It's one of those things in life where everyone kind of feels like they want to buy a home because we've all been told our entire lives that it's the American Dream. If something has been marketed to you your entire life, it probably feels like a very genuine desire, but like, what is it about ownership that is so appealing to you?

Because your name is going to be on the deed and not the lease. When I was in my early 20s, I was like, "Oh my God, I'm throwing money away on rent." It was beginning to start that process that actually kind of opened my eyes to be like, "Wait a second.

The property taxes, the HOA fees, like insurance. No one ever told me about that stuff. Like what?" I had so internalized the narrative that renting was throwing money away that it was impossible to conceive that like continuing to just rent was actually more cost effective and going to allow me to save and invest more money and grow more wealth than buying this condo.

We just looked and in all but like a couple cities in America, it is cheaper to rent than to buy. Part of that is high prices, but a big part of that is interest rates. The fact that interest rates are so high right now has forced the conversation to be like, "Maybe it's actually not a good deal." Whenever I hear people talk about the correlation between net worth and homeownership, the causality is presumed that it's, "Oh, well, owning makes you richer." But I think it's the opposite that just richer people tend to buy their homes.

Katie, thanks for being here in person. Oh my goodness. Thank you so much for having me. We've had all these phone calls and now we're finally meeting in person. We're having this little day in Napa Valley. Yeah. I attribute this to a guy named Chris Powers who has a podcast called The Fort and he lives in Dallas.

He was like, "Well, when I have guests on, I'm going to have them come to Dallas and I'm going to like make a day out of it." So you drove down here, went out. You've never been to Napa. We went out for lunch. We're currently staying at our Picasso up in Napa.

So we're here for the week, halfway in between. I don't know. We had a good little time. Yeah. I'm having a great time. I don't even feel like I'm on a podcast right now. I feel like I'm just continuing to hang out with you. Yeah. Well, it's funny because this topic of renting versus buying, which we'll get right to, like we started talking about it casually at lunch.

I was like, "Oh, we're going to record this conversation. Let's just do it." So I'm curious because when I was doing research, I was like, "I want to do an episode on rent versus buy. I wonder if there's anyone I know who's as passionate about this topic." And I was like, "Wow, Katie's done like four episodes on this topic over the years.

What is it about this that just gets you fired up?" There is something about it that gets me fired up, and I think it's because it's one of those things in personal finance where there's nothing quite so emotional that strikes that chord with people where the misconception of expectation and reality are so divergent.

So by that, I basically mean the narrative around homeownership as a wealth building mechanism is so darn strong, and we can talk about why that is. But the reality of what it usually looks like in your most average case for someone who buys a home instead of rents it doesn't really live up to the hype in most cases.

And so I just find it to be one of those frustrating topics financially where you can lay out the math for someone. You can show them in a spreadsheet, "This is what will happen if you do this. This is what will happen if you do that." And for whatever reason, it's like if someone has made up their mind that owning is better, there is no amount of math.

There are no projections that will talk that person out of that decision. It's just so interesting because there's really nothing else in personal finance that I think people cling to so strongly. Yeah, maybe the magnitude of the cost makes it even more emotional. The fact that it's also something that I think our parents give us advice on more than maybe any other financial topic, I think real estate.

The thing that drives me nuts about this decision of rent versus buy is that it seems so based in other people's opinions about what happened to them and not based on the comparison. So it's like, "Oh, I bought a home and I made a lot of money." And it's like, "Well, you made the money over 30 years.

Maybe you had to renovate your house. Maybe if you had just invested it in the stock market, it would have done just as better or even better." And so it seems like people's advice on the topic, broadly speaking, is just based on... It's anecdotal. Yeah. And so it's not...

They didn't run a model to say, "Oh, you know what? Had we just invested all this money and rented all along, we would have done just as well. It's just we did well." Exactly. Because you are assuming that that was the best path, you're really not thinking about the counterfactual wherein something else would have happened.

And in some cases, it would be impossible to run that type of counterfactual because you probably weren't tracking rent prices that entire time. Data-wise, it's perfect. Even if I could say, "Okay, we're talking about this specific zip code. We can go back in time and actually look up what the average rent was for the type of home that you lived in for those 30 years, and we can run the numbers and whatever." But in that case, I find that people be like, "Yeah, but then I would have had to move a lot." And it almost just doesn't matter.

So I guess it's my selfish and hard-headed one woman's journey to try to get people to think about it differently because I used to be the person that felt like, "Oh, if I'm 25 years old and I'm still a renter," now that's laughable, but when I was in my early 20s, I was like, "Oh my God, I'm throwing money away on rent." And it was beginning to go down that road and beginning to start that process and looking at condos in Dallas, Texas, and starting the pre-approval process and what have you, that actually kind of opened my eyes to be like, "Wait a second.

There is so much more to this that no one ever tells you." For example, the property taxes in Dallas, Texas are 2% per year. So here I am going on my merry way thinking, "Oh, I'll put 10% down on this condo. This is great. I'll have someone else live in it, pay me rent.

What could be easier? I've got life figured out." And then come to find out, I'm already in the pre-approval process looking at a specific condo and the real estate agent's like, "Okay, so the property taxes, the HOA fees, insurance," she starts going through all the other things, and I was like, "No one ever told me about that stuff.

I've never heard of it." And I find that that is kind of a common experience. But for me, it was like my, it like radicalized me. I was like, "Wait a second." Changed on a dime. Changed on a dime. Oh, absolutely not. I couldn't afford it in the first place.

That was why the entire thing was kind of so comical in retrospect. I was like, "What money did I think that I had to even be doing that in the first place?" I had so internalized the narrative that renting was throwing money away, that it was impossible to conceive that continuing to just rent for $700 a month, whatever I was doing at the time, was actually more cost-effective and going to allow me to save and invest more money and grow more wealth than buying this condo and having the unrecoverable costs probably exceed the rent that I was paying at the time.

It's funny because the throwing money away on rent, we've heard it a bajillion times, and I'm thinking, "Oh, well today, guess what? We threw away money when we bought lunch." To go back to your point about property tax, I throw away a lot of money. We own and we throw away money on proper tax.

