| by Kenneth Chase | 100 comments

Is buying a home always better? | Housing | Finance & Capital Markets | Khan Academy

Welcome back. I’m now going to take a slight
tangent and cover a topic that, I think, this is probably
the single most important video that really
anyone can watch. I go to all of these parties
where I go see family. And my wife and I right now,
we live in Northern California. And we’re renting. And I like to point
out, by choice. And I have family members,
why don’t you buy? You’re at that stage in
life, that’s a major milestone, all of this. There’s a lot of pressure
to buy. And when I tell friends,
I tell them I’m not going to buy. Because I think I’m pretty
convinced, almost 100% convinced, that housing prices
are going to revert back. And I’m going to do a bunch
of presentations to justify why they will. But then my friends, they’ll
just throw out the statement that I hear from them, that
you hear from real estate agents, because obviously
they want you to buy. Well, isn’t buying always
better than renting? And I think that kind of common
wisdom comes out of the notion of, when you have a
mortgage or when you borrow money to live in a house, every
month that money that you give to the bank is kind
of going into savings. That’s the perception. While when you rent,
that money’s just disappearing into a vacuum. In this video I’m going to work
through that assumption, and see if that actually
is the case. So let’s say I have a choice. Let’s say there are
two houses. This is house number one. And this is house number two. And let’s say that they’re
identical houses. These are three bedroom, two
bath, townhouses some place in Silicon Valley, which
is where I live. And I want to live in
one of these houses. I’m indifferent as to which
house I live in, because they are identical. So living in them is the
identical experience. I can rent this house
for $3,000 a month. Or I could buy this house
for $1 million. And let’s say that in my bank
account right now, let’s say I have $250,000 cash. So let’s see what happens
in either scenario. Let’s see how much money
is being burned. So in this scenario
what happens? I’m renting. So in a given year, let’s just
see how much money comes out of my pocket. So in a given year
I pay $3,000. $3,000 times 12 months,
so I lose $36,000. So I’ll put a negative
there, because that’s what I spend in rent. $36,000 per year in rent. And then of course I
have that $250,000. I’m going to put that into the
bank, because I have nothing else to do with it. I didn’t buy a house with it. And let’s say that I can,
in the bank, let’s say I put it in a CD. And I get 4% on that. So let’s see, 250, that’s
what? $10,000, I think. That’s 0.04. Right, I get $10,000 in interest
a year on that. So I get $10,000. So plus $10,000 a year
in interest. So out of my pocket, for the
privilege of living in this house, in Silicon Valley, with
beautiful weather, out of my pocket every year
goes $26,000. So that’s scenario one. So what happens if I give in
to the peer pressure of family, and realtors, and the
mortgage industry, and I buy this house for $1 million? Well I only have $250,000, which
is more, frankly, than most people who buy $1 million
houses have. But I have $250,000 cash. So I need to borrow $750,000. So I take out a mortgage
for $750,000. And I’m going to do a slight
simplification. And maybe in a future
presentation, I’ll do kind of a more complicated one. In a lot of mortgages, when you
pay your monthly payment, most of your monthly payment,
at least initially, is the interest on the amount that
you’re borrowing. And you pay a little bit
extra on that, to bring this value down. That’s called paying
off the principal. You can also take an
interest-only loan, but the component of the interest
is the same. Essentially, when you take a
traditional mortgage, kind of a 30-year fixed, every month
you’re paying a little bit more than the interest, just
to take down the balance. But for the simplicity of this
argument, I’m just going to say that we’re doing an
