Hello everyone and Welcome to another

episode of Selling Greenville your

favorite real estate podcast here in

Greenville South Carolina I'm your host

as always Stan Mccune realtor right here in

the Greenville area you can find all of

my contact information in the show notes

if you need to reach out to me for any

of your real estate needs and just a

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your app allows you to do today is

January 16th I was hoping that I'm

recording this at least I was hoping by

now that we would have the greater

Greenville Association of Realtors

numbers for the month of December 2023

and then we could kind of tie a bow on

2023 gonna have to Kick the Can for

probably one more week because I just

refreshed and we still don't have those

numbers so instead I'm going to be

pivoting to a different topic that I

want to discuss which is a topic that

we've already discussed in the past but

I have some new interesting data that

I would like to present to you guys and

some thoughts on that data and so the

topic that we're going to be discussing

today is the the financial aspects

right the point at which renting

versus

owning how should I say this the point

at which it makes more sense to rent or

own financially speaking and usually

this is a very simple discussion that

doesn't have Nuance to it and I want to

bring some Nuance to this discussion

now we we talked a little bit about this

a few weeks ago and that was more of

that unnuanced discussion right we

discussed renting versus owning and why

a lot of people choose to own even in

situations where it's cheaper to rent

and that was just taking it the way

people normally do which is what is the

monthly cost right now in

Greenville the reality is for the first

time well the past few years has been

the first time in probably the history

of Greenville certainly since I've been

involved in real estate that it became

cheaper to rent versus having a mortgage

and a lot of that has to do with

obviously prices skyrocketed the past

few years but then on top of that the

mortgage rates became very high and

very cost prohibitive and so all of

those things combined to make it from

a monthly standpoint right just in terms

of what you're paying per month cheaper

to rent versus

own um but we talked about how for some

people the finances aren't even

aren't the main reason why you would

choose to own there are a lot of other

reasons we already had that discussion

today we're going to look at the

different angle which is um the angle of

what are the other Financial discussions

and advantages potentially right of

owning versus renting um and I just want

to start by saying there's a large group

of people out here or out there I should

say not out here out there who

believe that buying a house is a poor

financial decision and there argument is

that you could rent for Less which is

true like I said that didn't used to be

true in Greenville but it is now and

it's true for for the vast majority of

the country so the argument is that

you could if you could rent for Less

you should do that and then take what

you save and invest that in other words

let's say that you're if you bought a

house your mortgage would be $3,000 but

you can rent a decent enough comparable

enough house for 2500 a month you should

take that $500 cost Savings in addition

to other potential savings right your

maintenance savings since your

landlord or your landlady is doing

maintenance for you different things

like that take that take what you're

saving and then invest that and that is

a better way of making money than

than trying to make money by owning real

estate that's going to appreciate and in

theory this makes sense right you should

should be able to get a higher return on

your money investing it in things that

aren't your primary residents right in

theory in a vacuum this argument makes

sense save money invest it in

different ways maybe you're good at

trading maybe you're big into crypto

that's been the crypto train has been

on a roller coaster lately there

there's all sorts of ways to invest

money right it doesn't have to be in

real estate and it certainly

doesn't have to be in your primary

residence in fact most people are

don't even though they view the primary

resident as an investment in theory they

don't treat it like an investment they

will over improve things they will

make changes that the market if they

were to sell their home wouldn't like so

people do all sorts of things to their

primary residents that betrays the fact

that they don't actually view it as

as a major investment but that being

said for most Americans most of their

net worth is tied up in their primary

residents and the reality is that

when we talk about the American dream

what we're generally speaking talking

about is the ability to buy real estate

fairly cheaply fairly easily and to

build wealth through real estate which

then opens up other doors to

Building Wealth in other ways that's

not obviously official definition but

that is what I have seen and that is you

know when people move to the United

States from other countries one of the

first things that they want to do is by

real estate because that is the way they

perceive the American dream at least

that's been that's been my experience

with immigrants that I have

dealt with in my real estate

business so I want to lay that

Foundation I also want to say this and I

I've mentioned this before on my

podcast Warren Buffett said something

roughly a decade ago that really was

interesting to me and he said this was

before I was a realtor he said that

buying a house was a for was a poor

financial decision for him right he has

a he has a a mansion I think in Omaha

incredible house obviously but he

said that was actually a poor financial

decision for him it was a poor if you

simply analyzed it as an investment it

was not a good decision but he still

stood by purchasing that house and

being a homeowner versus renting

because that allowed him to raise a