We throw away money on insurance. We throw away money on mortgage interest. Sure, some of that mortgage interest is a tax deduction, but we throw money away on maintenance, on repairs, on renovations. All of those things are throwing money away. When you actually compare it and say, "Let's strip out all the money you throw away on a home and then look at the delta between how much you spent and if you rented," and here I think is the big reason why a lot of people made money in real estate is, yes, renting might have been cheaper, but the assumption that they will be on par is that you also invest the difference.

When you have a mortgage, if you don't want to get kicked out of your house, you have to make your mortgage payment. Part of that mortgage payment with a traditional loan is that you're paying the principal down. The sad truth is that in the first, I don't know the exact numbers, but it's like in the first- Basically the first 10 years.

You're paying down almost none. I mean, you're paying a little bit down, but the vast majority of all the money you pay each month goes to your interest. But in the long run, over 30 years, you pay the house down. When you rent, in the long run, unless you also invest money, you will be left with nothing.

Of course. I think that that forced savings device argument for ownership is a compelling one, I think. If you are a person that does not really have a strong track record of being able to force yourself to save and invest, that wasn't really my problem. I'm a pretty good saver and investor, and so I didn't feel like, "Oh, if I don't buy a house, it doesn't matter that only," we'll call it, "20% of my outgoing funds that I'm spending are actually staying in my pocket, and the other 80% are going to the local municipality, the insurance company, the bank." At that point, I'll just save the 100% myself, or whatever percentage is the delta between the rent and the ownership cost, and keep the down payment invested.

The funny thing is that that dilemma, for me, was actually playing out at a time where the interest rates were such that it was pretty easy to make the numbers work for owning, because the interest rates were less than 4%. Now, it's so funny to see, now that rates are above 6% and 7%, it's like people are discovering amortization calculators for the first time, like, "You'll never believe how much this house is actually going to cost you." I'm like, "Has no one looked this up before?" This has always been true.

It's just that money used to basically be free, but now you really just can't ignore it. It's no longer a little bit at the margin. It's like, "Oh, no. The mortgage payment is $2,500, of which $2,000 is interest. Okay, well, now this choice doesn't look so obvious anymore." Do you listen to Ben and Cameron on Rational Reminder?

They have really great rent versus buy content, particularly because if you know anything about Canada's real estate market, it's kind of like the US, but worse, where they also are experiencing really hot real estate numbers, but they didn't have the equivalent of a 2008-style correction. So, theirs was going up then and has been going up the entire time and didn't have that huge five-year dip that then they had to climb back out of, so it's even worse in Canada.

And one point that they made that I thought was so fascinating was that paradoxically, the time that it is most expensive for you to be a homeowner is when you own your home outright, because that's when the opportunity cost is highest. You would think it's most expensive in the beginning, in this period that we're talking about, where you are paying, you are outlaying so much cash, and such a small fraction of it is building equity.

The rest is no different than rent in that sense. But they made the point that because over time, you're probably not going to see property appreciation in excess of like four or five percent. It's just keeping pace with inflation. For the most part, it's not really going to be all that impressive.

It's most expensive to you as the homeowner when so much of your net worth is in this thing that is just keeping up with inflation, maybe a little bit in excess of it. And I thought that was so interesting. So I'm like, yeah, I mean, the other people's money aspect or the fact that you're levered when you buy is in some ways the most expensive part of it, but also the part that can make it work.

Because in that first, I don't know, when not so much of your money is tied up in it and you've made this levered bet on the fact that it's going to go up, your net worth is increasing at a disproportionate rate because of that, if the property is, in fact, rising in value.

Yeah, when I see people defend buying, obviously, if you're there for a really long time and you pick right or you get lucky, those are great cases. But some of the defenses are, okay, mortgage interest is tax deductible. Okay, but if you own your house outright, there's no mortgage interest, that doesn't apply.

Only matters to you, are you paying in excess of, you know, you're a married couple, are you spending more than $29,000 a year on mortgage interest and property taxes? Because if you're not, you're just better off taking the standard deduction anyway. Is that the payment doesn't change and that you have a fixed payment, whereas rent, you can assume is going to go up over time.

Though can go down, like people were negotiating their rent down during the pandemic and other times. Some people I know have said, look, I think I'm going to live here two years, I'll negotiate my rent down if I commit for two years. Maybe one other case was what you said about leverage, right?

If we can make the claim, and I think data shows it, that your property is probably not going to appreciate at the same historical rate as the stock market. That's just like hasn't ever happened. Maybe in one or two years it will happen, but over the long run it hasn't.

So if you can't lever up your investment, then it doesn't make sense. And so to your point about owning the entire house being the most expensive time, that makes sense. There's no leverage, there's no tax deduction. And in the last case, I guess if you sell your house, you do get, as a married couple, up to $500,000 of tax-free gains.

That's nice. That's pretty, I would say that's one of the more compelling reasons. And also, I mean, to be fair, you can't live inside an index fund. So I see the point that people will make, which is like, well, I have to live somewhere. And if one path is going to all things considered equal, all things the same, if one path is eventually going to lead to me having this asset that I can sell for a profit that is functionally operating the same way as a piggy bank, where some of the money that I'm paying for it is going to stay inside it and I can turn around later and benefit from that, then great.

I agree that that's maybe the optimal path. The problem right now, as far as I can see it, is that the rental market and the buyer's market are so distorted. They are so out of whack with one another. To a degree that I don't, I don't want to say historically that we've never seen, because that's not true.

I think this has happened at least one other time in the 21st century where the gap was so dramatic, but it's almost laughable how much cheaper it is in most places to rent and invest the difference than to become an owner. And I think with any asset, most investors probably realize that the price you pay for the asset is going to in some way determine the return that you get.

So if I buy Amazon at $10 a share or $200 a share, obviously my return is going to be greater if I'm getting in at $10 a share. So unlike an index fund, you cannot dollar cost average into a house. You lock in the price when you buy it.

So right now with things being so inflated and with the buyer's market being so much more expensive than the rental market, it's not in all things considered the same, all things considered equal equation right now. Things are not equal at all. Renting is so much cheaper. I'm going to push back really briefly and just say, right now things are expensive.

And I think we just looked and in all but like a couple cities in America, it is cheaper to rent than to buy. In almost every major city and in the area where right now in the Bay Area, it's probably the most ludicrously more expensive place to buy than rent.

