Should You BUY or RENT a Home in 2021?

Let's talk about owning your own home. Owning your own home is no doubt a dream for a lot of people. A place to call your own, your home base, you know, a place to raise a family. However, particularly with rising house prices across the past 10 years, that dream for many looks further away than ever before.

But is it necessarily a smart idea to own your own home today? We're going in depth and looking at whether, you know, as a young person in your 20s or your 30s, whether owning your own home is a smart financial decision or whether the renting life might actually be smarter.

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So to explore this topic further, I have to talk about a book—a book that you've probably already read. "Rich Dad Poor Dad" by Robert Kiyosaki is one of, if not, the best-selling personal finance books ever. This book has quite literally helped millions of everyday people get going in the world of personal finance. From creating smart financial habits to funneling money towards investments, a lot of people say "Rich Dad Poor Dad" is the book that started it all for them, which is fantastic.

However, one thing that stands out in this book is Kiyosaki's opinion that the home that you live in is not an asset. Yes, the 800,000 dollar home that you just bought should be viewed instead as a liability. Now this, yes, at first, seems bizarre, but this is his reasoning. You see, when it comes to making investment decisions, experienced investors always look at cash flow. By cash flow, I simply mean the money coming in versus the money going out.

When you buy into a business, you look at how much money you're putting in to buy that stake and how much cash flow you're going to get back each year from your investment. I mean, this makes sense, right? Now, this cash flow model is very much carried throughout "Rich Dad Poor Dad." Kiyosaki explains that, you know, when looking at various assets, you should always ask yourself, does this put money in my pocket, or does it take money out of my pocket?

When you start looking at investments through that lens, it does make your home look like a liability over an asset. From year to year, it puts no money in your pocket, but it sure will take money out of your pocket. There will be interest payments, there'll be land taxes, there'll be maintenance, there'll be insurance costs, etc. So from Robert Kiyosaki's definition, this thing isn't actually an asset at all.

But, of course, what we're all thinking right now, this definition doesn't even consider that, you know, the idea is that one day our house will have appreciated in value and will be able to sell it for a profit. And this is true. Kiyosaki does brush over this idea that your home will get more valuable over a long holding period, but there is a reason he doesn't really consider the capital appreciation, and the reason is this: you always need somewhere to sleep, right?

Say you bought your three-bed, two-bath family home 20 years ago for three hundred thousand dollars and now it's worth eight hundred thousand dollars. You think to yourself, "Wow, you know, in hindsight I've made a stack of cash here. I could bank 500 grand profit if I sold my house right now." Yes, you've made a lot of money there—a great investment. But here's the problem: if you've sold, you've got no home.

Oh, that's okay. I'll just use my 800,000 dollars to buy a new home. Well hey, if you wanted to buy another three-bed, two-bath house, they're also going to cost around about eight hundred thousand dollars. So in reality, you haven't pocketed any of that cash. You've just switched houses. That's always the trap with people that want to sell their property at the height of the market. They forget that they'll also need to buy a new place, which makes it a bit of a zero-sum game.

So that's the world of owning the home that you live in. And the more you think about it, I guess it does seem more like a liability than a wealth-generating asset in that regard. But the other alternative seems far worse, right? Rent money is dead money; you may as well be burning it. At least when you make mortgage repayments, you're building equity in that property, right?

And eventually, you'll have somewhere you own and could potentially stay forever. That is very true. But the argument from the other side of the pond is that instead of committing to buying a home early in the pace, something that will keep taking quite a bit of money out of your pocket over the years, you could instead rent a place. Yes, suffer the fortnightly money-burning ritual, but instead use your savings to snowball your wealth through investments that put money in your pocket instead of cleaning out your savings to put down, say, a 200,000 dollar house deposit and then also continuing to pay interest, taxes, insurance, and maintenance for 30 years until you own the home outright.

Instead of doing that, get your money into cash-generating assets. Get your money into the stock market. You know, invest in businesses that are generating a heap of free cash flow for their shareholders. Buy an ownership stake in a small business that's making a tidy sum for its owners each year, or use the money to start your own business that makes money for you.

