Welcome back to the Net Worth Podcast.
Speaker 2: This week we are diving into a really big thing on a lot of people’s minds is buying a house a smart move in 2025.
Speaker 1: This is such a crucial topic for your net worth journey.
Speaker 2: Check out the full edition on our website wearenoyack.com.
Speaker 1: Okay, let’s unpack this this financial crossroads.
Speaker 2: I mean, so many of you might be facing it right now.
Speaker 1: And it’s a decision that will profoundly impacts your net worth often in ways you might not immediately realize.
Speaker 2: This edition even kicks off with a personal story, right?
Speaker 1: The author’s landlord’s selling up and suddenly they’re facing this exact rent or buy dilemma.
Speaker 2: It just really highlights how universal this challenge is for anyone navigating their financial future.
Speaker 1: It really is.
Speaker 2: And what’s fascinating here is how this isn’t just about finding a place to live.
Speaker 1: It’s fundamentally about making a strategic decision that shapes your finances for years, maybe even decades.
Speaker 2: That immediate need for shelter, it can easily overshadow those critical long-term implications for your financial health for your wealth accumulation?
Speaker 1: exactly.
Speaker 2: And for so long, there’s been this almost ingrained belief that renting is just throwing money away.
Speaker 1: It’s a phrase we’ve all heard, haven’t we?
Speaker 2: But the analysis in this edition, it really challenges that whole narrative.
Speaker 1: So from a pure net worth perspective, what are the often overlooked financial perks of renting?
Speaker 2: The ones that can actually contribute to or maybe protect your wealth.
Speaker 1: That’s such a key point, because throwing money away is, well, it’s a really simplistic view, isn’t it?
Speaker 2: From a net worth standpoint, renting offers some clear advantages.
Speaker 1: We’re talking liquidity, reduced risk, especially in today’s, let’s face it, uncertain market.
Speaker 2: Just think about that first hurdle, the lower upfront costs.
Speaker 1: You’re typically looking at just a security deposit, maybe one month’s Now compare that to buying.
Speaker 2: You’ve got a hefty down payment, be tens, even hundreds of thousands of dollars, plus thousands more in closing costs.
Speaker 1: That’s a huge chunk of capital that stays liquid, stays in your pocket, or ideally.
Speaker 2: stays in your investment accounts actually working for you.
Speaker 1: Right.
Speaker 2: That immediately changes the whole financial equation, doesn’t it?
Speaker 1: It’s not just the monthly payment.
Speaker 2: It’s that massive initial hit.
Speaker 1: Precisely.
Speaker 2: And then there’s the freedom from maintenance and repairs.
Speaker 1: Big one.
Speaker 2: Your landlord handles the leaky faucet, the broken water heater, that sudden roof repair.
Speaker 1: That saves you significant time, money, and honestly, a lot of stress.
Speaker 2: Homeowners, often underestimate these hidden costs.
Speaker 1: A new roof, that could be $10,000, $20,000.
Speaker 2: New furnace.
Speaker 1: five grand.
Speaker 2: Not to mention all the little bits of regular upkeep.
Speaker 1: Renters, they simply don’t shoulder that financial burden.
Speaker 2: property taxes, oh boy.
Speaker 1: They seem to be on this ever upward climb, right?
Speaker 2: Feels like a hidden annual bill that just keeps growing for homeowners.
Speaker 1: Absolutely.
Speaker 2: And not having to pay property taxes as a renter.
Speaker 1: That can mean thousands in annual savings.
Speaker 2: Thousands.
Speaker 1: This directly impacts your disposable income.
Speaker 2: It gives you more flexibility to save, to invest.
Speaker 1: Plus, think about modern rental communities.
Speaker 2: Many offer amenities, gyms, pools, co-working spaces, often at no extra cost.
Speaker 1: As a homeowner, you’d likely pay extra for those benefits, maybe join a gym or just go without.
Speaker 2: And crucially, your rent is typically fixed for the lease term.
Speaker 1: That gives you stable monthly expenses.
Speaker 2: No surprise home repair bills, no suddenly higher property taxes creeping up on you.