Part of that is high prices, but a big part of that is interest rates. And dollar cost average, maybe not the right term, but you can refinance your mortgage at a future date if interest rates drop. Fair point. So I think that if you were to buy a house today, let's use an extreme example that I think is very unlikely, and interest rates drop to 2% tomorrow and you refinance tomorrow on your house, you might be in a situation where over the next 10 years, it actually was cheaper to buy.

I think a lot of these rent versus buy comparisons right now are looking at 7% interest rates and at that rate, it's really crazy. So if you had some crystal ball that said interest rates are going to drop to zero tomorrow, you might be better off buying and refinancing.

However, that doesn't look likely. If you look at the predictions for Fed Funds rates, yes, they're predicting a rate cut this year, but like not a big rate cut. And I don't know, you know, it's not that the Fed Funds rate is the mortgage rate, but Have you ever refinanced?

They're trending. Yes. Okay. So what was the closing cost situation like when you did that? It was not that high. So we didn't even mention closing costs. By the way, other things you throw money away when you buy a home, you throw, you know, anywhere from 1% to 3% on your closing costs.

But the biggest one is you're paying probably depending where you live, 5% to 6% in broker's fees when you sell. Right. Now, when you buy, you're effectively paying that fee. Also, you're just not the one who outlays it, but it's factored into the price, which is why this, you know, class action lawsuit, this kind of scrappy lawyer out of Missouri who challenged the National Association of Realtors, 6% commission.

And that to me, this, the fact that now this commission is getting struck down and there are all these copycat, this copycat litigation in different states that are trying to say the same thing is fascinating because it just is a perfect example of like the externalities that are going to impact what happens to housing prices over time that going into this year, you probably never thought of.

There are some variables that we're all aware of. Like what is the fed funds right? Can it do our interest rates going to go down? I don't know. Maybe we think we know what's going to impact the rent versus by equation, but this lawsuit kind of came out of nowhere and if all of a sudden a fixed price, a fixed fee of 6% that used to be to your point, baked into the price of every home sale is now gone.

Of course, that's going to impact prices. And they're thinking that it could, you could see kind of a universal softening across the board because now you don't have to pay this 6% commission as the seller to your agent and to your, your, um, buyer's agent. So I don't know, it's just an interesting, to me, I just kind of shows that we, we, you never know what is going to change nationally, but also like in the town that you're trying to buy in and how that could radically shift this assessment for you and what makes more sense.

But I was asking about closing costs specifically because I always hear people talk about refinancing as like, well, yeah, you date the rate, you marry the house, you marry the price, you date the rate. And like the implication of course, is that you can just get a lower rate later, but I, I rarely hear people acknowledge the fact that you have to pay closing costs again, this isn't like a free transaction.

And so I'm curious what that experience was like for you. So I'm looking at our refinance right now. And there were $50 credit report, $13 flood certification. Unfortunately, these don't get summed up $135 tax service, $735 appraisal fee, $25 title insurance and other almost $1,700 title fees, $400 recording fee.

So that's not bad at all for the value of the property. Add all that up, maybe it's a few thousand dollars. Someone listening probably has a, has the kind of memory. It's like, I know exactly that number. I was, but I was under the impression that it was a set percent, the same way that closing costs when you initially buy a home can be.

So it really depends. The first mortgage we ever had, we had bought a house in San Francisco is classified as what's called a TIC. It was a tenancy in common. So we actually, we bought a two bedroom condo, but it was not a condo. It was a TIC, very different with another couple.

So we all owned the two units together and we had a legal agreement between us about how we would share them. Basically, we would only inhabit ours. They would inhabit theirs. But technically, if they stopped paying their monthly fees, we're on the hook because there were four of us on the title.

It was very financially intimate because we were like, we're going to buy a house with you. So we need to see your balance sheet. We need to see everything because, and we all put in three months of mortgage payments in advance. And every time the mortgage was paid, we had to put another month in.

So you would kind of get a three month headstart as if someone was going to miss. But when we refinance that, the loan we had had a 1% early termination fee effectively. So when we went to refinance, we had to pay 1%. So if you were to have a loan with these kind of 1%, I don't remember what the exact name of that fee was.

Yeah, you would have had to pay 1%, but I did not have to, but I did not have to. And I've actually heard, I think it's called recasting. And this is where I think there is also a recasting that could somehow have lower fees. There are some financial institutions that I think have very, very low fee refinances.

And so I imagine when interest rates drop, there will be a massive fight for banks to refinance. There will be plenty of people who want to refinance. And I imagine that there will be some competition. So I could see those costs going down. Interesting. Okay. I could see that too.

You know, we did an interesting, um, well, two things. Okay. So one thing that this is bringing up for me is I'm thinking about generations past and kind of this claim that real estate is, or rather, let me be more specific because I think sometimes you hear real estate, you, it brings to mind people who are investing in real estate.

As in I buy this house, I'm renting it out to someone else. It's going to cashflow. I'm having my costs covered. Someone else is paying down the mortgage and maybe I'm skimming off a little bit of the top every month, or, you know, I have some like net income on that transaction.

That is very different than I am buying a primary residence that I am going to live in and pay for. And so when I think about the generations of the past and how they were able to build wealth and what they had available to them, as it compares to what young people today have available to them.

I think the big difference is that your average young professional in the eighties and nineties had a much steeper road to other public investments. They did not have a supercomputer in their pocket that they could place a $0, $0 commission, $0 fee trade and buy the S&P 500 in five minutes.

That wasn't really a thing. And so I think about homeownership for that demographic or for that that group of people in history as like, well, yeah, it probably was your best option at that time. It was probably one of the only realistic ways that you could really build wealth easily.

And I think that as the options for wealth building and the ability to decouple our need from shelter, from our interest in building wealth, as that becomes more and more available to anyone who has a smartphone and some like extra money on the side that that housing looks less and less attractive as like the primary means by which you build wealth.

But all that to say, it doesn't surprise me when I hear people in my parents' generation say, oh, you should always buy a house. It's going to make you wealthy. It's like, well, yeah, because for them, it probably did. But like. That has not been the experience of, I'll say, my generation or our generation, we did a really interesting study with our audience or we surveyed like almost a thousand people and basically asked them about their housing costs and their incomes and their net worths.

