Renting vs. Buying a Home: Can HOA Fees Be Worth the Money?

17:51But hey, that's neither here nor there. But I want to focus a little more on the HOA question because that's really key to our listeners question for us. So I was looking into how an HOA kind of factors in here. And NerdWallet's calculator actually has a space for HOA fees. So I entered the median HOA fee in New York, which is a whopping$739 a month, according to Realtor.com. And by the way, that's about a little more than half than I pay for my own mortgage, just for the HOA alone, which is bananas. So I did some calculations around how this would actually factor into the rent versus buy and which has you come out ahead.

18:26So considering that HOA fee, after 30 years, renting is still the cheaper option. You'll have spent around$76 ,000 on rent in that time compared to almost double or around$150 ,000 to buy. And that's in no small part because of that almost$740 a month HOA fee that you're paying bananas. So that is why I will not be buying in New York City anytime soon. Look, I'm from the Midwest originally.

18:49Ryan Sterling:And I would say like a lot of our clients who live in New York are from places outside of New York. And like they go back to their family reunions and people look at them like they have three heads because they're in their 40s and they don't own a home. And it's like one of those things, though, where it's like that doesn't mean, though, you are being financially responsible. That doesn't mean you're not building wealth. And in many respects, like these people are actually a lot farther along than most of their family. So I've seen people across the country who have taken all of their money out of their 401k, paid the penalty, paid the taxes to buy a home.

19:22Ryan Sterling:That's the worst financial decision that you could make. So I would say that stocks are a positive cost of carry in that if I own a diversified investment portfolio, the dividends are paying me to own stocks. A home is that negative cost to carry where I have to pay to own it. So again, it's not necessarily the most efficient asset class. I will also say too that people are very bad at doing internal rate of return calculations. So people come to me all the time and they say, my parents bought their house in 1992 for$200 ,000 and they just sold it for$800 ,000. And you're like, okay, like that alone is like a 3 % compound annual rate of return, something along those lines.

20:07Ryan Sterling:Okay, but like, did they put anything into the house? Well, yeah, so they redid the kitchen, the roof spin replaced, they did this, they did this, they did this. Well, ask your parents how much they actually put into the home over the last couple of years. And the parents say, I know that because we were calculating how much we paid because we wanted to make sure that we got the capital gains exemption. We put in$350 ,000 of work into the house. So I'm like, all right, they bought it for 200 ,000. They put 350 ,000 into it. So they're 550 ,000 and they sold it for 800 ,000. So that's been their return over close to a 40-year period.

20:42Ryan Sterling:That's not actually a very good return on invested capital.

20:45Elizabeth Ayoola:I love that you pointed that out, Ryan. It's so important because people do not know how to do the math. But thankfully, you're here to explain that, like you said, it's not always that you're in the positive after buying a home. And so many people talk about buying a home as a really smart investment, to your point, Ryan. It's almost equivalent to investing in the stock market. And it's just such a different beast. It's like apples to wildebeest. It's such a different comparison. Well, we're going to take a quick break. When we come back, we'll talk about why buying a house can still be the right decision, even if you don't come out ahead financially.

21:17Stay with us.

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22:59Elizabeth Ayoola:Spend less time searching and more time actually interviewing candidates who check all your boxes. Listeners of this show will get a$75 sponsored job credit at Indeed.com slash podcast. That's Indeed.com slash podcast. Terms and conditions apply. Need a hiring hero? This is a job for Indeed sponsored jobs. Ryan, some people are still going to choose to buy a house, even if they have a far out break even point or they never come out ahead compared to renting. And that makes me think about the emotional side of buying because some people are buying a home because they just want to have somewhere to raise their kids or to have memories or even just to decorate.

23:34Elizabeth Ayoola:As a planner, how do you navigate what's best for clients' personal goals versus what's best for their actual finances?