family in a house that was theirs and

to make memories in an environment

that was their environment that was

meaningful to Warren Buffett but he

could have in theory rented a mansion

for cheaper and then invested that money

and made a whole lot more money than

what he was making in the ual

appreciation of his Mansion but the

reality is that not everyone is a

billionaire like like Warren Buffett

obviously he's been an insanely

successful investor regardless of

whether you feel like he's lost a step

in recent years which he probably has um

he's still a top 1% investor in the

world and additionally when you buy a

unique property like a mansion

those tend to not appreciate in the same

ways that just standard conforming

homes will appreciate so Warren Buffett

unique in two ways own owning a house

that is not a normal house and that has

a small market for it at the end of the

day which likely is going to cause it to

not appreciate annually in the same way

that that normal everyday houses will

appreciate and additionally he was

you know uniquely s successful

investor he has a unique investor mind

where he could consistently you know

year in and year out beat the market in

terms of investing his money so for sure

Warren Buffett is an example of someone

that from a financial

perspective should have rented and

should have taken the strategy even so

he said that he didn't want to do that

it wasn't his primary residence he

didn't view as an

investment he viewed it or at least not

a financial investment he viewed it as

an emotional investment and an

investment for his family okay so that's

the foundation right I wanted to I

wanted to make sure we approached it

from all those different angles but what

does this look like for us normies right

for us that aren't billionaire

investors for starters I think we need

to realize that comparing the monthly

cost I've already kind of said this but

comparing the monthly cost of renting

versus owning okay simply here's I can

rent this for $22,000 a month or I can

buy a comparable home for that my

mortgage will be 2500 a month just

comparing those monthly numbers is a

flawed metric because the main reason

people view home ownership as an

investment is the as we've already said

appreciation that they Bank over the

years it's not the cost savings so

simply looking at the annual cost of

buying versus renting doesn't factor

that in secondly it's important to

remember that 99% of renters aren't

looking at the cost to buy versus the

cost to rent and then taking the money

they save by renting and putting it into

other Investments right how many people

do you know that were like hey you know

I'm renting for 2,000 a month a house

that I could have bought for 2500 and I

and I had the means of buying it for

2500 but I said you know what I'm going

to save that $500 a month and I'm going

to invest all of it and guess what I've

beaten the market i' I'm crushing it I'm

making so much money I'm so much

wealthier now because I chose to rent

versus purchasing tell me how many

renters you know that how many people

that you know that have done that and

there's a statistic out there that

homeowners are on average 44 times

wealthier than renters that's a that's

an actual statistic now you could say

you know which came first the chicken or

the egg are people renting because

they're poor or are they poor because

they're renting again it's it's not

going to be the same for every person

but the reality is that if you take in

theory a wealthy renter and give them

this option of being able to invest in

in things that aren't their primary

residents how many renters are

successfully doing that it's

I'm not saying that none of them are

doing that but I'm saying a small

portion are doing that and of that small

portion a very small portion are

investing 100% of what they're saving

because that's just unlike it's it's

hard to have that kind of self-control

right you're saving money but you can't

actually see the savings and and

and then you're expected to invest this

money that you're saving but not really

saving like you're again you're not

seeing those savings

anyway my point is that the argument you

can make more money investing outside of

your primary residence while potentially

accurate in theory is not practically

true for the vast majority of the public

so where am I going with this well

there's a real estate analyst I follow

named Aziz I don't know how to pronounce

his last name but it's something like

Sunder G or something like that

Aziz we'll just try sunder G

a has some great some great data out

there and I'm just going to call him

Aziz from now on even though

unfortunately, there's a famous comedian

with that name that most of you know

but anyway I'm not talking about the

comedian I'm talking about real estate

analysts he decided to analyze the

rental and purchase markets Nationwide

to determine at what point it's better

to rent or own he came up with some

really incredible very interesting data

now before we get into that data we have

to get into what the data actually

entails and this will be a bit dry but I

do think it's important particularly for

you guys that want to understand and

really everyone listening needs to

understand what goes into this data

so I am going to actually pull up and

screen share if you're on YouTube a

the website where he talks about

this all right there we go I'm screen

sharing and here's what Mr is

disease

says he says in order to make an Apples

to Apples comparison and I'm just going

to read this okay so just bear with

me a second we assume the would be buyer

and renter are the same person with the

same financial means namely a down

payment saved up and ready to put

towards the house if they don't buy we

assume that as renters they are 100%

disciplined investing all of this down

payment and all the savings from lower

monthlies from renting in financial

markets it clarifies as I've already

said in parentheses renters are much

