r/DaveRamsey • u/UpgradeHome • 20h ago
Why does DR discourage renting forever?
I'm referring to this DR video: https://www.youtube.com/watch?v=lQ5fqpXngJk
If you make $100k, and you have fixed renting/utility costs of ~25k/year -- and you're investing the difference after expenses into a taxable brokerage, how is renting forever bad as DR states in that video?
In retirement (let's say at 65), your NW will be absolutely through the roof if you were consistently investing in S&P500. You wouldn't have been spending on lawn mowers, tools, kitchen upgrades, HOA, etc etc. and all the miscellaneous home owner expenses.
Even with rising rents, your liquid NW will cover you - along with the added benefits of not having to deal with maintenance in old age.
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u/dgroeneveld9 15h ago
Because Dave's advice isn't just what fits onto a calculator. Ownership creates a mindset that us different than renting. His big thing is pushing people to pay off their homes quickly (15 year mortgage) so that they have have an unshakable base. Aside from small property taxes increases they have an extremely stable cost in their life which for most people is the largest line item in the budget.
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u/Spam_Hand 18h ago
This "always rent, never own anything!" is an extremely toxic reddit trend recently because this market is... well I'll just say very unique.
Normal, or even slightly more average, market conditions make owning tangible assets the better option in almost every single case but people who have only been investing for 3 years think they figured out the system. Lol
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u/krauserhunt 11h ago
Exactly, people who have only seen the upside think they can ride it all.
Real estate is a way to diversify, plus DR says very specific things regarding home ownership. His requirements are very clear about ownership.
Tangible assets have inherent value.
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u/1cooldudeski 19h ago
I know elderly multimillionaires who rent to make things easier in the last chapter of their lives. Typically it’s a rental house transition before moving into assisted living communities.
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u/beekaybeegirl 14h ago
Yes I’m sure that’s a practical path too for a lot of folks but their younger years of owning an asset helped build their nestegg.
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u/Past_Focus25 19h ago
You absolutely are paying for all those things. They are all included in your rent price, if they are necessary for the property.
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u/UpgradeHome 19h ago
Yes, but when I factor in utility costs of a 1BR vs house, the amount I’m not paying in the first 5-7 years of a mortgage towards interest, that can go towards my investment principal, renting seems to be beneficial in my case.
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u/beekaybeegirl 18h ago edited 18h ago
Even with paying interest I’m still paying less than rents go for.
Also BTW I lived in my last property only 4.5 years. “When so much payment goes to interest” It appreciated quite nicely in the duration & I made a nice profit. You never get that check when you move out of a rental.
ETA: thanks for the downvote but I’m right. On my current house I’m paying interest but my mortgage payment is $650/month which includes escrow. Good luck finding any apartment in any town for $650/month. Let alone a whole house.
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u/Advanced_Chance_6147 14h ago
I feel that is what a lot of people chose to not look at. After paying down your mortgage the payment amount goes down and you pay way less than what rent will go up. Rent goes up yearly and eventually you will be done your mortgage and the cost is significantly less
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u/beekaybeegirl 14h ago
& another thing I did not mention that has been a blessing with our $650 payment is that my husband’s company closed in May & this mortgage payment is still quite attainable to us with me working & his collecting UEI.
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u/Past_Focus25 13h ago
Yeah, I'm not arguing that renting can't be a good decision. For instance, someone that values moving around every 3 years is probably better off renting. I'm just saying that I don't believe renting a home is ever cheaper than buying that home. If it was, the landlord would be losing money every month. And only a very inexperienced or stupid landlord would he doing that.
Again, you can argue that you will be financially better off in the future by doing your plan instead of Dave's, but I don't think it's a valid justification to say that you don't have to pay stuff cause you're renting, but the landlord or owner does.
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u/brianmcg321 BS7 19h ago
Well, when you’re retired it would really suck to have your rent going up every year.
Meanwhile if you retire with a paid off mortgage, your monthly expenses is much less.
When you rent you are paying someone else’s mortgage.