23:41Ryan Sterling:I mean, look, not everything in life has to be a strictly ROI decision, right? I like to travel. And you could look and say, gosh, look how much money you spent on travel this year. Like, what's the ROI for that? It's like, well, gosh, I've got a life to live. You know, there's like a time value of experiences. So I look at this house that we just purchased. When I look at the long-term plan, like it does kind of math out again, because as Sean mentioned, the cost of monthly payments does go down significantly once you pay it off. But it's not like a crazy difference, to be honest with you. And so much of it is that like, I just kind of wanted to own a home.

24:17Ryan Sterling:And I wanted to feel like it was mine. I want it to feel like I'm like some stability and like we're really part of the community and the community that we're moving to. Like everybody is the homeowner. Like there weren't any rental options in terms of like where exactly we wanted to be. So in order to be where we wanted to be, we kind of had to buy. There's a lot of things that go into it that are strictly emotional that like, look, I'm an emotional being, right? I want to achieve financial independence. I want to make smart financial decisions. But I'll be the first to admit that not everything that I spend money on is on an ROI basis.

24:52Buying our house was totally an emotional decision in terms of when we bought it. For those who are watching on YouTube or Spotify, my dog Pepper just walked into the frame. And she has been lounging in the backyard. And part of why we bought our house when we did is because she is a dog that needs a yard. And so we celebrated our house hunt. And now she and Argus frolic in the yard all day long. And it brings me tremendous joy to see them out there.

25:14Elizabeth Ayoola:I actually, contrary to you two, do not have an emotional attachment to a home, which is probably why I'm not a homeowner. So I am not compelled by making memories. I feel like I can make memories in any home, including the ones I'm renting. So maybe there will come a time in my life where I feel like there needs to be a childhood home. And I actually grew up in one. Me and my siblings grew up in a childhood home my mom bought. And maybe I'm just, am I apathetic to this all? Because when she sold it, I didn't feel much of anything either. And that was like the house I grew up in. And I was like, oh, well.

25:43Elizabeth Ayoola:So maybe it's just not for me. I don't know. Yeah. And you've moved around a lot. And it seems like you've been in your current place for a couple of years now. But you might want to move again in a year or two, in part, because now you have all these bushes to trim. So who wants to deal with that? Oh, my gosh. I'm just the girl. No, thanks. Kind of bringing it full circle. You are living that flexibility and keeping your options open because you're renting. You don't want to be tied down right now, right? No, not right now. But that could change, you know?

26:07Ryan Sterling:I'm with you. Like I am not an overly sentimental person. Like I don't get attached to things. Like people mean a lot to me, but like I've never been somebody like my childhood home when my parents sold it, like it had zero impact on me whatsoever. There is an emotional kind of reason for buying this home. But like if for whatever reason, like I had to sell it in the next couple of years and if I lost money on it, which I would fully expect to, to be honest with you, because of all the transaction fees, I wouldn't regret it. number one and number two, though, like I don't feel like that over connection to it.

26:41Ryan Sterling:The primary motivation is to be in the area that we wanted to be in. And that was like kind of like fully it. But again, I will say like there is something that was kind of like nice going through the experience of it all. And there's something that, you know, again, I've been advising on it for so long. I would say that there's almost kind of like me just kind of running an experiment on my own to be like, just making sure that the advice I've been giving is the right advice. And by the way, it is solidly the right advice. I love that. Good to hear. That's reassuring. Ryan, one thing I'm thinking about is what people could do with all the money they're not spending on a home if they're just renting.

27:12We talked about earlier how much more affordable renting can be and how much more money you could have in your pocket on maybe a monthly or annual basis. How do you talk with your clients about what to do with that money they're not spending on a home, whether that should be put toward investing or maybe a certain kind of savings account? What are your thoughts there? Let me just kind of use myself as an example.

27:30Ryan Sterling:Saving$4 ,000 a month on renting versus owning a home meant I had$4 ,000 extra a month that I could put towards an investment account. That's meaningful. So I'd say for most people, again, like if you can afford the monthly payment on buying the home, but you choose not to do it, and you go with renting because it's a less expensive option, invest that difference. And again, anything can happen. But I would say over a 10-year period, it's highly likely that your wealth is actually going to grow faster in that extreme case than buying the home. This is New York City. New York City, I think, has way more extreme cases of the buying versus renting decision.