interest-only mortgage. And then maybe with any
extra savings, I can pay down the principal. And that’s the same notion. And right now, if I do 25%
down, and I’m buying a $1 million house, I’ll have to
take a $750,000 mortgage. I don’t know what a
good rate is, 6%? So let’s say at 6% interest. So
to live in this house, how much am I paying just
in interest? Well I’m paying $750,000
times 6% a year. So $750,000 times 0.06 is equal
to $45,000 in interest. That’s coming out
of my pocket. And of course, on a monthly
basis, that means in interest per month, I’m paying,
just to get an idea. I’m paying about $3,700, $3,800
in interest a month. My mortgage actually might be
something like $4,000 a month. So I pay the interest. And then
I pay a little bit to chip away at the whole
value of the loan. It takes 30 years to chip
away at the whole thing. And over time, the interest
component becomes less, and the principal becomes more. But for simplicity, this is the
interest that I’m paying. $45,000 a year. And then of course at a party,
when I start to explain this, it’s like, ah-ha. But interest on a mortgage
is tax deductible. And what tax deductible means,
is that this amount of money that I spend on interest
on my mortgage, I can deduct from my taxes. I can tell the IRS that
I make $45,000 less than I actually did. So if I’m getting taxed at,
let’s say 30%, what is the actual cash savings? Well I’ll save 30% of this. I’ll have to pay $15,000
less in taxes. How does that work? Well, think about it. Let’s say I earned $100,000
in a year. And I normally have
to pay 30%. So I normally pay $30,000
in taxes. Right? This is, if I didn’t
have this great tax shelter with this house. Now I have this interest
deduction. So now I tell the IRS
that I’m actually making $55,000 a year. And let’s say my tax
rate is still 30%. it actually will probably go
down since I’m — but let’s, just for simplicity, assume my
tax rate is still $30,000. So now I’m going to pay $16,500
in taxes to the IRS. So how much did I
save in taxes? So I saved $13,500 from taxes,
from being able to deduct this $45,000 from my income. So let’s say tax savings,
plus $13,500. Now what else goes into
this equation? Do I get any interest
on my $250,000? Well, no. I had to use that as part of the
down payment on my house. So I’m not getting
interest there. But what I do have to
do is, I have to pay taxes on my property. In California, out here we have
to pay 1.25% in taxes, of the value of the house. So what’s 1.25%? So, taxes, this is
property tax. And that’s actually tax
deductible too, so it actually becomes more like 0.75% or 1%. So let’s just say 1% just
for simplicity. Property taxes. So 1% times $1 million. That equals what? 1% of $1 million is
another $10,000 a year in property taxes. And notice, I’m not talking
about what percent of my mortgage goes to
pay principal. I’m just talking about money
that’s being burned by owning this house. So what is the net effect? I have a $13,500 tax savings. I have to pay $10,000 —
actually I have to pay a little bit more than that, but
we’re getting a little bit of income tax savings on
the deduction on the property taxes. And then I actually have to pay
the $45,000 of interest that just goes out the door. So I’m paying $41,500. Notice, none of this $41,500
is building equity. None of it is getting saved. This is money that is
just being burned. So this is a completely
comparable value to this $26,000. So in this example — this
example is not that far off from real values. Out here in the Bay area, I can
rent a $1 million house for about $3,000. But in this situation I am
burning, every year $41,500, where I could just rent the same
house for $26,000 out of my pocket, when I adjust
for everything. And then people a couple of
years ago said, oh, but houses appreciate. And that’s what would
make it up. But now you know, very recently
— we know that that’s not the case. And in the next video, I’ll
delve into this, and a little bit more. I’ll see you soon.


