Renting vs. Buying a House: How to Get Wealthier with Either Decision

0:00To rent or to buy. You might think it's an obvious choice, but it actually isn't. Both Henry and I own dozens of rental units with millions in equity between us. But I spent five of the last six years renting a property, not living in a home I owned. And my net worth still grew a lot during that time. Most people would probably not expect that. You got closer to financial freedom while paying thousands in rent every month. The problem is that every online calculator, every podcast or YouTube video is telling you it's a rent versus buy decision. That isn't the case. Today, Henry and I are giving you three scenarios where you can rent, buy, or do a combination of both and grow your wealth in each scenario.

0:42So if renting makes more sense in your market, you can rent and still build wealth. If buying a home is more affordable, you can ensure it'll pay off when you move out. And finally, we'll share the cheat code strategy that some of the smartest real estate investors use to make hundreds of thousands of dollars just buying a regular, affordable home to live in. This decision could change the track of your financial future, and you could be significantly wealthier because of it.

1:12What's up, everyone? I'm Dave Meyer, Chief Investment Officer here at BiggerPockets. My co-host, of course, is Henry Washington. He's here too. And we're going to jump right into this conversation about whether it's better to buy or rent, or if that's really even a decision that you need to make at all. So Henry, if you read the news right now, apparently just buying a home is just a terrible idea. That's what everyone seems to be saying right now. Are you buying it?

1:36Brandon Turner:No, absolutely not. Buying a home is not a terrible idea. But I will admit that it doesn't make sense for everyone to buy a home. And it doesn't make sense for everyone in every market to buy a home. I do believe there are situations where it does make more sense to rent than buy. but I am a firm believer in no matter what you do, buy or rent, you should be doing it with thinking about how to invest what you're saving by not doing one or the other tactics. Yeah, like all those articles you see every day in Bankrate or NerdWallet or anywhere that's saying it's cheaper now to rent than it is to buy, that's a very simplistic and specific scenario, right?

2:15That's just basically like if you're a regular person and you're choosing whether to buy your dream house or rent an equivalent property, That's actually true. It's probably better for most people to rent in that scenario. In fact, there's only one city in the entire country where it's better to buy than rent right now. Can you guess what it is? Somewhere in West Virginia? Very close geographically. It's Pittsburgh. It's the only place right now where it's actually better. But we're investors, so we're not thinking about it this way. Like, should I buy my dream home or an equivalent property? we're going to break down now how you can strategically think about your primary residence and ways that you can use it to grow your portfolio, whether this is your first property, whether you're looking to do an owner-occupied strategy or not, and you're just trying to buy rental properties and grow a bigger portfolio.

3:05We have strategies for everyone to leverage the choices they make about where they're physically going to live to help grow your portfolio. So for investors who are trying to maximize the use of their residence, where they're living, what are the different scenarios they should be thinking through?

3:20Brandon Turner:Yeah, it really comes down to about three scenarios with some forms of variation, depending on the scenario. We have the option to rent your primary residence. We have the option to purchase your primary residence, or we have the option to own or occupy your primary residence as an investment vehicle. In other words, some form of house hacking. And when we say house hacking, we don't always mean just buy a duplex, rent one side and live in the other. House hacking to us just means finding a way to monetize your primary residence. Okay. So we're talking about whether investors should rent just straight up by their primary or do an owner occupied.

3:56I think people are probably going to get mad about this. I actually think there are uses for all three. Like I think that renting makes sense sometimes. Grant Cardone is going to be mad, but I think buying just your primary residence makes sense sometimes. I think owner occupied makes sense sometimes. So let's just break these things down. I think rent's going to make people the maddest, but like, Art, do you agree that there are reasons why even real estate investors, even experienced real estate investors should consider renting a property?

