest into buying more real estate.

And then I can do the same thing with that and just do more cash-out refinances, pull out more money, tax-free, and then go and reinvest that elsewhere. That way, I can capitalize on all the property appreciation and all the equity I've built up within the property without ever needing to actually sell it.

Now, in addition to this, you also have access to what's called a HELOC, which stands for home equity line of credit. I'm not a huge fan of this for reasons I will just discuss in another video, but basically, it's like using your home as though it's a bit of like a credit card. With this, you'll have a predetermined amount that you could use as a credit line for pretty much anything you want to spend your money on, and then you only pay interest on the amount that you actually borrow. Again, all of that amount that you get is going to be completely tax-free.

And finally, if you do decide to sell the home that you're living in, you're not gonna have to pay taxes on the first $250,000 to $500,000 worth of profit. That's all thanks to a homeowner's exemption that states that if you live in your home for two of the last five years, the first $250,000 or $500,000 is completely tax-free if you're single or married, respectively. Can't do that with stocks, you can't do that with cryptocurrency, you can't really do that with smashing the like button, but you can do that with real estate!

Like, just imagine if you put $50,000 down on a $500,000 property, and then over ten years the property goes up in value fifty percent. That right there is $250,000 completely tax-free! That also works out to be $25,000 each and every year tax-free from a $50,000 down payment.

However, if you've gotten to this point now and you feel like all of this is just way too good to be true, you know what? It's not! Just kidding, of course, there are some stipulations to this, like the extra cost of buying and selling real estate, the repairs and maintenance, and a few other things along the way that just tend to put a damper on things. So, I highly recommend checking out my other video "Why You Shouldn't Buy a Home" so that way you can get the full picture and the full scope of reality for what it's really going to end up costing you.

But like I said, generally speaking, owning a home is the most advantageous long-term because the cost of ownership is going to be amortized over many years, and your chances of ever losing money from that just decline each and every year that you have the property. For me, I'm always just a huge fan of buying real estate and then holding it long-term. I'm not a fan of speculating or trying to time the market—just buy when you find a good deal, and then hold it with the intention of preferably never needing to sell it. But again, that's just me, and I hope this video provides you with some clarification for the pros and cons of renting versus buying and figuring out which would be the best and most profitable option for you.

So, with that said, you guys, thank you so much for watching! I really appreciate it. If you guys have not subscribed already, just really quick, it takes you one second to subscribe—just smash the subscribe button! Smash the notification bell! Also, go and add me on Instagram; I post there pretty much daily. So if you want to be a part of the real estate community, feel free to add me there.

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