Darryn Van Rooyen

Oct 10, 2016, 8:00 pm Reply

Interesting video. One very important thing to remember is that if the interest rates stay stable then your cost of owning property yearly stays relatively constant. Rental cost however will tend to escalate every year when the landlord decides to increase rent. The short term cost is thus in favor of renting but my guess is it will start swinging significantly by year 5-7 and by year 20 ownership should be loads more economical

Alvydas Jokubauskas

Nov 11, 2016, 4:18 pm Reply

House prices will go up – always. Even bubble collapse in 2008 didn't change this rule – because the new bubble is coming back with full strength and it will collapse again after 40 years or so, not sooner. People who didn't sold their houses in last 10 year are now in their expected profit margin instead of panicked loses. If you have to chose from house or rent – chose house. Otherwise rent has to be really cheap to chose rent over house. Also when you are buying a house remember that it is not your a living place, its also your investment – you are investing in neighborhood, country even investing into currency. Your choices of buying an asset are limitless only sales people try to limit your choices and make theirs the best one from left choices. But remember – it is mine opinion from gathered experience. I will give you an only advice – have your own opinion.

Faith Sizemore

Nov 11, 2016, 9:51 pm Reply

Is the math process the same when comparing own a house vs renting an apartment? I live in an area where you can rent a one bedroom and one bathroom for around $480 a month at minimum and $700 maximum. Then you have to factor in if that includes things like water, trash pick up, cable and electric. Here, all but electric is usually covered in the rent. The other living expensive factor in as well like consumables that need to be constantly replaced and furniture. Ultimately I guess it all depend on where you live and what you can afford to pay.

Aidan Au

Nov 11, 2016, 4:58 am Reply

how the f$3k on earth did you get $250k in the first place?

Al Ukash

Dec 12, 2016, 1:32 pm Reply

So this is highly variable… I was hoping on a video describing that intricacies and points of each, instead I got a video where in one instance at one point in time renting was clearly superior? I dunno, I can't tell.

Jarallah Aloraini

Dec 12, 2016, 5:33 pm Reply

Mr Sal: In my country there are no taxes!, so would it be a better choice getting a MORTGAGE other than RENTING?


Seal Clubber

Dec 12, 2016, 6:03 pm Reply

Great break down. No need to justify why you're renting. You're obviously a smart man that's doing what's best for his family. Even with 250k, you can't afford that house. Buy a house 250k cash and you'd be adding your rent to your income. Plus 4% on a cd is ridiculous. Your return on a 25k cd after a year would be about 36 bucks minus taxes lol.

Tohosa Twofeathers

Dec 12, 2016, 4:59 am Reply

Sal assuming we have 250K in the bank

Arusk Director

Jan 1, 2017, 6:06 am Reply

What about a 200,000 home? Your talking bout a million dollar home


Jan 1, 2017, 10:14 pm Reply

This does not take into account that you can live well below  your means, by buying a much cheaper, more responsible home, and while yo own that, still invest wisely and  not lose any money on renting.


Jan 1, 2017, 12:24 am Reply

9mins incorrect – that 45k is indeed going to your equity.

Cristian Guerreschi

Jan 1, 2017, 11:06 pm Reply

but you don't pay all that interest every year. proportionally it would be 45k once for the 20 years of mortgage


Jan 1, 2017, 11:47 pm Reply

Ok so the actual cost of buying a home is 38.5K, not 41.5K. Sal didn't deduct the property interest amount from his income – and then tax his AGI. He would have a tax savings of 16.5K rather than 13.5K.

Also, when renting a home in Sal's example, he didn't account for income tax, which is 30K assuming its still 100K. His net outcome would actually be 56K of money thats burned.

Mike Strater

Feb 2, 2017, 11:51 am Reply

woukd be different if you only buy a 100k or 200k house.

Vetal Turlin

Feb 2, 2017, 6:25 pm Reply

I like guides from Stodoys website. I learned a lot of new sale practices there

Gal Rubin

Mar 3, 2017, 3:39 pm Reply

what software did you use for this board video? I wanna make one too

Bj McIntyre

Apr 4, 2017, 4:54 am Reply

This video makes absolutely no sense. I own and the only way I'd rent is if someone paid me more than my mortgage payments. I would assume the same holds true for anyone who owns property and is still paying off a loan. Zillow estimates I can ask for $400 more per month than my mortgage, tax and insurance payment is (and I see it as a low ball) and you are not renting a $1 million dollar home in the Bay Area for $3000/month. Lastly morgage interest rates are much much lower than 6%. A 4% interest rate would have dropped that number by $20,000 per year and your demonstration would have shown the opposite conclusion

Vicki Bee

May 5, 2017, 12:28 am Reply

Well you better START renting again bc he's dedicated to reverting the economic situation to what it was in 2007. He picked all nightmares for his economic advisory team, people who should've been in prison but never went. And my economist friend deduced that he wants everything to be like it was in 2007. Why else did he pick that particular team of economic advisors?


May 5, 2017, 7:07 am Reply

So would it not be best to buy a cheaper house that you'll give away the same amount on interest as you would renting? Then get a significant chunk back once you sell.


