Still Renting? Here's What It's Costing You...

Home ownership in America is absolutely cooked. I'm Max Moore. I'm the co-founder of Roots Related Co. And at Roots, we've helped hundreds of people buy homes in Indianapolis. I actually bought my first home at 19 years old. And I'm telling you, the system is absolutely broken for the average person. The average age of a first-time home buyer in America is now like 40 plus. That number should scare you. It should absolutely terrify you. And in this episode, I'm going to show you exactly what happens when you wait to buy, even just one more year, and what it actually costs. We're running two timelines, one renter, one buyer, and we're going to compare it. Who comes out on top? By the end of this, you're going to know the real cost of waiting. And you might want to do the math on your own situation. The most common thing I hear from person B, the renter, is that, you know, I need to to cool it off. I need to wait until rates drop. I need to wait until prices are going to come down. I just need more time. And honestly, that might be a responsible thought and like it's worthy of debate is timing of when you're going to buy a home. Uh, the last thing that I hear that is like, okay, yeah, I could get behind that is I don't know if I'm actually going to plant roots where I'm at right now and I just want to kind of test the water to see if, you know, Indianapolis is a place to live or, you know, insert city here. We'll get into all of those objections, but first I want to just go into the numbers. I just went through my spreadsheet real quick and saw around 300K seemed to be an average like decent first home for somebody in their mid30s just in my own experience, my own scope of transactions. So, I want to uh pencil out what does it look like when you buy a home that is $300,000. I think it's uh perfect to know what are the costs, what am I getting myself into before we even talk about the renter versus the buyer. When you buy a 300K home, you need to have about $15,000 in liquidity ready to go. So, this is just cash money sitting in a savings account. Uh hopefully a high yield savings account. That's a you know quick tip for you. Uh don't let your interest on your money only earn 01 from JP Morgan Chase. Go get a SoFi bank account. Hit me up if you need help getting that set up. Not a banker. 15,000 cash sitting idle. That's going to be your down payment. That's going to cover your fees, cover any like administrative fees, inspection, uh appraisal, all the costs that go in is going to to get you in. So once you have 15K saved up, there's no reason why you shouldn't be buying a home because your monthly payment is going to be very, very, very similar to what it costs for you to rent. A huge thing in the investment space right now, sidebar, is I can't cash flow. What they're saying is my tenant is not paying more than I'm paying for the mortgage. So it's a break even situation once you get the 15K down. Seems like the hurdle is just saving up the 15K. So let's talk about it. Pause. A quick break from the episode. The lender you choose will make or break your experience. That's why our team at Roots consistently works with Rnado Lima from Approved Mortgage. He communicates clearly, moves quickly, and understands both retail and investment loans at a high level. When my guy Renado's on the deal, things move steady. When you get serious about buying, click the link in the description and contact RNA today. In my scenario, I'm going to use a uh equivalent equation between the homeowner being person A, the renter being person B, in that they are able to save uh in excess of $10,000 a year from their like W2 job. So, they've been saving up for a couple years. This is now the time where they're really questioning, should I rent? Should I buy? Uh where should I go? So, person A equals buyer. They've got their two years of savings, so 20K in savings. And person B, also renter, 20K. This guy's thinking about signing a lease for 1,800 a month, which will be about your payment on the 300K home that we talked about. 1. 8K is what you're looking at per month on uh this like scenario. That's what we're going to use is if their rent was 1. 8K. So, what is that annualized at? What's the 12? $1,800* 12? $21,600 is what they're paying on their rent for the entirety of the year. So, that's their expense. [clears throat] Remember, they're still able at that expense ratio to save uh 10K. So, their savings by the end of the year end up rounding to 30K. Check. We've got person B done. Quick break for a second. If you're doing any kind of renovation work in Indie, you already know finding the right vendor partners is half the battle. It might be the entire battle. Best Flooring is one of those partners for us. Phil Nelson and his crew offer the best selection out there. From a single bathroom refresh to a full gut job. Check them out at Best Flooring on Lake Plaza Drive. Use Apple Maps to get there or Google Maps, whichever one of your choice. Phil's got floors and you need them. Call them up. Now, let's do the complicated one because it's the reason why you're watching this video. How do I buy a home? If you recall, you need 15K down. So, your savings was just depleted by 15K. Put that in red. 15K down. So, boom. You're left with 5K in savings. You're also going to be spending your 1 [clears throat] uh 8K 1,800 in your mortgage expenses for the entirety of the year, right? Uh that's obvious. So, living expenses is 2,600 as well. Same thing. But here's the catch. I mean, here's where all the money in just a one-year time scale makes a ginormous difference. That money also comes with equity. Your equity is going to rise by 3% on the $300,000 house every single year. You also had principal payown within that first year on your $21,600. It's nothing crazy, but it is a little piggy bank. you're going to get back like 3500ish across the year because the rest of that payment is just insurance. It's your taxes. Uh it's your interest, right? The thing that you're waiting on the sideline to uh purchase a home over. So net net, we can just we'll use some estimates here. We don't have to get crazy. We'll just call it $18,000 in spent. So if we're just going based on that, person A is ahead right now by three grand. But here is the most powerful part. Here's the part that a lot of you are missing is that annualized appreciation. So, you started with your 300K home. You get to times that by $1. 