4:23Brandon Turner:I absolutely do. And I say this as someone who owns my primary residence and hasn't rented in years. And for me, it comes down to what's the cost to rent each month versus buy each month. and that's going to vary depending on your market. Like we'd be foolish to say that there aren't markets where it costs substantially less to rent a like-kind property. And so if you're going to end up buying a house that's going to cost you$4 ,000 a month and a mortgage payment and in that same market you can rent a house that's going to cost you$2 ,000 to$2 ,500 a month for the same kind of property. To me, especially as somebody who wants to take their additional income to invest in real estate, it would make a whole lot more sense for me to rent that property, save myself two grand a month, and put that two grand a month aside so that I can buy rental properties where it does make sense for me to buy rental properties.

5:19The thing that sort of drives me nuts about either it's people on social media or even these reputable websites saying it's cheaper to rent or buy, they only look at the out-of-pocket cash, right? They say like, okay, my monthly mortgage payment is 2000. My rent is 1800. Therefore it's better to rent. That is not how I would evaluate that. Cause like, as you know, in real estate, there are a lot of other ways that you're making money, right? You have to think about the amortization on your mortgage payment, the potential for appreciation, which no one really knows, but over time, the average is about 3%.

5:57So that really matters. and when you're leveraged, that really helps a lot. And also tax benefits, right? You have to also think about the fact that your mortgage interest is deductible off of your taxes. And so just think about it that way. But it is the right question to ask. Like when you incorporate all those things, if you actually do the math right and you see that renting is gonna help you save money each and every month, you should do that. Like if you're trying to maximize and not thinking about lifestyle, like you should absolutely do that.

6:25Brandon Turner:Yeah, what we're saying when you rent versus you buy is I'm saving monthly income. And yes, I'm giving up the equity and appreciation, but I'm taking that additional income and then investing somewhere else where it makes more sense financially, whether that's in my backyard in a different neighborhood or whether that's in a whole nother state, then you are getting the benefits of real estate because you're investing in a property somewhere else where you can take advantage of those benefits in a more financially beneficial way than you spending substantially more each month and then that hindering your ability to go buy property somewhere else.

6:58So what do you do then with the money? Like if you're saving money every month, do you invest out of state? Do you buy a property in state? Or what do you do with the money you're saving?

7:08Brandon Turner:If you are investing in real estate because you want to build up cashflow over the next five years to help replace your income for your job, yeah, you probably need to be looking at markets where you can get cashflow, where there's a more favorable rent to price ratio, where you can buy a property and rent that property out and it pays for itself and then pays you some cash flow. There are tons of markets all over the country where you can find real estate that gives you those benefits. And I think it's just up to us as investors to figure out where that makes sense for us based on our goals. But you should be looking to implement that money in a place that's going to help you meet your real estate goals.

7:50Yeah, I think this is particularly important for everyone who's listening out there, if you live in an expensive market in California, Washington, the Northeast, wherever, somewhere that it's super expensive, this is a good strategy. It makes a lot of sense. I talk to a lot of people here in Seattle about this all the time, because there's a lot of people who have some money in tech or whatever, and they're like, it doesn't really make sense to house hack even here in Seattle. What should I do? I'm like, go rent a super nice apartment for$3 ,000 or$4 ,000 a month. That's what it costs in Seattle.

8:21but a mortgage payment here is$6 ,000 a month. So like go spend three, 3 ,500 bucks and take that money. You're saving two grand a month. That's a, you could buy a duplex a year with that savings in the Midwest. Like you do that for five years, you're gonna own 10 units in another place. Like that's personally what I would recommend for the majority of people.

8:42Brandon Turner:Yeah, I can't disagree with you because there are markets where even if you were to buy a duplex and house hack, Remember, a duplex is going to cost you typically more than a single family is. And so if you go and buy the duplex, even if you rent out the other unit, sometimes what's left on your mortgage is still more than it would cost for you to go rent by yourself. It is. Like, I was doing the math because I'm a giant dork. I made this huge calculator a couple of years ago that measured this. And honestly, I've used it, like, every year of my life. It's free on BiggerPockets. If you want to go to biggerpockets.com slash resources, it's just a house hacking calculator.