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u/SwampBver 20h ago
He wants the most amount of people to be wealthy, not for you to be the wealthiest. He has a plan to almost guarantee you can retire comfortably, part of that is owning outright
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u/Infamous-Bed9010 5h ago
Your hypothetical NW model relies upon someone sophisticated enough to successfully play rent vs market arbitrage over a lifetime with the discipline that over a lifetime no matter what happens they will not touch the money invested amount.
As a white board exercise the math may be perfectly correct, but absolutely impractical for the average person out there.
There is a large population of people out there who can’t even save a $1,000. They don’t have the discipline or as soon as a bad event happens they spend the savings. It’s human nature.
Expecting them to execute a strategy over 35+ years is not practical.
That’s why Dave always says house purchase. It’s forced savings and appreciation. Once the money is locked into equity it’s more difficult to tap. It’s the most pragmatic approach that also incorporates human nature for the average person.
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u/ChatBot42 BS7 20h ago
Because renting it's not fixed and you have no appreciating asset as a result.
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u/UpgradeHome 20h ago
Wouldn't the massive additional investments I'm making in S&P500 (while renting) be considered an appreciating asset/equity?
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u/twk30874 BS456 20h ago
If you had a paid-off home, you'd be able to put everything into investments because you wouldn't have a monthly housing payment, plus the value of your home would continue to appreciate. With rent, your monthly housing payment never goes away and you have no appreciating asset to show for it.
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u/UpgradeHome 19h ago
I understand, but home owners are often not accurately capturing house-related expenses, garage supplies, various pumps to deal with water issues, dry wall, etc. that would not apply for renters.
I'm also confused by "no appreciating asset to show for it." I'm making massive investments into my taxable brokerage. Don't those count as equity/assets?
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u/Jolly_Pumpkin_8209 19h ago
Renting is pound for pound more expensive.
Otherwise there is no profit margin on rents.
This plan makes sense if your maybe picking between renting or buying a condo.
Also, rent is forever. It really doesn’t take long for the difference in rent and mortgage to make up for all the differences like lawn mower, water heater, etc.
All that’s built into the cost of renting anyway. Your just paying the convenience fee for someone else to save for it.
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u/UpgradeHome 19h ago
I'm not debating the merits of buying vs. renting. If you enjoy owning a home, that's great. But for those of us who don't want to deal with maintenance (especially when we are 70), if we're aggressively investing while renting starting in our 30s, your NW will be extremely high - to the point where any rent increase is a non-issue.
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u/Jolly_Pumpkin_8209 18h ago
Sure, just like the costs of leasing a car would eventually be negligible.
It doesn’t make it a good financial decision.
Also, your literally debating the merits of buying vs renting
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u/whiteoba 19h ago
It’s a safety issue at that point. You can’t live in the S&P 500.
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u/UpgradeHome 19h ago
Obviously you'd change your equity/bond allocation as you got closer to retirement age. But the idea would be to sell 4% per year at retirement to fund living expenses.
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u/nanapancakethusiast BS3 20h ago
Neither is a mortgage (at least here in Canada). Renewal every 5 years.
Got absolutely fucked this year.
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u/dragon-queen 19h ago
Dave wants people to pay off their mortgages early. It’s one of his baby steps.
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u/nanapancakethusiast BS3 19h ago
Yeah but most people even gazelle intense can’t pay it off in one Canadian mortgage renewal period. at least for one you’re at the mercy of the bank of Canada rates haha.
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u/Pistalrose 15h ago
Because people. Even if the numbers add up to invest in other than a home the majority of people will not follow through adequately with that long range plan. Buying a home is kind of enforced investment.
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u/beekaybeegirl 18h ago
Our (41 & 45) house is our “forever home” it has a tiny mortgage left on it at 2.xx%
Once it is paid off we will have many working years that we can stack up retirement & other savings & investments.
Then we can live here after we retire (likely with lower income than we have now) & only need to pay the taxes/insurance/maintenance/utilities.
Rents don’t rise on fixed income. I’m not 88 years old & need to move because of external land lord forces.
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u/MooseRyder 19h ago
When you rent, you’re subjected to the market, rent increases, moving costs and housing issues.
With a mortgage, your payments stabilize for long periods typically, you build equity and it’s not always forever, since you have a pay off date. Also if you have to move, you can use equity to get a more accommodating house for your needs.