May 5, 2017, 2:37 am Reply

or you could just take the cash and buy a house out right in a different neighborhood why rent some one else million dollar home people got things backwards seems to but hey to each their own

Julez Rulez

Jun 6, 2017, 4:28 pm Reply

This video is very old

Face Palm

Jun 6, 2017, 12:54 am Reply

Made sense in 08. Doesn't in 17


Jul 7, 2017, 4:23 am Reply

did u ever end up buying a home?

Jeffrey Rivera

Jul 7, 2017, 8:30 pm Reply

Hi Khan, great video. Just few things that are wrong with watching this video in 2017.

1-) Rent on a $1m house is probably closer to $4-5k per month.
2-) Mortgage rates are down to about 4%.
3-) CD rates are down to about 1%

Would love to see a 2017 video on this topic again.

Again, great video! Very good way to compare buying vs. renting.


Jul 7, 2017, 8:36 am Reply

Let's suppose for the sake of argument that your numbers are actually comparable in this example, which I'm not sure they are, but whatever. By renting, you are paying for the privilege of living in the house. By mortgaging, you are paying both for the privilege of living in the house, and building equity on the house. At the end of 30 years rent you have no asset. At the end of 30 years mortgage you have an asset, which could well be very valuable; and regardless of whether or not it's very valuable, you now no longer have to spend money for the privilege of living in a house.

Perrin Partee

Sep 9, 2017, 9:37 pm Reply

but if you bought a home right after the crisis at very low interest you come out ahead now

Nikolaos Vitoroulis

Oct 10, 2017, 1:10 am Reply

the renting scenario should be based on 250k -36k for the first year, assuming it's a 1 year CD


Nov 11, 2017, 4:58 am Reply

In what world does a CD pay 4%?

Christopher Perry

Nov 11, 2017, 5:46 pm Reply

A CD at 4%? Ha! Good luck finding that nowadays

suraj uprety

Nov 11, 2017, 7:34 pm Reply

Great educational video. Only if we could rent a 1million dollar house for 3000/month

kevin ansari

Dec 12, 2017, 6:16 pm Reply

If you want to save thousands of dollars that you toss to the lenders use this tool www.parlend.com and find the lowest mortgage rate anonymously…unless you rich of course then ignore this


Dec 12, 2017, 6:56 pm Reply

Where can I find a CD with 4% rate?

Joy Miller

Dec 12, 2017, 5:21 pm Reply

It is personal choice. I think it is much better to buy. I look at it like this. I will get all the money that I put into the house back vs when I rent I won't see a dime. Also, I can have the loan paid off at 50. And just pay the tax once mortgage is paid off and have double the savings.  I make 50000k a year and 34 years old. I save about 1000.00 a month once bills and food are paid.  I paid 175000k for my house. Not in the ghetto. Safe neighborhood. House was flipped, like brand new.  3 bedrooms one bath 1122 square feet, huge yard with deck, attic, 2 huge storage sheds. I just apply an extra $1000 to the principal each year to get  the mortgage paid off quicker. Also, I live by a Naval base that employs well over 4000 people so I also work 2 minutes from my home.  I'm about an hour ride from DC and Richmond, VA.  All I need now is prince charming. =)

working shlub

Jan 1, 2018, 6:27 pm Reply

if you do not like to stay in one place then keep renting…..if you wanna buy put at least 20% down and a 15 year mortage ..pay off as fast as possible…im a landlord and i raise rents 2-5% a year depending on the market…your property taxes and insurance will also go up over time…both have pros and cons.

Willie The boggle

Jan 1, 2018, 1:53 pm Reply

We bought in 2011:)


Feb 2, 2018, 8:26 pm Reply

And he didn’t even count some very expensive repairs that befall a homeowner and not a renter without fail: plumbing, roofing, foundation, HVAC, appliances. etc. If you plan to live out your life in the home and have heirs, owning could make sense but not very much sense to you. After the bubble, BofA president said to stop thinking of your home as an investment but simply as a nice place to live. He might have said as an expensive place to live.

Mandirigmang Pangkaragatan

Feb 2, 2018, 10:16 am Reply

There is a breakeven point between interest rates and rental cost… these are the two main variables to consider. At certain point, interest paid to your mortgage might be lower than rent your pay and vice versa. In the period when the interest rates are at an all-time low (and most likely the property market is at an all-time high), it's almost no-brainer to understand which variable will (almost with certainty) bite you harder in the future.