9:22It shows you whether it's better to house hack, to buy or to rent. So you should definitely check that out. But in a city like Seattle, renting is better. Like just mathematically, it makes more sense. Like I get there are personal decisions. I have made all three of these decisions. I've bought my primary, I've house hacked. I'm doing a live and flip now. I've rented and bought in other states. But I'm just telling you, if you want to follow the math in an expensive market, this makes a lot of sense. There is one other scenario for renting instead of buying that I think people overlook. And it's if you don't know how long you're going to live in a specific place.

9:59That's fair. I've lived in a ton of places and I have rented. I rented when I was in Europe. I rented for five years. I would have made a lot more money if I didn't. But I just didn't know how long I was going to live in any of those places. And there's transaction costs. In the US, it's 6 % to 8 % essentially. to go and sell. So even if you say, hey, I have this primary residence, it's a great location, it's going to build a ton of equity, I'm getting at a great price, but I might only live there for three years, probably better to rent, honestly, because it usually takes three or four years of appreciation growth, even good appreciation growth, to overcome just the cost of selling.

10:38And so I think that's something you really need to think about. A lot of times, this decision really comes down to like, are you going to live there for three or four years? Four or five years, you're probably good, buy the house. But if you're going to live there for less than five years, it's kind of a toss up.

10:51Brandon Turner:Absolutely. That matters because we're not in the market we were in in 2021, where appreciation was going through the roof in a short frame of time. Like you're not going to be able to take advantage of some of the ancillary benefits of real estate in a less than five year period. And so again, you got to pay attention to that monthly cost. If I'm in a place where it's very, very expensive, I think in any of those scenarios, it makes more sense to rent. Totally. I live in Seattle. I should, if I was just doing this straight on math, I should be renting right now. I don't want to even tell you what my market's cost.

11:23It is way more than I could rent an equivalent house for. But what I did choose to do was to buy a primary in a way that I do think is actually a reasonable way to offset. It might not be the most optimal, but it is actually working for my lifestyle. And I do want to talk about when you should buy your primary residence, but we do have to take a quick break. We'll be right back. Do you ever notice how every passive investment somehow turns into a very active lifestyle? Active spreadsheets, active phone calls, active stress. Here's a better question. What if you could buy brand new construction homes, 10 % below market value in the best markets across the country without making real estate your second job?

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14:47Brandon Turner:All right, we're back with the BiggerPockets podcast. and we're talking about when it makes sense to rent your primary residence versus when it makes sense to buy your primary residence. And we just covered scenarios where both Dave and I agree, we think it might make a lot more sense to rent your primary residence instead of buy. But now let's transition, Dave. In what scenarios do you think it makes sense for someone to buy their primary residence instead of renting? I think when you have somewhere close to break even on this calculation, like rent or buy. It doesn't have to be exactly, but when you're relatively close, so that's number one, it has to be relatively close.

15:26And then I think there's probably two different criteria I would think about. One is lifestyle decisions. That's part of it, right? Like you can't ignore this. If you would prefer to own your own home, that makes a lot of sense. But I think for me, the real criteria is could I rent out that primary when I move out of it and make it a good rental property. Because as we were just talking about before the break, you have to hold onto it for four or five years. And if you think, hey, I might move out after two or three years, that's fine if it's going to cashflow as a rental. Just as an example, I guess it was like 10 years ago now, I was house hacking and I kind of just wanted to own my own home.

16:08And I wound up finding a property that was in the path of progress. I got a great deal on it. and we wound up buying it. And it did increase my monthly burden because I was house hacking in a place I got for super cheap. And I wound up paying out of pocket for my mortgage every month, but it was worth it to me because it was a great place for me and my wife to live. And now I still own that as a rental. We moved out of that property six years ago, and it's still a cash-flowing rental property in a great neighborhood. I bought it at$450. it's probably worth 800 now. So it's been a great investment for me.

16:45And we lived there for five years really comfortably. So it worked out as a really good investment.

16:49Brandon Turner:Yeah. I think if you live in a market where your rents or your mortgage payment for the same type of property are about the same or even skewed where your mortgage payment would be less than what it is to rent, you absolutely should buy. This is a scenario you should buy your property in. Because you've now put yourself in a position where you're not losing money by buying instead of renting. You're going to spend the same amount or pretty close to the same amount either way. And so now what I'm thinking about as a real estate investor making this rent or buy situation is if it's going to cost me the same to rent or to buy, that means I have the same money to play with each month to put towards investing in real estate.