And while more of our audience in this respondent pool owns rather than rents, the monthly median cost for the owners was twenty six hundred dollars per month compared to two thousand dollars a month for the renters, which obviously we're not we're not controlling for size of dwelling or what have you.

But I did think that that was interesting that they're spending more. The median age of the owners was about four years older. They were thirty four compared to the median age of the renters, which was thirty. But this was what was really, really blew my mind, just that the median like household income was so much higher for the owners compared to the renters.

So when we look at their net worths, yes, the owners were richer, but they they were spending more on housing. They just had more money. They had more income. And so whenever I hear people talk about the correlation between net worth and homeownership, the causality is presumed that it's, oh, well, owning makes you richer.

But I think it's the opposite, that just richer people tend to buy their homes. And based on the incomes and costs that we saw in our survey data set, like, yeah, I mean, it kind of tracks like intuitively, it makes sense. But I would say that it was also supported in what we saw from our survey filler outers, our hand raisers.

It's funny, because when you first started saying that, I was thinking that there was a reason why the owners would buy a bigger place or spend more than the renters, not just comparison of costs. But I've always found that there's this rule of thumb. It's like, don't buy a home unless you're going to live there for ten years.

And I'd say the primary reason behind that is this broker's fee, right? You're going to have a 5% loss. And if you buy a home and try to sell it next year, and you've got to take a 5%, 6% loss, and the closing costs up front, it doesn't make sense.

Now, if we can get rid of that, that actually could change that rule of thumb. I have a friend who was selling a place in Miami. And I actually told him, I said, hey, you know what? Why don't you propose something crazy to your realtor? Because why not? And I've always wanted to try this.

And he said, I'm going to say, I'll give you X percent if you sell it at list, but I'll ratchet it up if you sell it above. So it went all the way up to 9%. And it went down to 3% if they sold below the price that they thought they could.

And it turns out they got an offer and they took it. And they didn't get to actually test this. But I was really excited to see, because a model that would make a lot more sense to me isn't give you 6% for selling the house. It's like, give you a performance fee if you do a really great job and are able to get a better price.

And you get less fee if you don't. But that's a little bit of a tangent. Where I was going with this was because of that rule of thumb, I see people that are young, they're looking at buying a home. And they're like, well, we have to live here 10 years to make buying a home a good deal.

We want to live in a pretty nice house. Yeah, we need a place that when we have kids, we can fill it out. And so this was our thinking when we first bought a house, we had no children. And we were like, well, if we're going to live here long enough for this to be a financially good deal, we need a house that we can have kids in.

So we need at least, let's call it three bedrooms. Well, we didn't need three bedrooms for like five years. So had we bought a place with three bedrooms versus rented, for renting, we would have just had a one bedroom for the next five years. And then we might have upgraded.

But for buying, because we knew we had to be there for so long, we were like pre-buying space we didn't need. Yeah. And so that would have been a very... So I think this problem of pre-buying space is something, oh, I want to buy my forever home. So I have to buy the home that I wouldn't necessarily rent a comparable home for.

And then I do the math and I say, oh, well, I'm spending three grand a month now. Like you can't compare apples to apples unless you look at the same kind of house. But also I actually want to push back. Sometimes people say, well, do the rent versus buy with comparable properties.

And I say, well, if you're only going to rent a one bedroom for three years, and then you're going to switch to a two bedroom for three years, and then maybe a three bedroom in three more years, we'll compare that kind of whole picture because you wouldn't actually have to rent the comparable three bedroom for a while.

And what we ended up doing was we found a place, it was random. We were just going around. We saw this house and it had a separate entrance on the master bedroom, and it was on a separate floor. And we were like, what if we lock off that floor and we rent it out?

So we basically bought a three bedroom, but for five or six years, it was just a two bedroom. So we only lived and we rented out the other room. So we were able to commit to, we're going to live in this place for 10 years. It ended up being about eight or nine years, but we were committed to live to it for a really long time.

But we were able to not pay the price for the space we thought we would need in the future. Then we ended up decorating. We had a nursery, we had a kid, and then we moved out, like right after having our first child. The thing about buying your primary residence that I think is maybe the sticking point for me is that I think there is a really smart way to do it.

One of those ways is what you just described, which is using it in some capacity to create more income for you. So like we rent a very nice home in California, but there is something in our lease agreement that says like, you can't Airbnb out this house, but we travel a fair bit.

It would be pretty nice if we could, right? But like, that's not our decision to make. So if you're someone who is willing to get creative and you're like, "Ah, I'll just, you know, lock off this part of the house," or "Oh, I'm just going to rent a bedroom out." I mean, those are great ways to shift this equation very quickly.

The other thing that I would say is I think the problem or what I always try to dissuade particularly young people from doing is kind of going into this transaction with blinders on as though like this is just what I am supposed to do at this phase in my life.

And like the moment that I feel like I could eke out a down payment and like spend 45% of my take-home pay on that mortgage payment, I'm going to go for it and pull the trigger because this is my ticket to wealth. I have just heard from so many listeners of the podcast, readers of the blog, people in our community who basically say, "Hey, I bought this house.

I used all my savings for the down payment. Like I have nothing left in my emergency fund or I have very little left in my emergency fund. I'm spending almost half of my net income on it every month. I feel really spread thin. I feel really stretched. Like I can't really, I have no discretionary income anymore.

I live in stress that something is going to break and I can't afford it." I'm like, "Who wants to be in that position?" Like that situation is not going to pay off for that person for a very long time. And that's an if. Like if the property continues to appreciate, they better hope they didn't buy in an area that's like on a downswing because in that case, they're kind of struggling and scrimping for nothing.

And so I think if you want to buy and you can comfortably afford it, like you are in a financial position where you are operating from a position of strength and to your point about renting out the room, like kind of creativity or we'll say just like general savviness, I think it can make a great deal of sense.

It's just problematic for me when the situation or the decision is approached as kind of like a black and white. I almost look at it in some ways as like the decision to go to college today. Like, yeah, a college degree is probably going to help you. Like if you just look at the data and like, you know, incomes associated with level of schooling, is it smart to go to college?

Yes. And also, should you spend $50,000 a year out of state to go to a state school and study something where your starting salary is going to be $45,000 and also take out a ton of debt? Like the circumstances around the choice matter. What you spend on it matters.