less disciplined in the real world but

for modeling purposes we give them the

benefit of the doubt we only model

the financial aspects of buy verses

rent decision there are other

considerations flexibility PRI of

ownership Etc and individuals should

Factor those into their decision

obviously the goal here is merely to

quantify the economics our analysis uses

the median two-bedroom home price which

in Zillow is

267,000 and the median two-bedroom rent

1317 per month from apartment list we

use two bedroom units as our bet as our

base case because we have reliable

pricing on both sale and rent side this

is a conservative approach since rentals

are typically of lower quality than

homes for sale we use the national

median across the other assumptions we

have to make in order to arrive at an

answer a 14% down payment a 30-year

fixed-rate mortgage property taxes of

1.1% annual maintenance of 1% HOA fees

of 217 per month Insurance of .5 7%

buying cost of 2% selling cost of 6% and

the capital gains rate tax of 15% we

assume a marginal income tax rate of

30% almost done here we make best Cas we

make best guess assumptions about the

future for other relevant variables

inflation of 2% and market returns on

invested cash of 6% pre-tax for the

estimate shown above we assumed home

price appreciation of 5% per year and

rents rising at 3% per year but these

are critical inputs and we stress test

them below okay I'm not going to get

into to the stress test part of it

we're just going to look at the data but

I just want to say before we look at

at these charts that he created this is

about as

conservative as you could be with this

data it's very skewed towards renting

versus owning if you in which probably

most of you picked up as I was reading

that so I would expect the data to

really really favor renting but in

reality it doesn't and there are two

great charts that A's created I'm going

to start with one that is somewhat

obvious but still very helpful to

actually have it in data right there's a

lot of things one thing I've learned

when talking about real estate I'll give

data to people and they'll be like oh

yeah that's obvious yeah there are

some common sense things that appear

obvious but until you actually see in

the data like usually there are some

subtleties that you would not have

picked up on if you were just

approaching things from a common sense

perspective and so I just want to to

say that for this first first chart

it'll seem common sense at on some

levels but if you really think about it

there's some really interesting

aspects to it basically the financial

benefits of home-ownership are directly

tied to how long you own the home and

that's going to be the case with both of

these charts that we look at so I'm

going to screenshare another

chart all

right this chart the I'm I'm looking at

a chart right now for those of you that

are listening that's called for

comparable homes buying Beats renting by

year four and it's a it's a step chart

and and a line chart that shows the cost

of buying and renting for the median

American two-bedroom home and here's

what here's what happens basically by

year three it's about a breakeven point

the way they took all of that data that

I just explained by year three it's

essentially a breakeven point for

whether it makes sense to buy or rent

what does that mean that means on a

national average it is it makes more

sense for people to buy if they are

going to live in their home for at least

3 years if they're not going to live in

their home for at least 3 years then

they're at risk for potentially losing

money versus renting okay I'm going to

come back to again these are National

numbers

one thing that we've talked about a

lot the national numbers don't 100%

apply to Greenville but this is a good

Baseline to operate off of Now by by

year 10 right let's say that you own a

home by year 10 versus renting by year

10 by year 10 the average renter

has paid

$226,000 versus the average homeowner

after you factor in all the appreciation

whatnot is out

$164,000 again these are net numbers

and so that's a big spread right that's

What

62,000 Difference by the by the 10th

year for the average middle class

American to be able to save $62,000 in

10 years that's huge that's a lot of

money for the average American

and again this is

something that we're seeing and and

something that we need to think about

is and okay let me back up for a

second I've had conversations with

my clients about this before we've had

conversations where it's like hey what

do you think do you think that the

market is going to appreciate enough

that if I purchase this home I won't

be underwater in a few years and my

question is always how many years are we

talking about because in real estate a

lot of volatility can happen in one year

or two years right but that third year

if you're going to stay in a home within

three years you're typically pretty safe

now I will say as well that I have

actually never had a a client that has

that has ended up on the losing end

of the spectrum once they sell their

home even if they've only owned their

home for a year or two and so I

personally haven't run into that but

also I started real estate after the

effects of the Great Recession something

like that happens if we have another

world financial crisis then people

can find themselves in troublesome

people sold at the absolute worst time

in 2020 right before the market took off

maybe right during right during right

when the pandemic started something like

that and there were a few people

that lost money there and there were

some house flippers that lost money in

2022 when the market shifted due to

higher interest rates so there are some

things that can happen that can cause

people to lose money in the short run

so really my advice it's not Financial

advice but my advice to General home

homeowners if they're concerned that

they may that they may find

themselves underwater on their home

you know when they're when it's time to

