If you are buying house because it is great investment then DO NOT BUY HOUSE. You should buy house because you need to place to live and you want to settle down in certain area (grow roots...).

The first thing that people like me need to understand is that we are not professional investors.

Normal people need to buy house on the following factors: is it affordable? what is chance of you or your significant other moving to different area? do you like location? do you expect to live there for next 30 years? are schools good? etc. The excel spreadsheet comparing costs of owning vs. renting should be also there as one of factors, but spreadsheet showing how you are going to be rich by "owning" the house should be ignored.

Why not buy a house as an investment?

Even if you're not a professional investor, you can consider having a fraction of your savings on risky investments, such as stocks and real estate. I'm not saying it's easy, not saying it's for everyone, but I'm curious to know why you think a house is not a good investment.

I agree, yet i'm convinced that there's also an investment/financial side that the wanna-be-owner has to consider. This school thing is typical only in the US btw.

> What you are really doing, when you buy a house, is forcing yourself in saving a liable equity for you and your family.

Yes, there's a forced savings component, but it's expensive in terms of opportunity cost. It's not unlike insurance agents who want to sell you life-insurance policies that have "investment" components to them, when what you really want is to buy inexpensive term protection and put the difference in price into better-returning investments.

Remember that Sal Khan's comparison is of an interest-only mortgage versus renting. If you also want to build equity, well then, that's additional money out of your pocket (non-tax-deductible).

> Remember that Sal Khan's comparison is of an interest-only mortgage versus renting. If you also want to build equity, well then, that's additional money out of your pocket (non-tax-deductible).

That will save you tens of thousands of dollars/euros in avoided interests over the years.

So maybe a true apples-to-apples comparison needs to be for the entire period that you own the house -- that is, for each case:

+ what is the total net value of the money you spend in each case, and

+ what is the total net residual value at the end of the period.

With term life insurance you get zero residual value at the end of the term; what you're paying for is nothing more than insurance protection, not an investment. Ditto with renting.

Of course it should. Buying a house is a long-term investment. You can't compare it to renting. If you do, of course it will be a more expensive solution. But what is the impact of owning over a life-time span? It could be an interesting analysis that i wish someone will do. Yet, i bet that owning will effectively create value for you and the family.

> Renting will effectively (as the video outlined) leave a surplus of money in your pockets.

Unless your rental is rent-controlled, this is only true in the very short term. Most rents go up over time.

The payments on a fixed-rate mortgage do not go up. So the monthly real cost of the mortgage goes down over time. (This is even before taking equity into account.)

Renting for a long time is like having a mortgage that you refinance to a higher payment every couple few years.

But if you continually put the difference between the mortgage payment and the rent into an investment it could work out better. You're not accounting for it's possible time value. Again, no absolutes here, it depends on the numbers. The difference you're investing will decline as the rent rises but at the end of 30 years you could well be in the same position as the guy who bought. On the other hand, on a fixed-rate 30 year mortgage, the 30 years is the amortization, not the number of years the rate is fixed, which is typically 5 years I believe, after which it resets to the market rate. If you were disciplined you could adjust the mortgage - rent gap every 5 years based on the interest rate.

With a "fixed-rate 30 year mortgage", your rate, and payment, will be exactly the same in the first year as the 29th. A mortgage where the rate adjusts after 5 years is a 5-year ARM.

(Edit: in the U.S.)

This is another aspect that should be considered and that is a huge plus in favor of buying. Because of inflation the cost of the mortgage will go down and after 30yrs it will be a lot cheaper. As a practical example, my family purchased a house 20yrs ago. At that time we payed the equivalent of $600 which was quite expensive. Today it's just nothing while the house itself gained a lot in value.

Inflation and taxes are easily forgotten when making financial decisions; but they are the two biggest advantages of owning vs renting, at least in the U.S.

Short-term cash flow is not a smart way to evaluate rent vs own.

The proper comparison should be the difference between rent payment and mortgage payment invested in S&P 500 30 years ago, not the difference just sitting there and earning 0%.

What about the aspect of being able to move without having to worry about whether you can sell you home or not? I believe what made things worse after the economy soured was that unemployed people stuck. Even unhappy people were stuck in jobs they didn't like/enjoy because they couldn't move to another part of the country (or state). One must not forget about opportunity costs in buying vs renting.