The sacrifice you have to make to make it happen. Right. What you want to do with it matters. And so I think that it's just that kind of like binary, buying is always good. Going to college is always the right choice. It's like, no, there are many ways to turn both of those things into financial nightmares if you're not approaching it in a strategic and thoughtful way.

And it can be really stressful because I know the peer pressure. I have two anecdotes. One was we had a friend and it was another couple and they were hoping to buy a home. We had bought our first home. And I'm not even kidding. And that was the real estate arms race.

They're like. Well, one of the couple was like, I don't think that it makes sense for us to hang out anymore because like, we just don't like being around. Like you knew we wanted to buy a home and then you went and bought a home. And now it was like this weird.

It became a thing in this relationship with this other couple where they were like, we just like now is not the right time for us to keep hanging out because we're kind of frustrated that you were able to do this. And we weren't. Imagine the pressure you would feel that you have to own such that it would hurt your relationships with people that are able to do this thing.

And then there's one other anecdote that was so strange was a friend of mine said, gosh, it's getting so expensive in the Bay Area to buy a home. I think we're going to buy a home somewhere else. And I was like, are you moving? They're like, no, but like they had so much pressure that they felt like to be successful, they needed to own a home that they bought a home in a city they didn't even live in, not because they wanted to become rental property landlord like they didn't.

That wasn't why they just felt like they needed to own a home to be successful. And like that was the path they were going on. Another friend of ours in the Bay Area was like, well, we can't afford a home. So we're going to buy a vacation home in Tahoe.

And I was like, if you can't afford to buy a primary home, I don't know if vacation home is the best option. I'm not saying it's a terrible like we're not going to go down that conversation. That could be a whole nother episode. But it was just there have been multiple touch points in my life where I've watched other people make decisions because they felt this immense pressure.

And in a way, the fact that interest rates are so high right now has forced the conversation to be like, maybe it's actually not a good deal. And I just hope that we don't have this thing happen, which I think it could go one of two ways. One, interest rates drop and people are like, I don't even need to do the math anymore.

It must be such a good deal. Yeah. But the other is, oh, wow, I remember that I did the math a year ago and it didn't, you know, it didn't check out. Maybe I should do it again and see if it checks out now. Who knows? I think right now the homes are, in my opinion, homes are so expensive, not just because the real estate market is doing great.

But I just think no one wants to sell because most people that own a home, if they sell. What is it, like 70% of people have a sub 3% or something insane? Yeah, it's a massive number of people have very cheap mortgages. And so if I wanted to move right now, I would have to go get a 7% mortgage.

And I'm like, or start renting. And one thing that I think they do in other countries, I'd have to fact check this, but I'm pretty sure in like Germany, for example, you can actually take a mortgage with you. So you could say, you know, I already have this loan for $400,000 that I've been paying down.

Right. And it's at a 3% interest rate. I'm going to sell this house and apply this loan to the new house that I'm going to buy. I think that would actually clear up quite a bit of the gridlock that we have right now in the market where to your point, no one wants to move.

And rightfully so people feel trapped. They feel like, well, I can't move because not only is it like an emotional thing or even not even emotional, not even is it a rational thing of, well, I have a 3% rate right now and I don't want a 7% rate. It's like, no, if I had to buy a different house, I actually would spend more money to get less.

I wouldn't even be able to afford a house as nice as the one I live in now. If I sold it and then. Our house would cost like 75% more if we refinanced at today's rate. Right. So what are you going to do? Sell that house and then go try to buy something that's 75% less nice.

Like it just doesn't make sense. But I think if you give people the ability to. Take that those loan terms with them and just shift it around, then you might see more fluidity and like things will start to kind of like, you know, shift. I don't see a way out of this beyond either more supply or like.

Some crazy unexpected externality like the. The commission thing like another similar, you know. Piece of legislation or or something that's going to shift things system wide. So my worry is that. I don't see the incentive. For financial institutions to make that happen. Now I could see it when interest rates drop.

You get offered a do you want a 4% interest or do you want a four and a half percent interest loan that you can take with you? My guess is they might charge a premium for something like that. And right now I don't think you can get away with a premium because everyone's mind right now is I'm going to refinance in the future.

So whatever mortgage I get now, I don't care about. But if we get to a point where people have this recent kind of past of wow, they used to be it was 7% three years ago. Do I want four? Do I want four and a half that's portable? Maybe that could be a cool product.

I'm trying to pull up the exact numbers here, but. Right now we're in our Picasso, which is like a fractional home. We only own one eighth of this house. And I was talking to a friend who was going through the process of buying an eighth of a house in Southern California.

And the owners when you're selling a home. Right now it's typical that the only thing you really negotiate is the price. And but people's mindsets are just different on different factors. And one of the best pieces of advice I think my might have been my brother-in-law gave me figure out what matters to the seller.

Yep. And some people really want to get the deal done fast. And so if you can promise a short close, you can get something done. Some people want a great family to live in the house that they raise their kids in. And that letter is going to move the needle.

I can tell you the letter is probably not going to move the needle for me. But like for some people, the letter matters. For some people, it's the best price. But Picasso gave owners who were selling the ability to buy down the interest rate for the buyers. So I can't remember exactly how it worked, but it was like for an amount of money that wasn't as much as you'd think, you could give the potential buyer of this property like a 2% mortgage for the next 10 years.

It was a fixed 10-year interest-only mortgage. But the seller could basically spend like, I don't know, $10,000 to buy the interest rate down to 1.99%. I'm not going to quote every dollar amount I just said could be wrong. But there is an amount that when I heard the number didn't seem that high that you could pay to basically be able to market your house as this house has a 2% interest rate for the next 10 years.

So let's say this house was $750,000, what's more compelling? Like a $750,000 house with a 7% interest or like a $760,000 house with a 2% interest? Like people are irrational. And the answer is it was exactly the same. Like if you did the math and you said, "Oh, what if I take $10,000 and I just put it in a high-interest savings account and I use it to make the extra payment?" The math was even.

But some people just loved the idea of locking in 2% for 10 years, right? Like it just sounded so good. So I wonder if kind of in the way that points were a thing, I wonder if instead of me, the buyer having to do that, I wonder if the seller might want to market that property in a way that it could change the dynamics.