Feb 2, 2018, 12:27 pm Reply

Are you Matthew Woodworth ? Your voice sounds just like woodysgamertag

Billy Bob

Mar 3, 2018, 5:47 pm Reply

Where do we find a CD that get 4% growth?


Mar 3, 2018, 6:35 pm Reply

You forgot to add all the money that goes into repairs , maintenance and remodeling every five to ten years. I know that this all depends on where you live but it is a thought provoking video. Houses are money pits requiring money all the time. Another thing ,here in the USA the Gov`t keeps increasing the standard deduction so that means less and less people can actually deduct the mortgage interest. Something to think about .

Corbyn Payne

Mar 3, 2018, 2:13 am Reply

Hey man. I love in Los Gatos and we have a big team of investors. Would love to work with some one as talented as you.

Keith LeDonne

Mar 3, 2018, 10:20 am Reply

keep up the great work…


Apr 4, 2018, 12:49 pm Reply

The house that I'm now renting is valued at twice as much as it was before the 2008 crash. Here's a caveat, always buy if the market looks stable or after a bubble.

John Choi

Apr 4, 2018, 2:13 am Reply

The math is solid. I can say that in my case I bought a comfortable house for 165k with a Conventional 30-year/3% down payment/3.75% Interest, i.e. I bought a house for 7500$ + 600-800$ (House Inspection). I pay 1050$ on my mortgage less than the cost of renting a 3BR/2BA apartment or home in my area in the condition of my present home. Finally, I do not have 250k for the CD that you talk about upon which you would make 10k/annually. @Sal your math is solid but I cannot agree totally that it's a universal case, in particular for the lower-cost housing brackets (and for much of the audience to which you speak).


May 5, 2018, 3:08 pm Reply

Its 2018 when I am writing this. I have bought and sold 5 homes. The deal is that real estate is not simple dimensional analysis. In my opinion there are a few things that these videos miss. The cost of maintaining a home, the need for updating a home to sell, if its a buyers or sellers market, interest rates, supply and demand ect ect. The biggest question to answer and I have never heard it addressed is how do you take an essential need (shelter) and turn it into the “value” asset without the trade off of where do you obtain the next shelter assuming that you are not down grading or dying. My internal organs have value on the market, but I need them. So this seems to be more of a scam, maybe a ponsi scheme (spelling). I get the premise, and appreciate it, but its more complex and requires a lot more thought than people usually put into it. Good luck everyone, buy low and sell high.

Geoffrey Piero

May 5, 2018, 9:39 pm Reply

Also include the taxes you are not saving and it's a 2000 difference


May 5, 2018, 5:03 am Reply

how do you offset a private expense like your mortgage payment against your tax liability? its not a business expense?

* Juke Joint

May 5, 2018, 6:56 pm Reply

But when you walk away from the rental you get $0.00. The one you were buying you will hopefully recoup some money from the sale. If your selling today, 2018, House prices have sky rocketed.


Jun 6, 2018, 11:54 am Reply

How about you buy a 250k house?

kalim kazi

Jun 6, 2018, 9:23 pm Reply

How about the 30000/- income tax which was not taken into consideration in the first calculation i.e. the rent a house case study???? I believe it would accumulate -26-30= -56K which is still larger than -41.5K on mortgage?

Hope I am correct to find a minor mistake in your consideration however would appreciate if you could enlighten if I am wrong…

Regards…..K K


Jun 6, 2018, 10:09 am Reply

Didn't account for rent increasing while the mortgage interest goes down and didn't account for equity on the house going up. A house is essentially the same as an investment, you factored a 4% return on the CD but you didn't factor the house increasing in value (just because there was a dip in prices in 2008 doesnt mean the trend hasn't ALWAYS gone up). As long as you don't try to sell your house in a dip in the market this presentation isn't necessarily correct. A house also isn't entirely a financial transaction, I would want control of my property as pride of ownership matters to me. He also forgot the part where buying a home is a 25-30 year commitment, while renting is a life long commitment.