28:11Ryan Sterling:But I would say for a lot of our clients who live in New York or even San Francisco, I would say like when we do factor in that delta and then we take that money and then we put it into a diversified investment account, it has very similar impact, if not a more pronounced impact than buying the home.

28:27Elizabeth Ayoola:Well, thank you for telling me, Ryan, that what I'm doing is right. So thank you very much. You're doing the right thing. Yes. I'm just investing more and I like not having any other fees. And yes, my rent could go up, but thank you to my landlord for not putting it up. But I just like being able to just throw money in the stock market and not have to worry about anything else. That's right.

28:45Ryan Sterling:And Sean, you also did the right thing too.

28:47Elizabeth Ayoola:Yes. Yeah. I mean, I feel like I really did the right thing because I bought a house in 2020. So grateful for that low mortgage rate. With the delicious interest rate. Yeah.

28:59Ryan Sterling:But that's where it goes back to the very beginning of this is like, who's right? Both are right. It really depends. And that's where, again, you do need to put it through a financial plan. Well, if someone is debating renting versus buying and they're really not sure what's going to be the best for them, what would you recommend they do to come to some kind of decision to sort that out for themselves. I think having a financial plan done and being able to look to see like, hey, like, let's look at these different scenarios. Like, number one, like, on my current trajectory of renting and assuming that rent is going to go up with inflation, like, if I never buy a home, like, does the math math out?

29:34Ryan Sterling:And for a lot of people, you'd be surprised, like, it actually probably does. So I'd say, like, number one, it goes back to, like, having a financial plan and being able to look at the numbers. And again, like, I will say, like, I have so many different case studies in terms of clients where they've reached financial independence and have accumulated significant wealth without ever owning a home. Great. Well, Ryan Sterling, Wealth Advisor with NerdWallet Wealth Partners, thank you so much for joining us today. Yeah, thanks for having me. If folks want to learn more about NerdWallet Wealth Partners, check out the link in the episode description.

30:03Elizabeth, now that it's just you and me, I got to confess something. I need your help. I need you to be my accountability partner because I got kind of brainwashed by consumerism recently i need you to talk me off the edge of making a big purchase do you want me to be

30:18Elizabeth Ayoola:nice or mean about it sean okay i'll be nice i'm nice let's do a little bit i'll be in the middle be good cop and bad cop okay so i don't know if you know this but apple recently announced like their whole new slew of gadgets that they do every fall and i got really interested in their stupid fancy folding phone have you seen this i know no i just literally yesterday with my boyfriend he showed me the phone and he's going through all the features it tries to do everything sean no i need to hear about why it's not just that it's not that because i also was thinking about like they have the apple watch ultra which is like super rugged you know i'm always running around mountains and stuff i'm like maybe i need this fancy watch too i don't know if you saw the price of these devices i know need or want sean need or well that's core to the question here fundamentally i don't need them.

31:08I would like to have them because they're shiny, but the costs are really getting to me. I don't know if you know this, the base minimum cost for that folding phone is$2 ,000.

31:20Elizabeth Ayoola:Okay. Time to end the recording. There's nothing to talk about because why are you buying a$2 ,000 phone, Sean? Okay. I'm being judgy. I'm being judgy. If you do it so they can break it up into installments over 24 months and it's like almost$90. It's like 80 to$90 each month. That's how they get you. It's like buy now, pay later. Or the luxury of having a shiny screen. And then the Apple Watch that I'm looking at is like almost$800, I want to say. So again, just to have a shiny thing on my wrist. And guess what? I actually already have one that's not so fancy, but it does track my workouts. But the battery is like not as cool or as fun or long lasting.