Speaker 1: OK, so for someone who’s diligently building savings or perhaps they’re unsure about their long-term location, How does freeing up all that capital, how does that actually translate into meaningful net worth growth?
Speaker 2: It sounds like it’s more than just saving money day to day.
Speaker 1: It’s really about strategic capital allocation.
Speaker 2: That money you save on the massive down payment, closing costs, ongoing maintenance, property taxes.
Speaker 1: It’s not just sitting there, hopefully.
Speaker 2: It becomes capital you can actively invest.
Speaker 1: Imagine putting those funds into a diversified stock portfolio.
Speaker 2: Maybe higher yield bonds, dedicated retirement accounts like a Roth IRA or a 401k.
Speaker 1: Over time, the compounded returns from these investments can potentially significantly outpace the typical appreciation of a home, especially once you factor in all those ownership costs.
Speaker 2: So yeah, renting can be a highly strategic choice.
Speaker 1: It preserves your capital, offers flexibility, and lets you pursue other maybe more lucrative wealth building avenues.
Speaker 2: This is especially true in volatile markets where you might not want so much cash tied up in one single illiquid asset.
Speaker 1: Hmm, okay.
Speaker 2: But then on the flip side, homeownership is still widely seen as that quintessential wealth builder, right?
Speaker 1: A symbol of stability and frankly, a core part of the American dream for so many people.
Speaker 2: Beyond the emotional pull, what are some of the most compelling financial arguments for buying, especially when we look at the long term impact on net worth?
Speaker 1: Yeah, and this is where the narrative often gets uh complicated.
Speaker 2: The most obvious way a home contributes to your net worth is building equity.
Speaker 1: Simple as that.
Speaker 2: Every mortgage payment you make, particularly the principal portion, It increases your ownership stake in that property.
Speaker 1: It’s essentially a form of forced savings.
Speaker 2: Your housing expenses actively contributing to your personal asset base rather than just paying for shelter.
Speaker 1: it’s not just a bill disappearing each month.
Speaker 2: It’s like a slow steady transfer of value into your own column.
Speaker 1: Exactly.
Speaker 2: Precisely.
Speaker 1: And then there’s potential appreciation.
Speaker 2: Now it’s crucial to understand this isn’t guaranteed.
Speaker 1: Markets fluctuate.
Speaker 2: But historically homes have tended to appreciate over the long term.
Speaker 1: This edition actually highlights CoreLogic, a leading property analytics firm.
Speaker 2: They’re projecting about a 2.3 % gain through September 2025.
Speaker 1: Now, that might sound modest.
Speaker 2: Yeah, 2.3 % isn’t exactly setting the world on fire.
Speaker 1: Right, but even slow growth adds up, especially when you consider the leverage of a mortgage.
Speaker 2: You’re getting that appreciation on the entire value of the home, not just on your down payment.
Speaker 1: That leverage matters.
Speaker 2: OK, so even in a slower market, There’s still an expectation of some growth contributing to your net worth over time.
Speaker 1: Yes, that’s the idea.
Speaker 2: Also, stable housing costs are a huge benefit.
Speaker 1: If you lock in a fixed rate mortgage, your principal and interest payments stay predictable for the life of the loan 15, 30 years.
Speaker 2: That provides incredible budgeting stability, especially compared to potentially spiking rents, which can be a major source of financial stress for renters.
Speaker 1: Then you’ve got the tax advantages.
Speaker 2: mortgage interest and property taxes are deductible up to certain limits for those who itemize.
Speaker 1: This can reduce your taxable income.
Speaker 2: That can be a pretty substantial benefit, especially for higher earners, almost like getting a little bit back from the taxman each year.
Speaker 1: It absolutely can be.
Speaker 2: And finally, home equity leverage.
Speaker 1: That’s a powerful tool.
Speaker 2: Once you’ve built up a good amount of equity, you can tap into it maybe for future investments, home improvements, major expenses through things like refinancing or home equity loans.
Speaker 1: This gives you financial flexibility.
Speaker 2: and growth potential you just wouldn’t have as a renter.
Speaker 1: So pool of capital.
Speaker 2: And of course the non-financial bit, creative control.