Mark Pollard

Jun 6, 2018, 5:51 pm Reply

The answer is that it's complicated. It depends on a number of different circumstantial assumptions that are highly dependent on each person's unique financial situation, geographical location, and life situation. The idea of home ownership itself is a complex issue. What does it even mean to say you own a home? Do you really OWN a home just because you signed a piece of paper contractually obligating yourself to 30 years of payments or does the bank own the home? Not to mention the emotional considerations and intangible benefits, some of which are hard to quantify with purely financial reasoning. There's things like the pride of ownership (pro) and the creative freedom to make it your own (pro) and the ability to borrow against your house as collateral (pro). Then there's the issue of maintenance and repairs (con), lack of freedom of mobility (con), etc. So in the end you have to run the numbers, consider all the pros and cons, and do what's right for you. If someone does that and understands the complexity of the issue then it's possible that both answers are right depending on the person. The only problem I have is with people who espouse platitudes or fail to acknowledge the complexity. But I guess it's more fun to argue with people about how you're right than to see that there is no "right" for everyone.

You also left out another consideration that would have strengthened your argument: the fact that there's an opportunity cost to itemizing your tax deductions. The person renting can still claim the standard deduction, which makes the tax savings of home ownership less convincing, and even non-existent in certain situations.

Mike Davies

Jun 6, 2018, 11:14 pm Reply

From a monetary value only. There's more to it. I sold up and started renting, then found I was able to chase the work that paid. Swings and round abouts. (UK term)

Tad Peters

Jun 6, 2018, 9:56 pm Reply

wanna bet he is not renting anymore.

Daniel C

Jun 6, 2018, 6:36 pm Reply

I feel like this video isn't applicable to the mojority of American's who don't have that much money in savings. For normal people having a savings around 20,000 is considered really good. I owuld be interested to see a real world analogy using a person who only has 20,000 in the bank and is buying a 250-300k home.

Egle Markeleviciute

Jun 6, 2018, 11:03 pm Reply

You speak very silent….have to put maximum volume to hear


Jun 6, 2018, 1:27 pm Reply

4K 60 FPS

sam sammy

Jun 6, 2018, 2:07 pm Reply

why would you buy a 1 million dollars house??? buy a cheaper one, so you don't have to pay the rent every month. the house tax and maintenance are cheaper too with small house!


Jul 7, 2018, 12:30 pm Reply

I used to think the same way, but the key piece missing is not the potential appreciation on the principle invested in the house, but the unpaid equity… which essentially makes it a leveraged investment – and that is going to beat the pants off the $250k sitting in a CD in the long run. Just look at the prices in SF now compared to 2008!


Jul 7, 2018, 3:42 pm Reply

He forgot to factor in appreciation of the home which historic averages are about 2% per year, ie 20k. Also his interest number was for the first year of the mortgage when he should have used a more average number. Upkeep on the home is also not trivial.


Jul 7, 2018, 3:50 pm Reply

The people who rent these homes are not doing so at a lose for themselves. A better video would be you showing us how your landlord is making a profit off of you.

Paul Heatter

Jul 7, 2018, 11:33 am Reply

The rent on a million dollar house is way more than 3k at least in my area

Ha Nguyen

Jul 7, 2018, 3:21 pm Reply

thanks good info

Steven Lauzon

Jul 7, 2018, 1:22 pm Reply

The bias is clear. Maybe look at an actual house in order to get accurate numbers for calculation.

Ripple Gaming

Aug 8, 2018, 5:43 am Reply

What about inflation. That's like 2.7% therefore although your making that much, it's worth list so you are really making 1.3% if the interest rate is 4%.


Aug 8, 2018, 9:13 am Reply

a mortgage is calculated upon a compound interest , very different story

Gabriel Gonzalez

Aug 8, 2018, 2:23 pm Reply

These numbers are distorted. Rule of thumb. If a house is worth a million dollars then rent SHOULD be about 1% of that per month or around 10k per month. Actually in a large percentage it is more then 10k… of course with the numbers he presented it makes sense to rent. If these numbers sway too much one way then there is or in this case was a bubble… in 20-30 years it’s always better to buy. Inflation will go up, with salary’s while your basically paying a fixed mortgage payment.