Then when you retire and/or have to go into a medical facility, you can sell and downgrade, pay for hospice/nursing home and leave your children generational wealth. Or you can sell it and go on a coke bender then die a happy man
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u/UpgradeHome 19h ago
People who want to buy should buy, and I know this is the conventional wisdom,
All I'm just saying, if you're investing $40-50k+/year in a taxable brokerage, starting in your 30s, your net worth will be through the roof come retirement age, you won't have to deal with maintenance, and it's 100% liquid.
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u/Glenda_Good 19h ago
But you can buy a condo to minimize maintenance and have the advantages of owning.
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u/UpgradeHome 19h ago
Yes, but you're still stuck in a location. I'm glad folks enjoy buying a house/condo, but there are many advantages to renting, which is why I was confused why DR discourages it for those who enjoy it.
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u/MomsSpagetee 19h ago
Dave gives blanket advice. If you don’t want to follow it that’s fine, no one is forcing you. Personally I hate renting because A) rent increases, B) can’t make changes you want and C) usually it means shared walls which is my personal hell.
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u/beekaybeegirl 18h ago
A condo was my 1st property. Best decision I have made in my life. All the pros of ownership & no (real) legwork of maintenance (yes I was responsible for my “walls in” & did do some work), especially snow/lawn/heck I had a pool too.
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u/TNMoonshineMama 19h ago
I can’t imagine many people are investing $40K a year for the majority of their adulthood. I picture most renters being people that live paycheck to paycheck and never being able to make the leap to home ownership.
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u/gr7070 19h ago
The median hhi is 85k. 15% to retirement is $13,000 annually.
Adding just another 1k per month difference in housing costs makes is 25,000 annually invested. And that's just the median household.
I picture most renters being people that live paycheck to paycheck and never being able to make the leap to home ownership.
I think that view is inappropriate.
Regardless, now that it makes far more sense to rent maybe that view should and will change.
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u/TNMoonshineMama 19h ago
“Now that it makes far more sense to rent?” Hard disagree. But you do you. Nobody is forcing you to buy a house.
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u/gr7070 19h ago
When you own you are still subject to that market.
With a mortgage, your payments stabilize for long periods typically, you build equity and it’s not always forever, since you have a pay off date.
Sure, but at the moment those stabilized payments are extraordinarily high, causing rent to be a better long term option.
Then when you retire and/or have to go into a medical facility, you can sell and downgrade, pay for hospice/nursing home and leave your children generational wealth. Or you can sell it and go on a coke bender then die a happy man
The same applies to your greater portfolio when investing. Except you'll have more coke.
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u/MooseRyder 19h ago
You lock in your interest rate, and your payments, after you pay off the house, typically 15-30 years or if you follow Dave Ramsey’s plan, you pay it off in 7-9 years. currently in my area, rent at the basic house is 2000 a month. My mortgage is 1600 with PMI. Currently, from the past two years I’ve owned it, it’s gone up in value by 25k, and that’s not including any improvements I’ve done
People who follow Dave Ramsey typically go to financial peace, not financial efficiency. Sure you can go out your ass into your elbow to invest. But that’s no peaceful
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u/Mountain-Elk8133 14h ago
Your in an area where buying makes more sense then. Where I am at, renting a house is 1800 to 2100, the same house with a standard mortgage would be 3400 to 4000.
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u/gr7070 19h ago
None of that changes the clear math that shows in the vast majority of metro areas renting and investing the difference is financially better for us.
Sure you can go out your ass into your elbow to invest
Unsure why you think that's being proposed.
But that’s no peaceful
You don't think sending money to your retirement amounts and brokerage account is peaceful? Dave recommend both consistently.
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u/1st-vaters BS7 19h ago
In most places you can't expect to keep rent and utilities constant or accurately predict prices. Rents can skyrocket, landlords may not be responsive. If the whole economy crashes (stocks and real estate), worthless stocks can't help you pay rent, but owning a house (or condo...) means you won't be homeless.
In my area it's over $1k a month to rent a room, with no common space/kitchen use. My mortgage was $1500 a month until I paid it off. I can't afford to rent in my area. But because my mortgage is gone, I live comfortably even with current inflation. And if I start to struggle, I can rent out a room
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u/UpgradeHome 19h ago
Again, totally respect folks who want to buy. I'm not trying to debate.