17:32Brandon Turner:So I should buy because now I not only have to spend the same amount each month, but I get the ancillary benefits. I get the tax breaks. I get the appreciation over time. And then I can think about scenarios like you just talked about. Like when I move out, I can now keep this property as a rental property. And then I get the benefit of debt pay down that I'm not actually paying down the debt for that a tenant is. I think this is the scenario where you should consider buying over renting for sure. There's a key caveat here though. Like in my example, and I think this is probably true for most people, I didn't go out and buy my dream home.

18:09I mean, if you ask Jane, it was whatever the opposite of dream home is. That's what it was for her. A nightmare home? A nightmare? Yeah. We used to play a game, just gunshots or fireworks. Often, honestly, total toss up. Not saying you have to do that, but I viewed it as an investment. I wasn't saying like, this is the house we're going to live in for the rest of our lives. I was in my late 20s and I was like, you know, this is not where we're going to hopefully raise a family one day where I bought in the path of progress and in a place where I felt like I could really have a good investment.

18:46I think the area where Robert Kiyosaki or Grant Cardone are right, because they are, oh, just if you don't know, two big famous real estate names who are very adamant that your primary residence isn't an investment. Robert Kiyosaki even calls it a liability, but like where their sentiment at least is right, is like if you're going to go out earlier in your investing career and buy your dream home, often that is not the best use of your money. Like you could probably either be renting and buying something else, or you could be buying more of a starter home, maybe something with sweat equity in it, where you could go do that.

19:20Brandon Turner:And I think that this is the caveat that we wanted to make sure that we hammer home with people. We're thinking about this decision to rent or buy as real estate investors at heart, right? And that's how we're talking to you as the audience. If you're a real estate investor and you're trying to decide rent or buy and you live in a market where it's about the same price, we're saying buying is the right choice in that scenario. But be smart about the buy. Like if you're first getting into your home ownership journey, maybe this is your first home purchase to live in. Maybe it's your second home purchase to live in.

19:53Brandon Turner:Chances are you're not picking that home as your forever home yet. Like you probably just aren't in that stage of your home ownership journey yet. So buy something that will make sense as a rental property down the road, because if that's your goal is to build a portfolio of rental property of cash flowing assets, like utilize your owner occupied loans to buy something that can be added to your portfolio in the future versus you buying something so expensive that you can't add it to your rental portfolio and you end up having to sell it. And I'm not saying that makes it a bad financial decision, because if you keep it long enough, it'll appreciate.

20:33Brandon Turner:But being able to buy something that can double as an investment property is, A, a safe investment, and B, allows you to kind of kill two birds with one stone. You have a safe, comfortable primary residence, but now you have something that you've added to your portfolio. And we all know the key to real estate is the longer you own it, the more financially beneficial it becomes. So you might as well buy that rental property now. I guess the advice here is if you want to buy your primary residence for lifestyle decisions or for financial decisions, underwrite it like a rental property. Go use the BiggerPockets calculator.

21:05Treat it like you are going and buying a single family rental and just see where it comes out. Like if it's going to be really net negative, that's probably not the best financial decision. You might be better off doing an owner-occupied strategy or doing the rent and buy strategy. but if it comes close or you're like, I'm gonna live here two years, rents are probably gonna go up and we'll be cash flowing when I move out. Like that's a totally good decision.

21:31Brandon Turner:Now, I wanna ask you another question about this because I can already see the comments coming on this video is if we're saying buy versus rent in this scenario, even when it's close to the same, what about the maintenance issues that you have to pay for as an owner that you wouldn't have to pay for as a renter? Like how do you factor that into your decision if you're in a place where renting and buying technically costs about the same each month? Well, I'll give you the real answer. And I'll also give you my hot take. That's going to piss a lot of people off right now. My hot take is when I was living in Amsterdam and renting, it was so nice.