Buying vs Renting A Home - Dave Ramsey Rant

okay I've had a couple of these calls in the last little while so I got stopping addresses for a second Dave the rents in our area are so high so much higher that I can buy a house so much cheaper a month not true you're not comparing apples to apples at least over a period of time it cannot be true economically and let me walk you through why because it's a basic concept but you know again this is the thing where we get scope creep a thing where we get justifying rationalizing buying the house when you're not ready to buy a house or buying a house you can't afford or buy a house in a situation where you shouldn't I loved homeownership I've always believed long-term owning home is one of the best plans you can have long-term but you need to do it in a wise way so the home is a blessing and not a curse and the stupidity that's out there in the culture including in some of the wonky think tanks it's like all home ownership is down Americans you know the the wealth inequality gap is widening it's difficult to buy a home yeah that's all true but broke people when they buy a home aren't blessed it makes them broker that's why they call them mortgage brokers and if a whole bunch of Piro people buy a house at one time you could bundle it and sell it on the hedge fund and later on is a regular mortgage block and actually crash the whole economy back to 2008 does anybody remember so it's not a good policy decision not a good macroeconomic decision to force people into buying homes or to encourage people to buy homes when they are broke now once you're ready to buy a home though and you're looking at rinse and you say rents are you know $1,500 a month but I can buy this house for $800 a month that is just not true long term and here's why it could be true for a moment in a boomtown where something's going on like the struck oil okay I mean you get in one of these boom towns you could have that happen but eventually a supply demand curve and economics will take effect and here's why landlords want to have renters and when there is an abundance of renters willing to pay ridiculous prices what they do is they start building rental property or buying property and turning it into rental property and so if there's a house on the market on the street and an individual can buy that house and it's $800 a month or an investor can buy that house and it's $800 a month and he can rent it for 15 and there's an abundance of renters out there is the reason the price has driven up there's a shortage versus the demand anytime demand is higher than supply prices go up okay when there's a shortage on something that's when prices go up in other words okay but what happens is the shortage corrects itself very quickly because those of us that are investors we want to tap into this hot rental market and so we go buy a bunch of property and turn it into rental property or build a bunch of property and turn it into rental property which raises the supply back up thus the shortage goes away so over time rents are not going to be double prices of a house price of a monthly payment on a house because investors that are willing to borrow money or willing to pay cash like I am will buy enough rental property to take advantage of the great rates of return that overpriced rent an overpriced rental market will do and it will cause the rental to come down or the value of the houses to go up and they so rent always approximates slightly above payments it always does over time and so when you call me up and say oh I can buy fifty percent of what I can rent no you can't you're looking you're not comparing apples to apples in the neighborhoods you can if you can buy you know because investors would have already gobbled that house up and doubled their money that's the point and that doesn't weigh with the shortage which causes the economics to balance out now again there might be a six month period of time where that is not true but long term in Missouri long term in Boise long term in Abilene that's what happens at a probably you know if there is a bit of a jump for one reason or another very quickly it will even out and most of the time it's already pretty even rent is going to be slightly more than payments on average because investors require renters to pay enough rent so they can pay their payment or so they can get a rate of return on the cash they have tied up like in my case I'm not going to tie up money at four percent return in a piece of rental property I got to get more rent out of it than that because I can make more than that on my money doing something else and so that's going to drive rental rates that's what we're talking about here and so these are always going to approximate each other now if you find rent that or if you find a house payments slightly less than rental that would be normal and it is not cheaper in that case so let's say you have a $1,500 rental rate and you have a $1,200 payment now that would probably be fairly accurate rent is always going to be a little bit more than payment but you're not paying when you're renting to put roofs on and fix heating and air and fix broken hot water heaters you're not paying the increases in insurance and increases in property taxes that come along until I renew your lease and then I'm going to bump up enough to cover that but that's the difference homeownership in a given year might be more expensive for you as a consumer than renting depending on the repair bill that you end up having and so there is no economic no mathematical excuse for buying versus renting until you're ready on the short-term on the long-term owning is always better than renting so you want to get yourself in a position that you own as you build wealth and as you head towards retirement that's going to assist you and with a paid for home and in building wealth but it does not assist you when you buy a home and you rationalize your little butt off just because you got house fever and your little friends are out there buying houses and your little family members are whining at you over Thanksgiving dinner about they bought a house and you and bought a house yet why didn't you bought a house because I'm freaking broke and I'm not gonna be broke soon because I'm on a budget I'm gonna get my debt paid off I'm gonna get my emergency fund in place so when I buy a house with a good down payment on no more than a 15 year fixed rate on no more than 1/4 of my take-home pay as a payment then I'm gonna buy a house and the house is gonna be a blessing not a curse I want you to own your house I don't want to own you and too many people rationalize their butts off they got student loans at Browns long we think they're a pet they got two car fleeces sitting in the driveway they got Master Card they've discovered bondage and American distress all the money comes in and all the money comes out and they've strapped themselves to a house on a thirty year adjustable rate mortgage and it's some of the lowest interest rates in my lifetime and I'm almost 60 years old if it's the lowest interest rates in 60 years where the flip do you think it's going to adjust up dummy up not down I mean where are you going from two point nine one point nine I mean really is this your set of assumptions on which you justified buying an adjustable rate mortgage that's dumber than a grubworm in a box of rocks that's stupid you're gonna get killed don't do that but we gotta have that one with a Jacuzzi in the skylight and I don't feel safe three streets over and we come up with all this crap that we used to justify and all this peer pressure the most expensive purchase you're ever gonna make for most people which is their house don't do that do it right so that your home becomes a safe haven and not a point of stress on your finances on your marriage and in your belly

Channel: The Ramsey Show Highlights

Views: 1,420,930

Keywords: the dave ramsey show, budget money debt cash, real estate, insurance, how to make money, dave ramsey, save, credit card, compound interest, buying house, buy, snowball, Buying Vs Renting A Home, rent vs buy, rent or buy, mortgage, renting vs buying, home ownership, buy versus rent, renting vs buying a home, dave ramsey buying a house, rant, #daverant

Id: 2iGw3Yac-uQ

Length: 9min 21sec (561 seconds)

Published: Wed May 08 2019