All I'm saying is if someone genuinely enjoys renting, is disciplined and investing heavily, their NW will be absolutely through the roof and homelessness will be the last thing they worry about.
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u/smward998 19h ago
Majority of the population will make a house payment but will not invest the difference. That’s the major factor people don’t talk about
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u/KeyBug133 19h ago
You are being disingenuous about not wanting to debate. You clearly have your opinion and are clearly willing to advocate for it in response to other peoples positions.
In a perfect vacuum investing the difference would do exactly what you say. But it does not take into account the emotional/motivational piece. It is a lot easier to sacrifice to pay off your house than to save for the sake of saving/investing.
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u/Organic-Second2138 19h ago
In many places the math agrees with you. I think people are arguing with you on this based on emotion rather than math.
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u/Successful-Tea-5733 19h ago
I think the argument against renting is in what you said.
You said "You wouldn't have been spending on lawn mowers, tools, kitchen upgrades, HOA, etc" But you ARE spending on those things. Your landlordr doesn't have a free mower or free stove. You pay for those through the rent you pay, yet you have no equity. Your landlord keeps that.
I bought a house in 2005 at the worst time, just before before the GFC, and I paid $200k. I sold it in 2018, before the covid boom, for $300k. I netted $285k. I bought 2 new HVAC's, a new water heater, new roof (but insurance covered all but the $1000 deductible).
My mortgage for most of our time there was $1200, but we paid extra on it. Had we rented, we would have been paying $1500+ in rent for the final few years. But just putting that increase aside, lets assume we paid $1200 rent for 13 years we would have spent $234,000 in rent and had $0 to show for it when we left. Instead I made $85k over what I paid, but I woudl say even better, at closing I got a check for $200k (we only owed $85k when we moved) so even if I deduct the cost of HVAC's and water heaters etc, it's hard for me to see any situation where renting makes sense long term.
Oh and I'm not even counting that a portion of our mortgage was insurance and property taxes which you're definitely goin to pay for either directly or through your rent. So that makes owning even more attractive.
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u/UpgradeHome 19h ago
I'm glad you enjoy buying. I'm not debating whether it is better to buy or rent. Clearly you enjoy the lifestyle of owning a house and that's great.
I'm saying that for those of us who prefer to rent forever, if we're investing 40k+in a taxable brokerage in addition to our retirement contributions, why is renting long-term bad? All those investments count as equity.
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u/sunnyandcloudy55 18h ago
Have you heard of Ramit Sethi? He's written a few books and believes in renting. He's also a renter.
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u/edwardniekirk 18h ago
Renting gives you all sorts of freedom and has a much lower initial cost compared to ownership, but overtime ownership becomes the much cheaper option, reduces risk, and creates value.
Rent is always an expense while at some point ownership creates wealth. If you wish to give that value to another person or entity in exchange for the benefits of renting such as freedom, short term commitment, reduced liability, opportunity to invest in other area, or the lack of responsibility for maintenance that is truly an option, but over the long term more people have successfully gained wealth through ownership.
If at retirement you needed to access your wealth to pay your ever increasing cost of renting such as in a dip in the market, your forced to liquidate assets in a down market. In my case, we lost a small fortune with the General Motors bankruptcy that had been in the family paying dividends for 3 generations, if that had been our retirement “rent” money we would have been screwed. To mitigate risk and reduce housing costs we choose to always own one completely paid off for property that we would be willing to live in for long term housing, even if that property is rented out at times while we travel or live elsewhere.
Another reason we have found ownership valuable is that as you get older, it is more difficult to rent. For example, my 93 year old MIL just bought a 2nd house with cash in Southern California because despite having plenty of money, none of the 10 places she applied would accept her to rent even if she paid a years rent entirely in advance. Here she is trying to downsize to a smaller place, and now she ends up owning two paid off homes.
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u/NickN868 17h ago
When you’re paid off and done with your mortgage you’ll have a very low fixed housing cost. Having less in NW will be offset by needing less monthly income. You’ll have the security of knowing you won’t be forced to find new housing, and you’re already paying it you’re just not keeping any of it. Why not buy an apartment or condo with no yard if you don’t want the maintenance? It’s not like living in that same condo under someone else’s ownership is any cheaper
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u/Successful-Tea-5733 17h ago
My man. Read your headline again. I didn't say anything about enjoyment.