Jesus Alvarez

Aug 8, 2018, 3:22 am Reply

I rather buy my house and land but I wouldn't spend a million and nobody really going to spend that much maybe a 100k ,200k,300k . In 10 to 15 years from now you will own your land it just depends how fast you want to pay it and it's worth it because you can pass it on to your kids and your grandkids so they don't got to be worrying about rent.. as in right now I'm renting but next year I'm buying me some land and building a house, I'm paying 600 a month on all bills pay, not bad for a start. I make close to eight to ten thousand a month, i will definitely be buy me a house next year

Wei Liu

Aug 8, 2018, 4:33 am Reply

As many has pointed out this video was really smart in 2008, but did you buy in 2012 when home price take off again?


Aug 8, 2018, 1:48 am Reply

Great video. Consider buying down the interest rate with discount points. This would lower the amount paid towards interest. Also, we should look at how this fares in the long-term and when you would end up being net positive compared to renting.

Chandan Gr

Sep 9, 2018, 2:42 pm Reply

But in own house, I can live there for say, 30 years and sell the house and get most of the money but in rent house after 30 years it's like spending 3k*12*30 $

Francis Osuna

Sep 9, 2018, 3:27 pm Reply

All due respect, this video is highly misleading for you really can't simplify like this.
e.g. If you only have $250K in your savings account, no bank will lend you money to buy a $1MM house. Even you have a steady job, you can't afford it to run the household… for there is a property tax, etc.

e.g. Depending upon which State you live but if you have many Mainland Chinese sent by Chinese Communist Party (CCP), moving into your area and buying up properties, and if you happen to rent a place from them, they will raise a rent over 10-20% each year.

e.g. This video is made in 2008 but if you waited until 2009 or later, interest rate is down to 3-4%… ; D
So, one has to consider the trend of interest rate; by 2008, we knew that the rate was going down. So, why not wait?

Test Account

Oct 10, 2018, 4:24 am Reply

What about your rental passive income and total expenses / levies etc of property


Oct 10, 2018, 5:31 pm Reply

Love seeing this 10 year old video. I live just east of the bay area. I rent a home for $2600 but purchasing it would be at least $700k. And considering no one has 20% down paying PMI would easily make the house around 3 times what I pay in rent.

Brandon C

Oct 10, 2018, 6:29 pm Reply

I'm not sure the rent vs mortgage monthly cost that he presents here is very accurate in most cities. Living in Dallas I can tell you that my monthly mortgage payment is approximately 35% less than rent for the same place would cost. So whether renting makes any sense at all varies wildly by the market you happen to be in. Also, most people don't efficiently invest money they have on hand. They just let it sit. It is possible you can end up better off by renting, but that is pretty rare.

Shadi Herz

Oct 10, 2018, 3:05 am Reply

Renting a house that’s worth 1 million for 3k a month? You said identical houses. Clearly one is cheaper.

Bill Goody

Nov 11, 2018, 5:15 am Reply

Is no one going to mention the interest payments are a tax write off? so basically if you have income coming in, the interest is free. HELLO??

Bounty hunter

Nov 11, 2018, 6:23 pm Reply

But where is jobs? Google devloped AI but now ppls are jobless

Jonathan Johnson

Nov 11, 2018, 12:34 am Reply

Sal, you’re my man but these economics are on a $1mil property, also assuming the person has $250k liquid, both extremely unlikely

Nicolas Martinez

Dec 12, 2018, 8:08 am Reply

You'd actually pay $868,785.67 EXTRA in interest on top of the $750,000 loan. Also if you'd have not taken the loan and instead invested that $250,000 in the market averaging 7% it would be $2,029,124.37 at the end of 30 years.


Dec 12, 2018, 7:30 am Reply


Gabriele Bonetti

Dec 12, 2018, 3:49 pm Reply

The assumption of making 4% average a year through investment (after taxes) is unrealistic to me.


Jan 1, 2019, 4:48 pm Reply

People, plz realize that this video is from 2008. This information may not be reliable in this day and age.

kahday faqeer

Feb 2, 2019, 1:35 pm Reply

What if you cant earn anymore to pay rent and you dont have a house as well to live?