I don't know. It was just the most interesting thing that I've seen happen in interest rates where the seller could choose to buy down the interest rate. Well, there's a piece of this that I'm also now thinking about, which is you said, "Think about what matters to the seller." And this won't be the case for everybody, but I did have this woman named Catherine Valentine on my show a couple of months ago.

She's a negotiation expert and she told this story about buying her current home. And what they found was that she basically is looking through this house that she's in love with, right? And as is common, she goes, "Well, this is kind of like the tippy, tippy, tippy top of our affordability range.

Like technically we would need this to be like 10 to 20% less for it to be like comfortably affordable, as is the experience with most people nowadays. Like you're probably stretching yourself to get into that house." But she said that she noticed something when she was kind of examining the home.

She's like, "This place is immaculate. It's pristine." The wife of this couple that lived in this house thought of everything when they were renovating it. You know, they have under cabinet, you know, inside the cabinet, what is it called? Outlets, like every, like down to the inch of every tiny little detail has been accounted for.

And she was like, "Something tells me based on this couple and what I am noticing about this home, that money is not the most important thing to these people. Like making the most money possible on this sale is not what they care about." And so when they went in to make their offer, she structured multiple, I think the strategy is called multiple equivalent simultaneous offers, such that you are pulling different levers in each one so that to you, it's kind of all the same.

You'd be happy with anything, but you're basically giving this person options. And so in one of these offers, they basically said, you know, "We'll close as fast as you want. We'll waive the inspection," which she said would typically never do that, but it was a calculated risk based on how pristinely this home had been maintained that like pretty sure we're not going to find any issues here.

And you know, basically like anything you don't want, just leave it behind. That chandelier you hate, don't worry about it. Leave it. That room of stuff that you would have to figure out something to do, don't worry, just leave it. We'll figure it out. And they ended up giving them quite a good discount on the home and chose that offer because they wanted to move fast.

They didn't want to have to worry about hiring people to come in and clean out the crap. So she said, in much the same way you just explained, like, "I just want to echo paying attention to what the seller really cares about and where you might be able to structure a deal or, you know, negotiate in a way that if you, if you're aware of their core interests, a lot of people's core interest actually isn't money.

Some people have a ton of money and more money than they know what to do with. And like, they're actually more concerned with timing, ease, convenience, these things that as the buyer, you might actually be more able to give them those things than all the money they could ever want.

It's not going to work every time, but in certain transactions, it's kind of an interesting way to approach it. It's funny, as you're saying that, I have two reactions. One is I've never actually considered doing the multiple offer thing, right? Like some people might want the certainty that you're not going to flake out.

So you could have a really high deposit. Say we're going to give you 5% and if we back out, you can keep the house or you can keep the 5%. Like another one is like, we'll close faster. But on the other side of the equation, if someone came to me and said, "I have one offer at one price where I'm willing to give you 5% and I have one offer at another price where I'm willing to close fast.

And then I have this other one where I'm going to keep all my contingencies and keep everything, but I'll pay a little bit more." My immediate reaction would be, "Well, I know you can afford the high price and I know you can afford the 5% deposit." So I would counter with like the combination of like the most value, the best offer for all of them.

And you'd have to be able to stand your ground because you've just shown your cards that you can afford the high price. I don't know, to be fair. I don't know that any of her offers included the full price. I think she was just betting on the fact that like, "I'm making some assumptions about these people I'm buying this house from, that like they actually don't care as much about getting top dollar." Oh, another indication.

It was also that they had already bought their next home. They hadn't sold the current home yet, had already purchased the next one. So she's like, "Oh, so they don't even need this money to like buy the next house they're going to live in. All right. Yeah. I've got wiggle room here.

I don't have to throw all the money I possibly can at these people because that's probably not actually going to move the needle as much." Yeah. So I would say one thing here is try to figure out as much as you can about the seller before you buy. Put those internet stalking skills to work.

I mean, property records are usually something you can search up online by address. Um, you know, we, one of our partners has always delete me. Most people haven't gone and removed their personal information from the web. So to the extent they don't listen to this show, their information is probably out there.

Uh, do your research and try to figure out who these people are. But I like the idea of even saying, "Hey, I'm going to submit an offer. Here are three types of offers. Which one do you want?" And then just asking that question or even asking their agent, be like, "Would you rather have the high, the high deposit?

Would you rather have the faster close? What kind of offer do you want?" Um, that's interesting. Now, now we're going down this path of how to, how to make sure you buy a house after we just spent all this time talking about how it's not the best deal. I mean, most people probably are eventually going to do it, but I think it's the life cycle of it is funny too.

Because like in my, in our age group, you know, the circles that I'm having this conversation and it's kind of like my forever home, but then I go and visit my grandma who just sold her house and is now moving back into a place that she has to rent because she can't take care of a house anymore.

And it also just kind of makes me think about the cyclicality of all of this. That like, yeah, just also keep in mind that like that forever home isn't actually in most cases forever. Like most people will eventually become renters again. So it's the function of like, do you along the way want to be a property owner?

Do you want, is it the expectation or assumption that like being the property owner is going to give you more money later when you go to potentially move into like some sort of assisted living or not that that's everyone's path, but like generally speaking, there is a, you end up coming kind of full circle again, in many cases, if you live long enough, that is.

It would have been even cheaper to get a 10 year, a 10 year fixed rate and that adjusted after, right? Like an interest, an adjustable rate for 10 years. So I thought, hmm, should we do this? And I asked around, if you look online, the average person stays in their home 12 or 13 years.

And when you look at a 10 year adjustable rate mortgage, the breakeven point is somewhere, depending on the rate and the cost somewhere around like 13 or 14 years. Meaning if the 10% adjustable rate is less of an interest rate, which it almost always would be than a 30 year fixed year 11, you're paying more than you would for the 30 year.

But like you saved so much for 10 years that it kind of breaks even around 13 years. And I was like, gosh, if the average person leaves in the window of time that the adjustable rate is actually a better deal, what do I want to do? And it's even though I was like, well, on average, I would guess I'm probably the kind of person that would move more than the average person.

Yeah. Yet somehow I couldn't bring myself to do it. So like we... Why do you think that it's just the certainty of feeling like on the off chance we want to stay longer, I'm going to be kicking myself? Or I mean, it could have been too that you looked at just historical interest rates and said, we're at an all time low.