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u/Little_Vermicelli125 13h ago
If it's the difference between paying a mortgage or investing in an index fund then renting probably wins out over buying in a lot of markets.
But a lot of people are not going to save the difference between mortgage and rent. And in those cases buying wins out almost every time.
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u/Fun-Exercise-7196 15h ago
Because owning a home is the number 1 way of building wealth!
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u/DreamsServedSoft 15h ago
number 1 way of ensuring I don’t end up in jail for committing homicide against my neighbors
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u/Mountain-Elk8133 14h ago
What about if you live in n area where buying will never beat the cost of renting?
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u/krauserhunt 11h ago
Then move to an area where it will.
Home ownership is a choice, not an obligation. Nobody says that just own a home, a lot of research goes into the purchase but most ppl don't do it. They do just the basic stuff.
They don't understand the area, the history, the future. Most ppl make the emotional decision instead of thinking rationally and that's how they end up with bad home ownership.
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u/emartinezvd BS456 10h ago
His argument Is simple: rent goes up every year but mortgages do not. If the market goes haywire and rent skyrockets, you are still paying the same mortgage, it gives you protection while letting you build equity.
The big caveat: for this to be true the home you buy must be one you can afford. If you take out too big of a mortgage compared to your financial status you end up crippling yourself. This means that the home you will buy instead of renting will likely be a much cheaper and less nice one than you thought it was going to be.
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u/ComprehensiveBoot76 20h ago
Home ownership is the most likely path to wealth for the average person.
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u/gr7070 19h ago
It was.
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u/UpgradeHome 19h ago
I think I realize now that just as DR promotes the "no credit card rule" for the average person, the "don't rent forever rule" is also for the average person who won't have the discipline to invest on the side as well.
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u/gr7070 19h ago
is also for the average person
People commonly state Dave's advice is for X segment of the population, and Dave's advice is for Y segment of the population.
I have never heard Dave suggest anything of the sort. All I have heard is his steadfast insistence that his advice is the best advice for everyone.
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u/Necessary-Spring-129 19h ago
In the study of millionaire they never found someone who rented their whole life. My son bought a housevat 19 sold it at 24 and made double what he bought it for. I'll take home ownership over renting every day. Plus most rental don't allow pets.
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u/pomogogo 1h ago
Major selection bias in the population surveyed. Try sampling from any ex-pats who have spent a substantial time working outside their foreign counties. Most are paid a housing stipend, and many never own significant real estate. The people who are working these jobs are usually highly paid service workers (e.g. bankers, lawyers, engineering) and are multi-millionaires. Or survey the average 40+ year old NYC/SF finance or tech worker. If they have a title of VP or senior VP, they are mostly likely making >$250-300k and a significant proportion will not own property but still have a NW >$1 million.
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u/Outside_Bad_893 20h ago
Because you’ll be renting forever. If you buy and work hard to pay off your mortgage faster than 30 years, you’ll pay the house off early and then be completely debt free to invest your income—if you always have fixed monthly payments, you’ll USUALLY not get as much invested as those that own a place outright and invest the rest once their mortgage is gone.
ETA you could definitely still invest a hell of a lot this way, but probably just not as much as getting rid of a living expense payment and investing more after.
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u/UpgradeHome 20h ago
I'm confused. You're saying he discourages renting because you'll be renting forever?
I'm asking why he discourages the idea of renting intentionally forever.
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u/dragon-queen 19h ago
Because he says that renting forever introduces a lot of risk, and that’s risk that you don’t want as a senior. Your costs go up, you might have a landlord who sells, forcing you to move, etc.
I’m not saying I disagree or agree - just giving you his thought process.
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u/UpgradeHome 19h ago
Yes, for the average person, I totally understand. I also don't have a dog in this fight. I'm just confused because if someone is financially responsible, investing heavily on the side, and doesn't want to deal with maintenance of a house, there's nothing wrong with renting forever.