This is the alternate argument. And the idea is that you can snowball your wealth faster without being a slave to a mortgage. But the downside is that you're stuck without a place to truly call your own. So what's the equation here? How do we know which one will be better for us purely from a financial perspective?

Well, let's assume that the end goal is that in 30 years we'll all own a home. Okay? I'm certainly not a fan of the idea of, you know, renting until the day you die, and I don't think many people out there are either. So we'll own a home eventually. But the question is, who's going to get to that point first? Someone that buys as soon as they can, or someone that keeps renting and instead invests their money?

Well, unfortunately, here there's no clear-cut answer because there are simply just a million variables on each side of the equation. But generally speaking, it boils down to this: if you are renting and you're snowballing your wealth faster than the person that owns their own home, then you're winning.

Now, if we break that down further, really the equation is this: if you can generate enough cash after subtracting rental payments, body corporate, etc., so that the growth in your wealth is outpacing the rate that the homeowner's house is appreciating in value minus their ongoing expenses, then it makes more financial sense to rent. If you can't do that, then you're better off owning your own home.

So with that said, what's my opinion on the issue? Well, despite the definite shortcomings of owning your own home, I think for most people it's a very good idea to do so. Because if you look at, you know, most older people out there, their single best investment in life was buying a house and holding it for a very long time.

And we have to remember that most people aren't super entrepreneurial; they won't own an extensive share portfolio with big compounders in there, you know, they won't scale their own business. And for most people, buying your home early on in the piece ensures that you don't get left behind.

However, you know, on the other hand, if you're young, maybe you own a business, and it's growing at a fast pace. I know personally I would hate to take every penny I've saved and also commit a large portion of my future earnings to a mortgage just to say I own this house, especially when tying up that money could very well stunt the growth of the business.

So overall, they're my thoughts on owning versus renting. Now one thing that I do want to note before signing off on this video is, you know, in this video we've looked at the financial side of owning and renting. Of course, there are going to be many, many lifestyle considerations that also will affect your decision as well.

So I certainly wouldn't take this video as gospel, but just as one perspective. You know, it may be your lifelong dream to own a home and, you know, raise a family, and you don't want to raise three children in a rented apartment. You know, by all means, buy a house.

Maybe you hate the idea of borrowing a big chunk of money from a bank and being a slave to your mortgage; by all means, keep renting. You know, enjoy your freedom. But it's always worth considering these financial implications because for 99% of people, a house is the most expensive thing they will ever own by a long way.

And it's important to really consider whether you want to commit to it financially because, remember, when it comes to ownership, you have to make sure that you own your house and your house doesn't own you. Especially at these current prices, you wouldn't want to commit yourself to a lifetime of debt if your reasoning for doing so is simply to keep up with what everybody else normally does.

But overall, guys, they are my thoughts on, you know, buying a house versus renting. I think there are definitely pros and cons to both. And I know there are definitely two camps out there. There are some people that say, "Dude, you've got to get into the market. The earlier you get into the market, the better. Just hold on to your house forever, and you'll be fine."

And other people out there, super entrepreneurial, they like the financial freedom and flexibility of not being pinned down by a mortgage, being able to put their money wherever they like in different business ventures and whatnot. So really, I'd love to hear what you guys think. You know, obviously, I think everybody does need to own their own house eventually at some point in the future. Like, you definitely, as I said before, you want to be stuck at 80 years old, not owning a house to live in.

But I'd love to hear your thoughts when you're early in your 20s and 30s. What strategy do you think is best? Buying a house and just starting to pay down that mortgage and building the equity, or do you prefer the idea of staying financially flexible, putting all your money into other investments, businesses, starting your own business, that sort of thing?

So leave that stuff down in the comments below. I'd be really interested to hear what you think. But anyway, guys, that'll do for this video. Leave a like on it if you did enjoy it. Subscribe to the channel if you are new around here. And if you want to check out Profitful and learn about stock market investing, passive investing, or active investing, then check out the two courses linked in the description below, and you're also financially supporting the channel in the process too. So I really appreciate it.

But guys, that will do it for today. Thank you very much for watching, and I'll see you guys in the next video.

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