31:55So as I've been laying this out for you, I'm kind of talking myself out of it. But I find that the more I look at like the images online, the more I'm susceptible to the marketing. And I feel like such a lab rat or I'm like, oh, everything they're doing, all of the meetings they had internally at Apple to make these products seem really tempting are working on me. And I hate that. They're working. So please talk me off the edge here.

32:19Elizabeth Ayoola:Oh, Sean. Oh, my God. I'm not going to lie, though. Not going to lie. The second half of the commercial advertising the phone, it did make me go, hmm, a little bit because the camera features were great. I was like, OK, and you know, you know, I love me a good selfie. but Sean okay so first of all which one are you more drawn towards the phone or the watch the phone a little more but I am talking myself back from that because of just the price tag alone is so outrageous the watch feels more practical but the phone just looks so fun and nice and I'm so bored of my phone and I also like resent my phone deeply because it has such a tight grip on my life that I want to spend more money on this like even fancier grip on my life.

33:04So

33:04Elizabeth Ayoola:thank you for saying that because as I watched that commercial again or whatever it was with all of those features what came to mind is that they're just adding more and more features to keep us on our phones and you know how I feel about that. I want to lean more towards the watch and my reason is to saying maybe yes not yes maybe yes to the watch not that it's my money. I got so giddy when you were like, you can, I thought you were going to say I could buy the watch and I got so excited. So I'll let you finish. I'll let you finish. I'm not going to completely oppose the watch because I would be a hypocrite.

33:36Elizabeth Ayoola:My birthday's coming up and I buy myself very expensive birthday gifts. But I, you know, I, I do and I budget for it and I don't feel bad after I buy them. So I think it supports this watch, your wellness journey one. And, and, and like we said with Ryan, not everything has to have a ROI. And sometimes you just buy things because they bring you joy. And sometimes they're a little expensive. Right. But I do think you would get a lot of use out of your watch. You don't necessarily have to be addicted to your watch, although I know that they put all the annoying functions of your phone on your watch.

34:06But I know my notifications turned off. So I barely get anything besides just like actual watch and workout tracking functioning.

34:13Elizabeth Ayoola:Amazing. Amazing. Amazing. So I actually don't have a hell no for the watch. OK, I would say if it fits in your budget and I know you're a stickler about, you know, making sure you're budgeting and saving and sinking. funds.

34:25Ryan Sterling:Yes.

34:25Elizabeth Ayoola:And you know what else, Sean, you're not going to get me with this. You get to pay $90 a month. No. Where is your sinking fund for the phone, Sean? So if you decide that you want to do this$2 ,000 phone, I think that you should do a sinking fund versus tying yourself to a contract. Yeah. Yeah. What I also really admire in terms of like their evil genius at Apple is that not only do they have this, like you can pay it off over 24 months, they have a new leasing program, like you're leasing a car and it's less expensive. And the idea is that you can afford this phone more easily. And then after a certain amount of time, you'll just upgrade to the next one.

35:01And then you perpetually have a phone payment.

35:04Elizabeth Ayoola:And debt and scrolling. Your whole life is being sucked away by scrolling and Apple. Let me tell you a funny little story of how defined I am. I have Apple products, by the way. So I like them, but still. I see the Apple watch on your wrist right now. Exactly. But it's cracked and I'm going to ride it until the wheels fall off. Yeah. I'm not replacing it. But I'm so defiant about giving Apple any more of my money that my storage has been full for years and I refuse to go from the 99 cents to the 1099 a month and everyone gets annoyed with me because I'm consistently deleting photos at every function and videos because I ain't got no more storage.

35:41Elizabeth Ayoola:But I'm not giving them any more money. Okay. But those are my values, Sean. Yeah. Yeah, that is it. It's your values. And so that's something I've been trying to talk myself into as well. When I'm no longer hypnotized by the shiny commercial that I've just seen, I'm like back on my own, sitting with my own phone that I've had like two and a half years or so. And I'm trying to think about what I really want my money to be directed towards. And I've been reading more about how our phones are created and how they're acquiring the minerals for them or even doing the R &D for these products. And it's like often in really shady ways, like there's a whole war going on in the Congo just to mine minerals for our phones.