sell how long do you plan to live

here generally speaking you're safe if

you've lived there for at least 3 years

and and again this isn't about even

about whether homes go up or down in

value whether you go underwater or not

this is a broader discussion about

whether it's better to rent versus by

but that's all kind of baked in here

now as I've already alluded to in

Greenville I really do suspect that

this is it's less than than this three

four year marker I do truly think

that as I already said I've been a

realtor now for for eight years and

every time I've had a client that sold

home after owning for two years or more

they made great money not just a little

bit of money but great money the only

times I have really seen people get in

trouble are those times that I mentioned

before so generally speaking people

that are are making a purchase in

Greenville they're safe generally

speaking again that's not Financial

advice it's still safer to make sure

that you're going to be living in the

home home long term that's really the

main reason to the main way to guarantee

that your home is going to go up in in

value and it's going to be worth more

than when you purchased it for and also

that it will have been a better

investment to purchase versus rent all

right let's look at another chart and

this one I found really interesting and

I think you guys will as well there's a

reason why I saved the more interesting

one for second it's a good a good

strategy

this graph is called owning beats

renting if home prices rise by 3.15% per

year and this happens 70% of the time so

if we have home price appreciation of at

least

3.15% per year it is better to own

than it is to rent so obviously if

appreciation on real estate is below

3.15% that's roughly speaking the line

at least based on all of these data and

assumptions that that were made I

find it interesting too that it happens

70% of the time you if you're on YouTube

and you're looking at this you can see

that there were a few points in which

homes lost value one was in the in

the80s another one was the Global

financial crisis and then there's been a

handful of other times where nationally

we haven't seen prices go up above

3.15% which with 2023 being one of those

years now Greenville is right on the

line that this is part of why I really

wanted to have that data we

are right on the line the last we had

the median sale

price for November let me pull this up

here you're not going to see this on

YouTube but we were at

3.1% for the past 12 months of

appreciation so from from November to

November we've seen appreciation that

is just a hair just a hair below that

3.15% marker so I'm really anxious to

get the December data to see if for the

year if we ended up seeing this but

again what we're saying is that you need

to own a home for multiple years to

really ensure that you're beating the

market in this way that you're that

you're making a decision that owning

is better than renting and 70

regardless 70% of years in the United

States going back all the way to the

70s it's been better we've seen

appreciation at or above

3.15% on on the national

level and

so again generally speaking it is going

to be better to own than to rent

unless we see something that causes

these levels of appreciation to really

go down what's the most likely scenario

of that happening we talked about

this in the past but the most likely

scenario of that happening is when the

population starts to go down Baby

Boomers start to and Silent generation

start to die off and now we've got you

know Millennials Gen Z and whatever the

generation after them is that are

basically the the only Market of buying

and they're going to be much poorer than

the Baby Boomers in particular were so I

could see appreciation slowing down when

that happens we're talking about next

decade we're talking about the 2030s we

could very well see that happen at that

point but we'll we'll just have to

wait and see now what does this mean for

the Greenville Market well the 70%

rule seems pretty accurate for our

Market as well I think Greenville might

be a tad higher than that in comparison

to the average but in general the

Greenville Market does mirror the

National Market in this way like the

Great Recession things happen in

Greenville pretty comparable to what

they happened in the rest of the US just

not as extreme right we saw homes lose

value just not to the extreme that the

rest of the nation

did but what kind of appreciation are

you seeing in general right I'm sure

you're curious are we beating you know I

talked about this year but generally

speaking are we beating this

3.15 % marker per year well as with

most things it depends on how far back

you go so let's go back to the Great

Recession that was the biggest housing

crash of most Americans

lifetimes to be completely honest and

so starting in and you know what I'll

go ahead and I'll

pull up a chart for this one just bear

with me one sec I wasn't going to do

this because we've we've talked about

this before I'm just pulling up the

stats for for last month where we

will see the medium price

point so if we go back to the

Great Recession 2007 and then and

then go until now and and look at at

what prices have done this is really a

big handicap for us

right because we had several years

from 2007 to 2011 prices went down well

really until 2012 if we're if

we're being honest but for sure until

the end of 201 11 prices went down so

those are four years of us being in

essentially a deficit with regard to

seeing how the market appreciates even

so we've seen during that time the

median home price increase from roughly

130,000 in 2007 to

nearly

313,000 in 2023 annually and again

we don't know yet what December's number

was annually that comes out to roughly

5.33% annual appreciation well well

beating the

3.15% threshold so even if we go back

to preg Great Recession the

appreciation that we see in the

Greenville market and I've said before

medium prices aren't a perfect measure

