#26 - Should you Buy or Rent your Home?!
Episode notes
One of the Internet’s spiciest debates: Should you buy or rent your home?
In this episode, we break down both sides.
On the Buy side: equity, long-term wealth building, and the pride of ownership.
On the Rent side: flexibility, optionality, and often a lower monthly cost.
So… who’s right? Who wins? And how should you actually think about this decision?
Tune in to find out.
Transcript
Auto-generated transcriptGenerated automatically from the audio and formatted for reading. Nothing has been reworded, so expect the odd mis-hearing, and no speaker names.
Welcome back to Curiosity. Class. The podcast where we break down complex topics and to easy to understand ideas and bite. Sized pieces. My name is Jeff Albaum and I've been a curious person my entire life. Inspired by Albert Einstein's quote, If you can't explain something simply, you don't understand it well enough. We aim to make learning accessible and engaging. On this show, we're going to bring you experts from various fields ranging from personal finance to physics to help you understand everything from 401(k)s. To how airplanes fly. So let's dive in and satisfy our.
Curiosity together. What's going on everybody? Welcome back to another episode of Curiosity Class. Today we're going to be doing a little bit of a controversial topic. Should you buy or rent your house? Oh Dun Dun Dun. If you want the TLDR, the answer is it depends and that's what we're gonna walk through today. So take a listen and let's get started and type in and see if you should buy or rent a house. Let's see what's going on. Alrighty. So should you buy or rent your house? This is a common question I think everyone asks and everyone has a very strong opinion about.
The answer is it is, it depends. So I want to say that upfront before I get started that this question is very personal as all things in personal finance, personal finance is personal. So whatever I may say here is not a judgement on anyone who chooses to do something different. This is just me explaining my thought process and I'd love to be proven wrong. I have these conversations all the time with with friends and peers and colleagues and sometimes I am proven wrong. And at the end I kind of share my best arguments for why you should do one or the other above and beyond the math.
Because the the point of this episode is to go through the math. So just to show some reasonable numbers for a typical home. And obviously this depends a lot on where you live, what type of house you want, if you have an apartment or a house or whatever. So there's a lot of of ifs here. So this is by no means a all This does not encompass everything, but this is just one, one person's thoughts and ideas. So don't don't be too harsh in the comments, please. So anyways, what I'm gonna do is I'm gonna share a a house in Austin, TX that is for sale and then a house in a similar neighborhood that's for rent.
And we're going to compare and then walk the numbers of like hey, how much does it cost to buy a house and then keep up on a monthly basis versus how much does it cost to rent a house and keep up on a monthly basis. So let's go ahead and get started. I'm going to share my screen as always. OK, so this is a house for sale in Austin, TX. It's a 3 bed, 2 bath, 1200 square foot home and it's going for $500,000. Now this is in a, a decent neighborhood in Austin. It's, it's pretty good. Like it's in a very, it's fairly central. It's not the most central, it's not the least central.
So it's like a, a very, what I would call like a, a middle of the road. I think what used to be called starter home, which now is feels a little bit less and less like a place you start. So let's dive into some of the numbers here. So it's listed for $500,000 and a couple of the numbers to look for are the property tax and insurance. So if we Scroll down it just property tax was $9000 in 2024 and it's about $550 every month and home insurance is about $150.00 every month. So that's the house to buy. Now a house in a similar neighborhood that is for for rent is the following.
This is a house in a similar neighborhood. It's a 3 bed, 2 bath, 1200 square foot house that's renting for $2500 a month. So those are the numbers that we're going to use to do our analysis. So now let's jump into the spreadsheet. OK, let's dive in here. So this is our spreadsheet purchase price of $500,000. This is on the buy side, so let's take a look. So these are our loan assumptions. So let's assume you put 20% down, which is $100,000, which is a sizeable chunk of change. Obviously that leaves your loan amount to be 400 grand and we're going to assume that your interest rate in that you could get this interest rate.
I actually don't know if this is true. I've never bought a primary residence so I don't know if this is accurate, but this feels accurate for November 2025. This actually might be a little on the low side. So if anything it might be closer to 7%, but let's just call it 6.5. And let's say you're going to do a 30 year fixed rate mortgage. So with a 6.5% interest rate and $100,000 down payment, your monthly payment including principal and interest is about 2500 bucks. OK Taxes we got from Zillow is 566 a month. Insurance we got is 150 a month. Now there's some other things that you have to do when you own a house.
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So if your air conditioner breaks, that's on you. You don't have a landlord to call and say hey, fix my AC. And if you have a leak, you have to fix that. So it's prudent to save money aside every month for these maintenance expenses that will inherently come up. So I kind of guesstimated here. I used half a percent of the purchase price. And this is very back in the napkin. Like some houses, like an air conditioning cost the same whether it's a really expensive house or really non expensive house. So that's not really true that you can just use a percentage.