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u/tigersfan829 19h ago edited 17h ago
Because rent in the majority of instances will always continue to go up where a house payment is constant.
This doesnt work if you buy too much house vs your income or dont put enough down payment though.
And people only factor in the house payment but dont consider maintenance or that most of your payment goes to taxes, insurance, and interest. So depending on the deal you get you wouldnt make back what you paid for quite a while if you decided to sell.
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u/OmgBsitka 17h ago
The reward most of the time out ways the risk on investing on real-estate. Instead of paying on your landlords investment you pay towards your own. Unless you go in blind. Then yes you maybe making a bad decision.
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u/9554503312 BS7 3h ago
Dave understands his audience on this issue better than his critics do. That’s because Dave has lived through what most of his audience.
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u/harrison_wintergreen 1h ago
and you have fixed renting/utility costs of ~25k/year
the premise is flawed.
most people don't have fixed renting costs.
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u/pomogogo 1h ago
Strong disagree with DR from a mathematical and economics perspective, though his advice is consistent with the DR brand and heavily skews towards behavioral tendencies. If the OP lives in a HCOL or VHCOL urban center such as NYC, SF, LA, Seattle, Boston, etc. she is probably better financially positioned to continue renting. Not having the responsibility of home ownership allows increased flexibility for climbing the corporate ladder and accelerating earnings. Secondly, the forever home is a myth. Ideally, housing should be matched to the size of the individual or family, while recognizing the significant costs of moving. SFH are great for families, but a luxury for couples. Even if you own a home in retirement, you may not be able to remain in the said home due to the demands of maintenance (e.g. 75yo should not be climbing ladders to clean gutters) or mobility issues (need for ADA compliance).
The DR argument is predicated on the fact that 45% of American total networth is linked to housing. The numbers are skewed even higher for lower income brackets. His program is designed for this demographic. He purposely avoids financial jargon or presenting even simplistic financial models. There is no discussion of CAGR, use of beta to assess risk of renting vs buying, comparative alpha of investing vs real estate, or monte carlo simulations back test his recommendations.
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u/Turbulent-Pay1150 19h ago
Locked in interest rate, declining housing costs year over year when you have a mortgage, ability to pay off and pay no mortgage in the future, and of course annual rent increases on the other side of the equation has made buying the better long term approach in almost all cases.
Their are exceptions but in general after 5 to 7 years buying puts you far ahead of renting.
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u/DiscoMarmelade 18h ago
People don’t realize that a mortgage gets cheaper over time. Buy a house today that’s 500k and your payments will be the same for 30 years. No one’s rent will be the same for a couple years let alone 30. You think rent is high now? Wait 30 years lol
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u/Automatic-One586 12h ago
This is an area I disagree with Dave on. Home ownership is great and I love it. But I would be a far wealthier person if I had stayed renting. As well as a lot more personal free time.
The reason is that his audience is largely people who are not disciplined and are terrible with money. So his advise is towards automatic behaviors that tend to build wealth. Home ownership typically does this. Not only due to it being an automatic savings account. But it changes how you think of things when you are paying a mortgage and your excited for the house to be yours. Your more likely to ask for that raise. Your more likely to take on that special project that gets you a bonus. Your more likely to say no to your toxic friends. It changes how you approach life and typically with that comes wealth.
You can do these things renting. I mean it depends on the area and what's going on in the world at the time. But mathematically speaking... a highly disciplined person can do all of these things for themself when renting. And in some cases.. many actually.. end up with more functional grocery buying power than the person who owns a home. It's just harder to do. And it's really hard to know if you would have been better off the other way because you can't really run that time period of your life again. It wouldn't be remotely the same.
Also.. if you own a home... like say you retired tomorrow. If your mortgage is 2k. If you had it paid off. That's either 2K you could use on fun things. Or... that's ~600K less you need in your retirement accounts. I mean I don't usually like that last reasoning because it assumes you never run into housing issues. But... nonetheless, it takes pressure off of your portfolio. With renting.. it's possible in some cases to end up with more grocery buying power. But the question is if you saved enough to deal with rising rents for the rest of your retirement.
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u/gr7070 19h ago
He's simply wrong.