36:18And that doesn't feel good when I'm thinking about throwing$2 ,000 at that. I also think about this really distinct moment. You know how like in German they have a word for like every crazy specific situation that happens where it's like they just mush all these words together. I want a word for the novel experience of when you get a new iPhone and it has the same exact information as your old iPhone and you're so disappointed. You're like, wait, I just paid how much just to have the same exact experience on this screen too? It's just, it's a very specific disappointment. And I also feel kind of like a fool where I spent how much just to have this shiny screen.

36:53But that's why bringing it back full circle to the buying it again, the new folding phone is different because it folds and now there are two screens on it. So that's kind of exciting.

37:04Elizabeth Ayoola:Again, I'm not the girl who's going to say yes, of course, on this show. we say that you could save or invest in a compound interest. That's not the point of this, right? Because we're already saving and investing and you get to enjoy some of your money. But I just want to make sure, Sean, that if you do buy this phone, I'm not going to shame you if you do. Thank you. Judgment-free zone. Judgment-free zone. That you really get joy out of it. And again, I just do not like the$90 a month thing because then it tricks your mind into thinking that it's not expensive as it is. $2 ,000 is a lot of money for a phone.

37:36Yeah, but$90 a month is really expensive. It's so wild. I could do so much with that money.

37:41Elizabeth Ayoola:You could, you could. You could do another run around the mountain. I don't know, and buy more shoes for another run. I don't know. You're so right. I could do that. So maybe I'm leaning toward the watch. That's what I'm thinking. But thank you for talking me off the edge a little bit because I was about to spend too much money. Not that I was going to buy both, but if I did, that'd be like basically$3 ,000 just for shiny screens that I don't need more of in my life. Yeah. And if anything, as we always talk about, you get to pause, right, and think about it versus impulse buying it. And you might still get the phone.

38:13Elizabeth Ayoola:Who knows what the future holds? But at least you gave yourself time to think about it and you're making sure it's a good decision for you. Thank you. I'll try to be informed. And if I do end up buying it, I'm probably going to have to talk to you at least one more time before I do that, just to really get your thoughts, because I appreciate your insights, Elizabeth. If you buy it, I got to see it. At least let me secondhand experience it, you know, and we have to take selfies on the phone and all the other things. I know. Yeah. I'll have an incredible time playing Duolingo to learn Spanish and scrolling through Instagram on my fancy, fancy phone.

38:43Elizabeth Ayoola:Terrible. Where's my brick? Okay. I know. Cool. Well, thank you, Elizabeth. I think that's all we've got for this episode. So, folks, you know the deal. Send us your money questions because this show runs on them. You can call us or text us on the nerd hotline at 901-730-6373. That's 901-730-NERD. You can also shoot us an email at podcast at nerdwallet.com. Join us next time to hear about how to give yourself a forever paycheck in retirement. Until then, follow Smart Money on your favorite podcast app. That's Spotify, Apple Podcasts, and iHeartRadio to automatically download new episodes. We're on YouTube.

39:19Elizabeth Ayoola:Yes, we're going to keep saying it until you're completely annoyed and you go to our YouTube channel and watch the videos and follow us. Thank you very much. Here's our brief disclaimer. We are not your financial or investment advisors. This nerdy info is provided for general educational and entertainment purposes and may not apply to your specific circumstances. Some companies mentioned in this episode may be NerdWallet partners, but that does not influence how we talk about them. And until next time, turn to the nerds. Okay, that was too much. Turn to the nerds. Never too much. I want more. Thank you.

39:57Elizabeth Ayoola:Brussels clean up nicely at Sweetgreen. Maple glazed, roasted, and edges perfectly caramelized. Sweetgreen's fall harvest is back on the menu, and the season's most overlooked little green vegetable is dressed to be devoured. You know what to do. Order on the Sweetgreen app.