I mean, how much... I think it's... I'll say probably the latter is what I said. But you said one of the greatest reasons of buying is that you like lock in this price. It was kind of like, I don't like uncertainty. And so I'm willing to pay a premium for uncertainty going away.

And there's just no stress about it. Right? I know that if I had this 10 year mortgage, I have friends that did this. They have right now an adjustable rate mortgage and they still have a few years. But right now they're like, gosh, in a few years, like, what are we going to have to pay?

What are we going to... Oh, how is this going to work? What are we going to do? And I just don't need that in my life. Like, I don't have to think about it if that happens. I'm also seeing a lot of articles right now about how I assume it's because property tax assessed values are going up, that this is happening, but that people's property tax bills and insurance rates are going through the roof right now.

And so I think it was in the Wall Street Journal, like over the weekend, where there are all these instances of people getting new quotes and they're like, oh my God, I'm on a fixed income. Like I'm 67 years old living on social security. I can't afford $400 more a month for my insurance and taxes.

Like, this isn't what I signed up for. I think the examples given were in like Boulder, Colorado. They probably weren't in California because with Prop 13, your property tax only goes up by like a small percentage each year. That's good. And it's kind of inflation adjusted even. But in a lot of other states, your property tax changes every year.

And so... But one thing that I've talked about before, but if anyone wasn't listening, you can appeal your property tax. Even in California, because we bought only in the last few years, in the middle of the pandemic, you could make a strong case that our home has gone down in value since we bought it, at least based on comps.

I think you could make that case. And so we appealed our property tax. And unfortunately, the process takes like nine months. Do you have to go in actually and present your case? That's what would happen. However, once there's a date, then the assessor reaches out and says, hey, can we work out a deal?

It's almost like a settlement where they're like, hey, can we come up with something? A little plea deal. I sent off all my data, my spreadsheets. I said, here's why I think the property's gone down by 15%. Oh God, they didn't see you coming. And then they're going to come back and say, what if we go down 10%?

What if we go down 13%? And I don't know how it'll work. I can't wait to share more. But once we do it, we lock it in for forever. But if you live in Texas, you might have to do it every single year. But there are some advantages. I believe it is Texas where there isn't all this public data.

So you actually have a lot more control over how much your house is worth because there just aren't public records of all the sales. I believe this is Texas. I could be wrong. Whereas in California, you can go look up any property and be like, how much did it sell for?

What were the prices? What are the comps? And in some states, that stuff isn't all just open public data. And so you can kind of say, my house is worth this much. And it's on the state to be able to prove that you're wrong. Oh, like the burden of proof is on them.

I believe that's the case in California. I was talking with the founder of this company, OwnWell, that will do this for you. So if you're not a nerd like me that wants to go spend millions of hours building a model to save like $500, which most people probably aren't, you can hire them.

And they'll go negotiate on your behalf. They'll file all the paperwork on your behalf to the state or the county. And then they'll take 25% of whatever they save you in the first year. So in California, it's a great deal, right? If they save you $1,000 a year for life, you pay them $250.

It used to be a very old school business model. We got a letter in the mail from some company that was like, hey, we're going to negotiate this for you. And then I was like, this company seems like an old school. There's got to be a better version of this.

And I looked online and I was like, oh, there's like the startup version that's gone through and crunched all the data to do it more efficiently. And they don't charge as high a fee. And it seems like they do a better job. So in hindsight, I should have just used them.

But I love going down the rabbit hole of seeing how it all works. I actually reached out to them and they were like, why don't we just show you how it works? You can file it yourself. And they kind of peeled back the curtain and showed me all the models they would build.

And then they put a deal on the deals page on all the hacks. They gave everyone a deal. So there is that. If you're an owner, you can negotiate that. But if you're a renter, you don't have to deal with any of this. None of these extra fees. So and funny enough, we were talking about a handful of people we know, mutual friends of ours who have more money than both of us combined, I think almost all of them.

And they're all renters. Like we have a ton of friends with money who are all renting. And so this is not, you know, you said, oh, correlates, right? People with more money are more likely to be owners. But people that we know who are really savvy with money, who have lots of money, still appreciate the flexibility.

I want to move. I want to do whatever I want. I, my wife and I are always talking about, oh, wouldn't it be fun to go like move to Japan for a year? Wouldn't it be fun to go live in Spain for a year? I'm like, oh, we have this house.

I mean, this low interest rate, like it almost doesn't even seem possible. Like you could lease it out. Totally. But I'm just, it almost like feels like it's an obstacle. Yeah. It's like something in the way that otherwise you could just be like, whatever, screw it. Yeah. And maybe the grass is always greener, but there's some world where it's like, gosh.

It would kind of be nice if we were renting and someone was like, hey, at the end of the year, we're going to need our house back. And we were like, sweet. We were just forced to have to decide what we want to do and where we want to go and where we want to live.

And like, all those things are on the table. Whereas right now, the amount of work it would take to even consider moving is so drastically high. Now, obviously I'm a hundred percent sure that if someone is listening to this and they're like, my landlord is telling me that at the end of the year, I have to move.

They're not like stoked about that decision. And I sympathize with that person greatly because that's a horrible situation to be in. No one wants to not know where they're going to go, but I think I don't have the freedom that someone who rents does. Yeah, totally. And I'm not sure I would trade for it right now, but I definitely am jealous of it a bit.

I also think that when you're young and you're not quite, I'll say, established yet in your career, renting has a lot of upside because you want that type of flexibility. Like if your job has an opportunity a couple States away and you're up for it, you want to be able to like jump on that and take it and, and, you know, grow with a completely unencumbered by like, oh, but I have this house that I have to sell.

And that's a whole nother element that I have to consider. And it's like, I've always heard people kind of talk about how, when you're young, even if you can afford it, or you could technically afford it, that sometimes there's a benefit to continuing to rent because it just means that you have more flexibility, not just in what you want to do and like discretionary moves, but that if your career were to kind of, you know, go in a different direction that you could quickly jump on that and be nimble in the choices that you're making.

Yeah. I don't know what made me think of this, but another hidden cost of owning that I believe Ramit Sethi brought up in a podcast I heard him on was when you buy a home, you spend way more on furniture. When you rent a home, you have this budget, not think of not furnishings and renovations, not as like major things that have problems.