Speaker 1: You can paint the walls purple, renovate the kitchen, make it truly yours.
Speaker 2: That has real intangible value for many people.
Speaker 1: so weighing all these factors, the equity, appreciations, the ability to tax is leveraged up, it really boils down to the big question for so many listeners.
Speaker 2: Under what specific conditions does buying truly become the smarter move for your net worth?
Speaker 1: Because it’s clearly not for everyone all the time.
Speaker 2: Right.
Speaker 1: And the consensus from this edition seems pretty clear on this.
Speaker 2: Buying generally makes the most financial sense if you tick a few boxes.
Speaker 1: Statal income, that’s key.
Speaker 2: Sufficient savings not just for the down payment, but also closing costs and an emergency fund.
Speaker 1: Very important.
Speaker 2: And critically, firm plan to stay put for at least five years.
Speaker 1: That seems to be the magic number often cited.
Speaker 2: If you meet those criteria, buying is likely to be a net positive for your wealth building journey.
Speaker 1: It feels like there are just so many, I don’t know, pervasive myths surrounding home ownership that can really cloud people’s judgment.
Speaker 2: This edition does a great job tackling some of these.
Speaker 1: What are the biggest ones we really need to bust?
Speaker 2: Oh, absolutely.
Speaker 1: It is so critical to challenge these assumptions, especially when a decision has such a massive impact on your long-term finances.
Speaker 2: A huge one is you need 20 % down, just flat out not true anymore for many people.
Speaker 1: And it often becomes this unnecessary mental barrier for first-time buyers.
Speaker 2: There are many government-backed programs, conventional loans too, offering as little as 3.5%, sometimes even 0 % down.
Speaker 1: That makes homeownership far more accessible than lots of people think.
Speaker 2: That is a total game changer, isn’t it?
Speaker 1: For so many who feel like saving that 20 % down payment is just this insurmountable mountain, it really shifts the starting line.
Speaker 2: It really does.
Speaker 1: Another big one we’ve kind of touched on is renting is throwing money away.
Speaker 2: We’ve seen that’s just fundamentally not the full picture.
Speaker 1: When you rent, you’re paying for flexibility, you’re paying for mobility, you’re paying for significantly less stress about maintenance and those surprise costs.
Speaker 2: But more importantly, from a net worth perspective, you’re preserving capital, capital that can be invested elsewhere, potentially earning significant returns, returns that could easily outpace what you might gain from early home equity, especially in a market like the one projected for 2025.
Speaker 2: It’s about understanding opportunity cost, not just seeing rent as a sunk cost.
Speaker 1: Right.
Speaker 2: So it really comes down to what you do with the money you don’t tie up in a house, the down payment, the upkeep fund.
Speaker 1: That shift in perspective is really powerful.
Speaker 2: Precisely.
Speaker 1: And then there’s the myth that only perfect credit gets a mortgage.
Speaker 2: Also not true.
Speaker 1: Look, better credit gets better rates, sure.
Speaker 2: But loans exist for credit scores as low as 580.
Speaker 1: That opens up homeownership to a wider range of people than many imagine.
Speaker 2: We also have to remember homes always appreciate.
Speaker 1: That’s a dangerous assumption.
Speaker 2: Very dangerous.
Speaker 1: While historical trends generally show appreciation over the very long term, it is absolutely not guaranteed year over year.
Speaker 2: Markets fluctuate.
Speaker 1: They go down sometimes.
Speaker 2: And crucially, you have to factor in maintenance costs, property taxes, maybe renovations.
Speaker 1: These add up and significantly impact your real return on investment.
Speaker 2: Sometimes a house can even lose nominal value in the short to medium term.
Speaker 1: And speaking of common worries, many renters fear those arbitrary rent increases.
Speaker 2: Does this addition shed any light on how much control landlords truly have there?
Speaker 1: Is it really as unpredictable as some people fear?
Speaker 2: It’s often far more predictable than the myth suggests, actually.
Speaker 1: Your lease agreement provides stability for its term.
Speaker 2: Plus, local landlord tenant laws often put pretty strict limits on how and when rents can increase.