03. I'm no mathematician, but that is plus $9,000. You just earned 9K. How much were you able to save before? Oh, $10,000. You just doubled your savings rate, which is the reason why most people can't buy a house until 40. Like the number one problem is savings rates are so much lower today than it was when our parents were coming up, right? So your net net compared to person A, person B, remember they were ahead by 3K. They're now ahead by 12K and they're walking out with their basis. They put their 15 grand down, remember? So we only had 5,000 in our savings account. How much do we have now? Somebody drop it in the comments. How much savings do we have now? I think I'm no mathematician again, but I think that you just saved 27K as your principal, like your high interest savings account balance. It's at 27 grand. So, you lost 3,000 by buying a house, buddy. But the most important part is what happens year-over-year. This is a a huge part that got me into real estate because it's all numbers. It's all fancy. Like, you need to find a house that you love. You need to find an area that you love. That that's all good. But something for me, my parents were buying these like college rentals not because they wanted to exploit college students, but it was because they wanted to uh save on my brother's room and board. They were paying an asinine amount of money for him to stay in a shoe box in a dormatorium. And he brought the idea to them, hey, buy a house. All three of my friends live with me and you guys can gain. And at the time, I was like, couldn't you just go get a scholarship? Like I was questioning my parents. I was 14. I'm like, why? Why is this important? And what they said back to me is, "Hey, we're buying this house for 100 grand uh for my brother to live in." And at the time, appreciation was around 7%. They said, "Pull out your phone, type in 100,000 times 1. 07, and press the equal sign four times." Four times, you know, four years, 1 2 3 4. And I was like, "Oh, it's 131 grand." And they said, "Yeah, not only did we save because somebody else was paying the mortgage, being the tenant, not only did we save all that money on the room board, we also gained $31,000 by doing nothing just owning this house while your brother's in school." I was like, "Oh, that's a no-brainer." I I was sitting there thinking like, "Oh, that's that's what mom makes every year." So, they just opened up a whole new income stream for themselves. Plus, they were cash flow. My parents were ballers. They're they're crushing it. A quick aside, most people overpay for insurance or worse, they're undercovered and they don't realize it. We partner with Jackson Blevens at Core Insurance Solutions. He's a full service broker here locally in Indianapolis who handles everything from home, auto, boat, he can do it all, and he understands the retail side and investor side of the game. If you want someone who can shop the market for you and tailor correct coverage for your property, connect with Jackson in the description below. You take that person A and person B. We could go on and I could do a whole spreadsheet and show you why it's better. You you all already know why it's better. You all know that you're supposed to be gaining wealth through real estate. You're you're probably just uh deciding not to for some sort of personal reason because the math maths out every time and the math always wins. Cuz if I just took 1. 03 03 on this 300k house and just looked at a 5year scale 1 2 3 4 5. You over the last 5 years continued to double up your money to where you're now sitting at an equity position of the home's worth 347,000. You've paid the principal on your mortgage down like a ton of money. You still have that original 15k that you spent to buy the house. You have all that principal money that's coming back in the little piggy bank. You could sell this house and walk out with at a minimum $55 to $60,000 in your pocket for doing nothing, for doing absolutely nothing. And you never have to answer to some landlord again that could sell their house and kick you out tomorrow. You never have to walk on eggshells to make sure the house is. It's your own domain. You get to own the place. And then the last thing and how I'll wrap this up is something that you guys all get caught up in and a lot of renters get caught up in is the uh challenge of I don't know if I'm going to plant here. I I absolutely I agree. I think it's important to know where you want to live and where you want to plant. I'm in this situation myself. I want to move out of the community that I live in. And I'm like, am I trapped? No, I'm not trapped. I don't have to pay 3 months of a rent to a landlord to get out of my lease. I just put a for sale sign in the freaking yard. And houses in my neighborhood sell on average in 10 days in in my community. 10 days is the average time on market that it takes to find a buyer to buy the house. 30 days under contract. Boom. I'm out in 40. I just beat you. I lapped you. saved money. I actually gained money because I sold it cuz I had principal and I had equity and I had appreciation. And then we [music] don't have to get into all the tax benefits and whatnot. Just dude, come on. Buy a house. It's been another [music] episode of the Reese's Podcast. I'm back. Please like and subscribe.