The video was completely void of real content and seemed more created as an attempt to self-justify and rationalize the choice for the author of it to rent, instead of buy a home.

There are different markets, different economies, different lifestyles, and different situations. For some in some places, renting is wiser. For others, owning a home.

I sure delight in knowing that the home I bought in 2010 for $195k with 20% down and a $160k mortgage at 4.85% is not only worth $220k today, but costs me the same about ($1,200) for mortgage, insurance, and property tax as I used to pay just for my rent. And the place is 3,000sqft versus 1,000sqft of the apartment. And I get all the benefits of a home, such as a lawn, storage, nobody pounding on the floor because I'm listening to music, pets, a security system, and nobody else with a key to let themselves in whenever they feel like it.

In addition, that $1,200 I paid in rent started as $1,000 only four years earlier. In twenty years, it'll probably be at least $2,000+ while my mortgage will still be $850 (not counting insurance/tax). And, in the end, I'll have actual property that is worth something.

I see so many of these arguments back and forth and it always sounds more like people trying to convince themselves that they made the right decision than trying to convince someone else what decision to make. It's a lot like parents frustrated by their kids trying to convince other couples that they should have kids. Or a married couple always trying to convince their friends that they should get married.

It all comes down to individual situations and opportunities. Where that guy lives and with his opportunities in that market, his decision very well may be appropriate for him. For others, not so much. And that's okay.

After all, my next step is to buy more property. Real-estate is a dandy way to counter inflation and when I buy a couple more properties, I'm going to need people like the guy who made that video to be willing to pay me rent.

Agree on everything. The point here is that the video should be a source of information while it's not. +1 for the super-realistic analysis which should inspire future readers.

> And I get all the benefits of a home, such as a lawn, storage, nobody pounding on the floor because I'm listening to music, pets, a security system, and nobody else with a key to let themselves in whenever they feel like it.

This is a key point for me, though I'd list different specifics. I've owned a house for ~5 years but was a renter for my previous (post-undergraduate) adult life other than brief periods when I was living with my parents.

The great horror of renting is the typical case of renting in a multi-unit building, and has to do with two things: i) neighbors, and ii) landlord or their agent running the operation. Having neighbors sharing walls, floors and ceilings with you is problematic because the neighbors are inevitably noisy (and in some cases there are other nuisance problems like cigarette smoke leeching in). I'm the guy who pounded on the ceiling who you had to deal with. But I also appreciate your desire to be able to listen to music without having to worry about annoying the neighbors. Neighbors tend to be inconsiderate, and I theorize that this tendency, or the perception of this tendency, has increased, perhaps due to: (a) an influx of young middle class renters who themselves did not grow up as renters but as children in suburban homes, so don't understand the norms of good neighborly behavior; (b) a race to the bottom in apartment building construction leading to poor insulation from noise from other apartments.

Then there's the other part, having to deal with a landlord or property agent. I've found that the rise of the class of mega rental property owning businesses, which I see in growing suburban and exurban areas as well as in cities, is a big problem - essentially slumlord-like unscrupulous behavior has gotten extended to middle-class rental unit property. There also seems often to be high turnover in management of such rental properties which also causes problems. For examples read your average negative Yelp or apartmentratings.com review of rental properties in this category. You'll hear the same types of complaints over and over -- failure to respond to renter complaints, imposition of fees and rental raises at any opportunity, a general culture of treating renters with high disrespect.

Some of these problems seem not to be present to the same degree in multi-unit dwellings that are structured as condominiums or (common in New York) coops. As a kid I lived in a coop in NY for a while and my parents later lived in a coop in Manhattan where my mother still lives. The contrast is significant, even though it shouldn't be overstated (my mom's building is probably higher quality than the average Manhattan coop). You get a different set of people in an ownership-structured multi-unit development -- fewer noisy young people who grew up in suburban houses and are straight out of college, a tendency to have middle-aged or older people, quieter, more considerate, less likely to move and with more of a stake in the maintenance of collective quality. I rented a condo in a multi-unit building in Seattle some years ago after having rented in the sort of rental building I describe above and the difference was notable there, if not dramatic.