Speaker 1: Landlords generally can’t just arbitrarily hike the rent mid-lease.
Speaker 2: And even at renewal time, there are often legal caps or just market realities that keep increases somewhat in check.
Speaker 1: It usually offers more predictability than some renters might realize.
Speaker 2: OK, that’s good context.
Speaker 1: Now, we’ve talked a lot about the benefits of buying, but it’s absolutely crucial we look at the other side of the coin.
Speaker 2: When can buying a home actually hurt your net worth?
Speaker 1: Because it’s definitely not always a guaranteed win.
Speaker 2: Right.
Speaker 1: And connecting this back to the bigger picture, it’s really about understanding the full cost and the potential for financial strain it can create.
Speaker 2: One major factor is just the sheer scale of the high upfront and recurring costs.
Speaker 1: We’re talking Down payments, closing fees, sure.
Speaker 2: But also ongoing property taxes, homeowners insurance, maybe private mortgage insurance or PMI if you put less than 20 % down.
Speaker 1: And then significant maintenance and upkeep.
Speaker 2: It all adds up.
Speaker 1: These can be really substantial amounts.
Speaker 2: If you’re unprepared for them, these costs can seriously stress your finances instead of building wealth.
Speaker 1: They can deplete savings or even put you into debt.
Speaker 2: So it’s not just the mortgage payment itself.
Speaker 1: It’s that whole ecosystem of expenses that comes with owning the property.
Speaker 2: Exactly.
Speaker 1: And affordability concerns are paramount, especially right now.
Speaker 2: That traditional 30 % rule for housing costs.
Speaker 1: You don’t spend more than 30 % of your gross income on housing, often unrealistic today.
Speaker 2: This edition highlights a pretty stark reality.
Speaker 1: The typical American home now commands around 44.6 % of the median income under normal financing conditions.
Speaker 2: Wow, 44.6%.
Speaker 1: Yeah.
Speaker 2: That’s nearly half your income just for housing.
Speaker 1: Think about what that does to your ability to save and invest elsewhere.
Speaker 2: It severely limits your other options for net worth growth.
Speaker 1: It can force some really uncomfortable budget tradeoffs.
Speaker 2: That 44.6 % figure is really stark.
Speaker 1: For listeners who are actively trying to build wealth, what does that kind of sacrifice mean for their ability to invest elsewhere or even just manage daily expenses?
Speaker 2: Does it force those tough tradeoffs?
Speaker 1: It absolutely does.
Speaker 2: Leaves very little discretionary income.
Speaker 1: That means less money for retirement savings, less for emergency funds, maybe less for education, or even just enjoying life.
Speaker 2: You can create that feeling of being house poor where you own the asset but have no cash flow.
Speaker 1: And finally, market fragility.
Speaker 2: We’re currently seeing elevated mortgage rates, commonly in a 6-7 % range in 2025, coupled with still high home prices.
Speaker 1: This combination raises significant risks.
Speaker 2: Buyers who don’t plan to stay put for at least five years, maybe longer in this climate, might see very limited or even no net worth gains from appreciation alone.
Speaker 1: If you have to sell quickly, maybe a job relocation, maybe unforeseen circumstances, you might not even recover those significant upfront costs, let alone benefit enough from appreciation to make the whole endeavor worthwhile financially.
Speaker 2: Yeah, that makes sense.
Speaker 1: This really raises that important question many people grapple with.
Speaker 2: How long do you really need to stay put for buying to become a net positive for your financial health?
Speaker 1: What’s that crucial break-even point?
Speaker 2: This edition highlights a critical threshold.
Speaker 1: And it echoes a lot of common financial advice.
Speaker 2: Generally, if you plan to stay in one place for at least five years, buying often becomes more cost effective than renting.
Speaker 1: That seems to be the typical point when the equity you’ve built, any appreciation you’ve gained and the tax savings start to meaningfully outweigh those significant upfront and ongoing costs of buying.
Speaker 2: five years.
Speaker 1: That seems to be the general turning point when the investment starts actively working for your net worth rather than potentially against it in the short term.
Speaker 2: Less than five years, and renting might truly be the smarter bet, especially if mobility is a priority or you anticipate a relocation coming up.