Like obviously when you rent and the toilet breaks, that's on the landlord. When you own, it's not on the landlord. It's on you like paying a plumber or learning how to become a plumber overnight. And, and, and I was thinking, gosh, when you buy, you're like, oh, I'm going to be here forever.

We deserve like a really nice bed. Look at the kitchen. Like we should redo the kitchen. Like you never, you don't think about that when you're renting because why would we redo the kitchen? Like it's not our kitchen. But we didn't need to redo that. You know, we redid our laundry room.

We didn't need to redo the laundry room. I feel a lot better. I love the new laundry room we have. It looks like it was the only room in our house that hadn't been renovated was one bathroom and one laundry room. So we had this house where even though it's about a hundred years old, every room had been updated in the last a hundred years.

And then the bathroom, it had been updated maybe 30, 40 years ago, but it just looks so weirdly out of place with these like Italian tiles that are like, I can't even describe it, but it was the one room missing. The Tuscan mom kitchen that everyone knows about. We had the Tuscan mom bathroom.

Yeah, the Tuscan mom bathroom. There's like the olive oil on the, on the counter with the little peppers inside it or whatever the hell that weird decor was back in the like mid aughts. Yeah, so we renovated that, but we wouldn't have done it if we were renting. Totally.

And but your point about furniture is well taken. I mean, like you definitely, I always say that too. Weirdly enough, like I'm aware of this. I always go, eh, you know, we'll get nice furniture when we buy. I'm not going to pay a bunch of money to on like nice furniture to furnish a house.

I'm like, I don't know if this is the layout that we're always going to have or if we're always like, why would I buy this sectional when I don't know if our like family room in the house we're going to buy is going to be this shape. Like it might not fit.

It might not work. So you kind of yeah, you like defer those types of upgrades. But as anyone who has ever spent a lot of money on furniture knows. You really don't. It doesn't really change your life like at all. We've we've spent a little bit of money on like one or two nice pieces.

And beyond the first week or two, I didn't think about it again. Yeah, maybe a mattress. I've not heard anyone. Oh, I do have a nice mattress. Like that seems to be one, but that seems to be one that's like a functional choice. That's not like an aesthetic decision.

No, it's like and it's very easy because you're going to have a mattress in your next house. It's probably going to fit. This is what determines the quality of my sleep. Like that is a different decision than like, oh, is this a, you know, a $400 couch I bought off a friend, which is what our current couch is?

Or are we spending $5,000 on this sectional because it's in our forever home? And it just I think, yeah, the stakes of the decisions feel much higher. So that framing that as a hidden cost is interesting because it's it's not that you would have to do that if you buy, but just psychologically, you're more oriented in that direction as an owner, which I think is interesting.

Yeah, we really struggle because we look at these furniture stores like room and board design within reach. You know, this is within reach. Yeah, really. And we're like, I just can't I don't need a $2,000 coffee table. So we don't have a lot of really nice furniture. But we keep telling ourselves one day we'll one day we'll graduate and buy really nice furniture for now.

Like, I think, you know, there's some great stuff on Wayfair. But yeah, OK, I feel like we probably belabor this topic a lot. My takeaway is just do the math like and and we didn't talk much about the emotional side of it, which is like a really big, important part.

Some arguably the biggest part. Yeah, some people like this one. Some people want to buy a home because they just feel like they want to own a home. And that's fine. My only thing with that, though, I would just encourage you to interrogate that desire and where that is coming from.

I think in some cases it can be very genuinely held. And then in other cases, if something has been marketed to you your entire life, it probably feels like a very genuine desire. But like, what is it about ownership that is so appealing to you? Like, because your name is going to be on the deed and not the lease.

Like, what's really what's the difference? Why? Why is that? And you might have an amazing answer and you might be in a place that you can afford it. Fantastic. But I do think that, like, it's one of those things in life where everyone kind of feels like they want to buy a home because we've all been told our entire lives that it's the American dream.

And like, there is so much money that gets spent every year on like marketing the dream of homeownership to Americans is like how you'll know you've made it and like what it means to be an adult. So, yeah, if that's the water you're swimming in, you probably are going to feel pretty emotionally driven toward the choice.

But I do think it's worth kind of taking a second look like, well, what is it really about this that I'm I'm so drawn to? Oh, I don't know. It just kind of feels like that's when I know I've made. OK, well, it's probably just like you've really internalized the marketing that's been, you know, crammed down your throat your entire life, as opposed to like, oh, well, I need the land and I like to garden and I like little projects and I have these dogs and I want my kids to.

It's like those reasons to me. I'm like, sure. Like, yeah, you're into projects. You like to work on stuff like door with your hands. You want a yard. You want to live with animals, kids. You want to live in a specific place. It's like it's like a continuity of stability thing.

Maybe maybe you didn't grow up in a home like you were always moving apartments with your family. And so like you want to have more stability in your own life. Perfect. But like as long as the answer goes deeper than like, I don't know, I just kind of feel like I should and I don't know why I feel like I should.

That's that answer is where I'm like, you might want to think about that a little bit more. Yeah, I imagine if you push on that and run the numbers, you might be able to convince yourself differently. Or if you have a lot of pressure from a family member, maybe run their numbers, go back, go back and see, like, because I think it's crazy if you look at, you know, what the rule 72, right?

So you divide 72 by the interest rate or the return. Take stock market at 7%. It's like 10 years to double your money. So if your parents have owned a house for 30 years and they're like our home doubled, actually, that's not good. Like that was a bad return.

And so I would just say, make sure that if you're guiding a lot of your emotion on data, make sure you actually look at that data checks out because I don't know, I'd say if your home hasn't tripled in three years, in 30 years, like you probably didn't get a good return.

Yeah. So. So true. Okay, this is fun. Thank you for driving down here. Dude, thanks for having me. This was so fun. And for everyone listening, I would say this is slightly a different episode. It was like not as prepared in terms of like we outlined every bullet point we wanted.

It was more of a raw conversation. Which I know we were both big preparers. We're both big. I'm a scripter. I'm like every single word that I'm going to say into this microphone has been fine tuned by three editors first. So yes, the off the cuff thing was fun.

Yeah. So I'm curious if people have feedback. Podcast at all the hacks dot com. Thanks for being here.