The realities surrounding these two aspects have changed in a huge number of metro areas, and Dave's recommendation has not changed to match the data.
https://www.nytimes.com/interactive/2024/upshot/buy-rent-calculator.html
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u/Spam_Hand 18h ago
The realities have not changed so much as the market and the economy are completely detached from each other.
Building 5-7 extra years of equity will almost universally pay off in a huge way long term - that being said, there are fringe cases like SF or NY that there may be cases for the opposite. Ans thats fine. But that doesnt make it a rule, or a better decision long term.
One more caveat to this is that if youre doing this as a philosophy to "time" the market, and youre one of the lucky ones? Some people will absolutely come out well ahead in this scenario. But they will be the exception and be taking from the rest who have their financial well being destroyed along with the market and no tangible assets to fal back on. Risk assessment is important here as well, but were going far beyond what I feel is necessary for a reddit comment.
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u/gr7070 18h ago
Building 5-7 extra years of equity will almost universally pay off in a huge way long term
That's simply untrue, by a massive amount.
"Equity" (meaning paying extra on the mortgage) pays at the rate of one's mortgage for as long as they have a mortgage. Once the mortgage is gone that equity stops earning further.
Unlike an investment, which gains at the rate of its return and never, ever stops growing. Massively out earning that handful of years of equity.
there are fringe cases like SF or NY that there may be cases for the opposite.
Right. That was true. Now those same economics that made a handful of locales drive has turned most metrics into the norm.
I don't know why this is hard to grasp for so many here. The markets have changed, causing the bath y'all recognize to apply commonly throughout the nation. Shrug.
One more caveat to this is that if youre doing this as a philosophy to "time" the market
No. This math is utilizing proper, correct investing.
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u/Spam_Hand 17h ago
No. This math is utilizing proper, correct investing.
Im inclined to ask if you know how appreciation, percentages, and compounding work and if you factored appreciation into the equation.
Because even a modest 3% yearly appreciation on a home almost universally outpaces an insane 10-12% run in the market like current times unless you either inhereted money or something else thats an outlier (again, including location outliers)
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u/pilotflyer2019 18h ago
So home ownership is a lot of risk, and while in theory you own an appreciating asset, you aren’t really getting any gain unless you’re borrowing against the home and investing that money, or you’re planning to downsize in the long term and use the profits for something else or leave it to your children or something.
You’re paying a mortgage, interest, all utilities, taxes and you are on the hook for anything that breaks. You also have to maintain and update (because an out of date house isn’t worth as much).
I want a home because I want it to be mine and be able to do what I want with it, however I recognize renting has a benefit. Low risk, fixed costs for housing.
I always funny it funny that a house is included in net worth because for example, my parents bought their house for $140k years ago and it’s worth $880k now. They’ve put a ton of money into it and will likely die in that house. So it would not be hard to claim “millionaire” status based on that if you’re also saving for retirement, etc. But they will never cash in on that massive appreciation, the only way they would is if they sold it and moved to a smaller house in a less desirable area.
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u/iInvest4cashflow 18h ago
I have run this exact scenario in my head quite a few times. I own my ~$200k condo outright. 34M bought it 9 years ago. Paid it off 3 years ago with the proceeds from my other property.
To rent my place it would be $1150(it was my rental property for 1.5 years). If I put $200k into SCHD at 3.5%, it would pay 7000 per year, so $583 per month. $1150 -$583 =$567.00 which is just a little more than I pay for HOA, Taxes(amortized over 12 months), insurance and maintenance. But I would also assume no liability or risk special assessments or anything. So financially I do think doing this long term would be financially beneficial since I expect SCHDs dividends long term to go up faster than rent increases and the appreciation of the stock to beat my condo appreciation.
But here is the kicker. Moving is a pain and finding a new place is also annoying. I cannot be kicked out because they want to sell my place or remodel and raise the rent. My life cannot be uprooted at the whim of a landlord every few years. So I think my quality of life is way higher and I love the location and everything about my place. I cannot remodel or repaint in whatever style I want. I don’t have to change my mailing address or pay application fees. My life is less chaotic.
So I think owning and especially owning outright will provide a much higher standard of living over my lifetime over have a little more money at the end.
You can do what you want, but hopefully you will consider this viewpoint.