But I did it just because I felt like $500 a month was a little aggressive. So I called it 250 because I was like, well, you should save something. But you know, how much to save is, is kind of subjective, but the more, the more important thing to know is like, OK, I need to save something. Same thing for CapEx, which is capital expenditures. When you buy a house, you're responsible for things like the roof, right? And so roofs have a useful life. So there's a certain point in time when you need to get a new roof, which is very expensive. So it's it's prudent to put money aside every month so that when those big expenses happen, you're ready and you're not caught.
Like, oh snap, I owe $15,000 and like, I don't have that and you need a new roof. So that's what I put that here. And then utilities, so you pay for utilities. Utilities you also pay for on the rent side, which will go into in a SEC. So all of a sudden your $2500 monthly payment when you add taxes and insurance plus maintenance CapEx and utilities is a little over $4000 every month that you owe. So now let's dive in and see what happens on the rental side. So when you rent that house, your rent is 2500 and you don't owe any taxes, you don't have any insurance costs, you don't have any maintenance costs and you don't have any CapEx costs.
You do still have utilities. So I said that that was the same. And so now this line item is kind of interesting because I think a lot of people forget about this one. But if you're renting, you are not using your down payment money, right? You have not used your down payment. So if you were to put that down payment of 100 grand and get a measly 3% return, which in November 2025 you can get in most savings accounts, and you divide that by 12, which is on a monthly basis, that's $250 in additional income that you're receiving. So what I did was I said, OK, you owe $2500 a month, you also owe utilities, that's 2800.
But then we're going to subtract the $250 in income that you're getting. So this is your net total cash outlay if we're comparing apples to apples, so it's 2550 as opposed to 4000. Now if you want to say, well, I might not have $100,000, so show me what that looks like if I don't have $100,000 in a in a savings account. So if we get rid of that, it's 2800. So still about a $1300 swing to rent versus buy. So there's the math. I'm the I'm the stop sharing. And now I'm sure I've sufficiently upset a lot of people. So a couple things to say about this decision.
As all things personal finance, this is a personal decision and it varies very much so person to person. This is not like a, this is the right way. I personally believe that renting a house for me and my wife currently is the the best financial decision that we can make because it allows us to save more money on a monthly basis. Now I know like half of you out there are screaming, what about building equity? What about the tax advantages and write offs and stuff? All true, all true things. The equity conversation is a little bit more difficult because if you look at the way mortgages and loans work, the majority of time in the first five to seven years, most of your payment is going towards interest.
And I might do a whole other episode about this, about like how amortization works because it's really fascinating and like not intuitive whatsoever. But basically when you're making your payment of $2500 or whatever every month, most of that money is going towards paying interest, not principal at the beginning of the loan. Towards the end of the loan, it's the opposite. So even though your payment is fixed every month, that's what fixed rate means. Your payment is the same. The proportion of that payment is different every month. So it starts off mostly interest less, like less principal, and then overtime changes in proportion.
So by the end of the loan, you're paying off mostly principal, less interest. That's a whole episode on Intuit of itself. It's a very fascinating topic that I, I very much love. But basically the answer to the building equity thing is if you're planning on living there for a long time, like more than seven years, you're right, you are building equity. So that is something to consider. I have never lived anywhere for more than two years. I think is the most I've lived like ever since I moved out of my parents house. So for me that doesn't really apply.
The other other argument I hear a lot is tax benefits. You do get to write off your, the, the amount you pay in interest on your loan. So that is a tax write off you get as a home owner and something to consider for sure. But that's something that like at least for me personally, you get that once a year in your tax refund. I like to know like, OK, on a monthly basis, what are my costs? Because if my cost is $1300 more every month, but I get a check for five grand once a year, to me that's not worth it personally. That might be very much worth it to some other people.
Now, what are the pros to owning of which there are many? I think the best argument to own a home, obviously a if you can afford it is the feeling of permanence you have, right, You're setting down roots, you own it. There's not a, there's not a thought of, oh, what happens when our lease is, is up in a year. Like I said, we currently rent. We have some good friends who own. And the best argument that they've said is like, look, the emotional component of, of knowing where we are and where we're going to be and where we're going to raise a family And like we're not moving, like we're not planning on moving in the near future is really beautiful.
And I think that's an amazing point. And I think the best point to make when owning a home. So I think that's kind of both arguments. Again, I just don't like it when the argument is, oh, buying a house is the best financial investment decision that you can make because I, I don't think that that's necessarily true, especially with really high interest rates. So that being said, I hope I didn't offend anybody too much. If you like this, please let me know. If you want more of this type of stuff, please let me know. And if you disagree, please let me know.
I'd love to have you on have a conversation about where I went wrong or what. I would love to learn and, and hear from you. What is the best reason to own a home? As always, thanks so much for listening and I look forward to seeing you next time. Bye everybody.