of appreciation but it's the best we can

do roughly speaking even going back

to even having four years in which the

market either was flat or lost money

we still since the Great Recession have

seen an average of 5.33% annual

appreciation in the Greenville market so

still crushing that

3.15% if you bought in 2007 at the worst

possible time to buy in the no I won't

say the history of our country I

almost said that and then I realized

that's probably not true but the

worst time to buy in a generation you

were still making a better financial

decision than renting that than renting

for that entire period of time now maybe

if you had started renting you know

maybe right in the middle of the Great

Recession okay that might have been the

right decision but probably not because

right in the middle of the Great

Recession was when prices went down and

that was the time to buy everything

so I even I disagree with myself on

even that point but I think it's

worth saying well what has happened

since the Great recession well if you're

looking at this chart you can see that

prices in Greenville bottomed in

February of 2011 a lot of people don't

realize that but that was the bottom of

the medium price point what happened

was the Obama Administration was

trying to stimulate the housing market

that stimulus the tax credit that he

was doing went away and when that went

away that's when we really saw the

market bottom

out and it bottomed out at roughly a

hundred

20,000 for the median price so

between basically January of 2007

February of 2011 home prices went down

from 130,000 to 120,000 that's brutal

right four years of no appreciation

and instead depreciation brutal so if

we start from that low point and

continue until November of 2023 the

best data that we have we've gone

from $120,000 median to again roughly

313,000 I come up with that that's an

average of

7.75% appreciation per year that is

incredible obviously I mean that is

people a lot of people would love to

have those types of returns in the stock

market

7.75% per year more than doubling the

3.1 15% threshold that I discussed

was the threshold where it becomes

better to own than to rent now

some might say the pandemic skewed

things right there are good arguments

against that but let's play The Devil's

Advocate and here's the way

people would say that the pandemic

skewed things they think that this

if again if you're on YouTube and you're

looking at it you can see that there it

was much faster appreciation that

happened when rates were really really

low from 2020 until mid 2022

appreciation happened at an

unprecedented level but and and and

some people would say if the pandemic

hadn't happened that 7.75% number or or

that number that 5.33% number it would

actually be much much

lower again let's play Devil's

Advocate from February 2011 until March

2020 what was the annual rate of

appreciation right let's go to before

the pandemic until March 2020 so we're

going from again February 2011 to March

2020 so we're we're taking the two

anomalies right we're taking out the

Great Recession which was an anomaly and

we're taking out the pandemic

which was also an anomaly what

appreciation did we see during that

period of time we saw

7.1% roughly annual appreciation so

no matter how you slice it over time it

is a better financial decision in the

Greenville Market to own versus rent

historically speaking and when you

factor in the fact that most renters

don't don't invest their savings from

renting it's an even greater financial

decision to own versus renting right

we're assuming the best case that the

that you know in that

3.15% appreciation number we're assuming

the renter is the most disciplined

renter on the planet and they're

investing every single cost savings that

they've had into the stock market and

that is not realistic renters are not

doing that by and large even the most

disciplined renters are rarely doing

100% of those cost savings as I've

already discussed

now I want to clarify as always that

there are times when it makes sense to

rent I'm not ever you guys know I'm a

realtor so I am very Pro people buying

houses people living in their own houses

people not renting but I'm also a

landlord I own rental properties and I

need people to rent right there's

nothing wrong with renting but the

argument that it's a better financial

decision to rent versus buy doesn't hold

water even when it's cheaper to rent

versus buy and I could see a

situation a few years from now if

mortgage rates come down enough where it

may in Greenville go back to being

cheaper even on a monthly basis to buy

versus rent I don't know if we that

ship may have sailed I'm not 100%

sure one way or the other but I could

see that happening but even if that

doesn't happen the data would indicates

it is still a better financial decision

for most people this isn't financial

advice this is just data it is a better

financial decision historically speaking

in Greenville to own versus rent there

you guys have it let me know if you have

any thoughts on that that's the end

of today's episode and I appreciate you

guys listening presumably next week

we'll talk about the market stats and

then at some point here in in the near

future and it maybe next week I

don't know in the next few weeks

we're gonna have an in a real

estate ignorance roast with a friend

of mine on the show so I'm looking

forward to that as well so we got

some great stuff coming up I've got

some conferences coming up as well I

think I've talked about that I

should provide me with some interesting

data so a lot of great stuff coming up

here in the upcoming weeks and I

appreciate all you guys my listeners

thank you for listening thank you for

watching again if you need a realtor

in the Greenville Market I'm your guy

please reach out my contact information

is in the show notes

and please if you get anything out of

the show please like, rate, review,

subscribe all those good things and we

will talk again next time