Speaker 1: That’s a good way to summarize it, OK.
Speaker 2: So for those listeners who do want to buy, despite the current market complexities, this edition mentions some really clever strategies that millennials in particular are using to navigate this environment.
Speaker 1: These sound like practical ways to make homeownership more accessible and maybe more financially sound.
Speaker 2: They are.
Speaker 1: They’re smart ways to potentially mitigate some of the risks and costs we’ve just been discussing, making home ownership more accessible and hopefully more impactful for net worth building.
Speaker 2: One really creative approach mentioned is house hacking.
Speaker 1: This basically involves living in part of your home, maybe by a duplex or a house with a basement apartment and renting out the other unit of rooms.
Speaker 2: That rental income helps cover your mortgage, sometimes significantly reducing or even eliminating your personal housing cost.
Speaker 1: That’s a direct, immediate way to make the numbers work right from day one, almost turning your home into an income producing asset from the get go.
Speaker 2: Absolutely.
Speaker 1: Another strategy is looking at fixer uppers.
Speaker 2: Buying a property that needs work, usually at a lower price point, and then renovating it slowly over time.
Speaker 1: This can build significant equity through your own labor sweat equity or through strategic improvements rather than relying solely on the market going up.
Speaker 2: It can be a slower path, sure, but you’re building tangible value.
Speaker 1: Of course, we mentioned them briefly, but really utilizing first time buyer programs.
Speaker 2: So many people aren’t aware of the options.
Speaker 1: These often provide lower down payments, sometimes closing cost assistance or favorable loan terms, helping people get into the market with less initial capital out of pocket, which remains a huge barrier for many.
Speaker 2: oh so let’s bring it all together.
Speaker 1: What’s the big picture here?
Speaker 2: Is there a definitive right or wrong answer when it comes down to buying versus renting for your net worth?
Speaker 1: It really seems like it’s far more nuanced than a simple yes or no.
Speaker 2: You’re absolutely right.
Speaker 1: There’s no single right or wrong.
Speaker 2: It’s not black and white.
Speaker 1: The bottom line from this edition and really from sound financial planning in general is that it’s truly about alignment, aligning the decision with your specific goals, your current financial situation savings, income stability, debt levels, and your lifestyle preferences and plans.
Speaker 1: So consider buying if you have that stable income, you have good savings built up.
Speaker 2: down payment, closing, emergency fund.
Speaker 1: have long-term plans, think five years plus in one place, and you’re genuinely willing and able to manage the responsibilities and unexpected costs of home ownership.
Speaker 2: If those conditions are met, then yes, buying can absolutely be a powerful tool to help grow your net worth through equity, potential appreciation, and those tax benefits.
Speaker 1: And if those conditions aren’t quite in place yet, or if maybe flexibility is your top priority right now?
Speaker 2: Then renting might be the much smarter play, honestly.
Speaker 1: If you have a tighter budget, if your location is uncertain, maybe job changes are on the horizon, or you just have shorter time horizons, renting offers that crucial flexibility.
Speaker 2: And importantly, it gives you the chance to invest or save aggressively for future net worth building without the immediate demands, the illiquidity and the significant financial risks that come with homeownership, especially early on.
Speaker 1: It’s really about leveraging your capital in the most effective way for your circumstances right now.
Speaker 2: It sounds like it really boils down to being financially prepared, being honest about your timeline and lifestyle, and making a choice that truly serves your individual net worth objectives.
Speaker 1: Not just following some societal expectation or what your parents or friends might tell you is the right path, understanding these nuances, the pros and cons of each, that seems key to optimizing your financial future.
Speaker 2: And as you weigh your own housing decisions, maybe remember this.
Speaker 1: Sometimes the real American dream isn’t necessarily about owning four walls, but about owning your financial freedom.
Speaker 2: whatever that looks like for you.
Speaker 1: What does that mean for your next move?
Speaker 2: Remember to subscribe to Noyack Wealth Weekly on our website, wearenoyack.com.
Speaker 1: That’s wearenoyack.com to read the article behind today’s conversation and to get our weekly newsletter straight in your inbox.