When I grumble about aspects of my current situation (basically related to the fact that I'm in an exurb and not an urban setting) I sometimes remind myself of what I used to have to experience as a renter, and it makes me feel a lot better.

[Edited to fix a couple of typos]

Well, I don't know where you live but in America houses are definitely not designed to last centuries. A few may last for centuries, just due to the sheer numbers of houses built, but they're not designed that way. They're designed to be cheap to build. The typical stick built house uses a frame of cheap 2 by 4s covered by cheap plywood. They're vulnerable to rot, insects, severe weather, etc. Maybe you live in an area where concrete houses are the norm.

Stick built houses are a plague upon the land.

Your timeframe is critical to the decision though. Most of us will not live in our home for 20 years, let alone 30. Some of us will move to other towns to take pay raises that (a) we could not have discovered in the town of our current home and (b) might more than compensate for any loss in savings.

Choosing to rent or buy on purely financial grounds must incorporate the length of time you will own the home.

jnardiello: "... i realize that if you buy a really crappy built house, my arguments might not be valid."

Or if the neighborhood goes into recession for decades after your purchase.

There's a study floating around claiming that homebuyers flock to a region during a period of growth, buy homes at high prices and, when the local economy slows, are stuck forever.

jnardiello: "But where i live, houses are built to last centuries and they are by far the best way to responsibly spend your money."

- Centuries? Then you're not in the U.S. (nothing wrong with that but just want to clarify).

- Stocks do better than real estate historically.

-Building a home that lasts centuries is probably suboptimal. Who knows what the future holds? What will the local economy will be like in 10 years? What better, cheaper (e.g., energy-saving) building techniques will be developed in the next decade? We should all live in solar-powered eco-yurts!8-))

https://www.google.com/search?&q=eco-yurt

"A Home Is a Lousy Investment": http://online.wsj.com/news/articles/SB1000142405270230425930...

"Why owning a home is bad for you": http://www2.macleans.ca/2013/09/29/the-housing-trap/

"Is Home Ownership Overrated?" http://www.dailyfinance.com/2011/05/03/is-home-ownership-ove...

Confirmed, i'm in Italy (which btw was hit VERY hard by the economical crisis, YET we - as country - had a much better time than others PIGS countries mostly thanks for the fact the while the gov was kind of bankrupted, almost all the families owned a house and had consistent savings.

> - Stocks do better than real estate historically. Stocks are a bet. Slightly more scientific than going to casino, but still a bet. Ask lehman brothers investors, they might have an opinion on this.

I think you are also suffering from the error of focusing entirely on one aspect of the problem and ignoring the others.

Forced saving, and cost-benefit analysis are both factors that should be taken into account. Your claim that a person is entirely incapable of saving unless they have a mortgage is a bit extreme.

I don't agree that artificially restrict myself financially is a good idea.

If I tied to mortgage payments, I am less likely to try financially risky startup.

If I tied to the house I own, I'm less likely to move for the better job opportunity (or just closer to work to reduce my daily commute).

Another disadvantage of owning house is that all major repairs have to be paid by house owner.

On the other hand, it's much less likely that anybody would kick me out from my own house vs chances of my landlord kicking me out of the house I rent.

Another advantage of owning house is that owners have more control over the house than renters have (paint walls any color, having pets etc.). Neighborhood composition tend to be different around houses that are typically for rent and houses are typically for owners only.

"Which you will use to buy the latest gadgets, to pay the latest cool service, "

I think it is also wrong to generalize like that. There are renters who are disciplined enough to invest most of their "surplus of money" in appreciating assets. One can even invest in real estate without buying a home. Depending on location, a disciplined renter may well come out way ahead of the owner. IMO, that's a message that we should hear more often.

> Not even mentioning that, in case of extreme need, you'll be able to sell it.

Wasn't that the thinking behind last bubble?

The risk here is your extreme need coinciding with other people's extreme needs (economic downturn, neighborhood deterioration, loss of a major area employer, etc.) at which point you and hundreds others try to sell with no one to buy, and property prices quickly falling further than outstanding payoff quote on the mortgage.