Jack Russel

Feb 2, 2019, 11:40 pm Reply

A bank give you 4% interest???? No way

otabek akbarov

Feb 2, 2019, 10:03 pm Reply

Yeah but then you own a house, after you pay off your mortgage and property value usually goes up. Meaning now you have to pay more property tax but you now have asset that you can sell.

Anthony Tonev

Feb 2, 2019, 1:52 pm Reply

He uses the calculator only to make you feel comfortable. Doesn't need it 😉


Mar 3, 2019, 1:39 pm Reply

It's like making an argument that leasing a car is better than buying one. There's no free lunch. The expenses of owning a building + profit is factored into your rent.

Terri Gordi

Mar 3, 2019, 8:36 am Reply

What….lost me at tax deductible. You can deduct interest payment on mortgage in The States. I am in Canada in 2019.

Mr. Dontplay

Apr 4, 2019, 8:11 pm Reply

Khan, should you buy now???? Today as of April 9, 2019

Christian Perez

Apr 4, 2019, 3:57 pm Reply

You are ommiting the asset value of the property itself.

Jovan James

Apr 4, 2019, 1:49 am Reply

Only issue here is that most ppl who rent usually don’t have 100k sitting in the bank. Neither do they invest. Most people live paycheck to paycheck. So buying wins.

Ricardo Delafuente

Jun 6, 2019, 9:29 pm Reply

4% on a CD. WHERE LOL

david easson

Jun 6, 2019, 1:07 am Reply

I like your videos but this is poorly thought out. Use a repayment mortgage and assume you have been paying it down for 10 years and see what happens. See how high your rent goes up after 10 years and how fast your repayments come down. Also, saying that the property prices crashing supports your theory is wrong, because as a result of the property prices crashing the interest rates dropped to their lowest in history so if you were on a tracked your mortgage repayments would have reduced drastically. This is a short term, live for today mentality.

Boss likea

Jul 7, 2019, 12:08 pm Reply

Why is no one mentioning the most CRUCIAL point?!
He is comparing a TOTAL interest payment of $45k to a $36k YEARLY cost. If you look at a time horizon longer than a year, his points make no sense.
Additionally, he’s deducting $10k from the rent saying it’s interest he makes on having $250k in the bank, but he’s not taking into account that every month that $250k is decreasing by the $3k rent in addition to living expenses, so even if he were to get 4% interest, it would by no means amount to $10k

Ben Schembri

Jul 7, 2019, 1:30 am Reply

Weird to compare 3k rent to 1MM house, this would be a better "apples to apples" with 5k rent to 1MM house.

Vivian Valdi

Jul 7, 2019, 7:31 pm Reply

Helps understanding the calculation basics but strange u get into this if, as u say : « I don't know what a good rate is… 6% ? » @ 4:42. I guess it's an understatement, but 6% seems a lot on such credit… Today u can find under 3,8% for 750K . So, the course is alright, but people's conclusion might differ given today's numbers.

sky dragon

Jul 7, 2019, 12:56 am Reply

ok so if it's better to rent then how to people who let you rent their property make profit?

Alexander Sol

Jul 7, 2019, 1:43 pm Reply

Hi Sal.
Let me preface by saying you are a Hero.
I know you must be super busy making this world a better place, and probably won't have the time to read this. But maybe someone on your team at Khan Academy gets to read this comment (or at least a confused viewer).
Given the kind of importance this video carries (and the consequences it can have), I think the video should be edited, or at least have a direct link to your next video:


I know this video was made in 2008, and you are obviously very passionate about this topic (maybe because of having to explain it so often), but PLEASE don't let this particular video be a deterrent to people; people who might not have seen the great things Khan Academy has to offer.
PLEASE, make sure it is not misleading. Be 100% objective (as you typically are), and use your typical disclaimers, or even better, make another video. I think it is worth the time. After all, as you said at the beginning of this video, "this is probably the most important one".

Thanks for all your great work.


Stacey Robinson

Aug 8, 2019, 9:00 pm Reply

he says the mortgage on an identical $1m home is $4k but claims the rent would be $3k is lying…no reputable landlord is going to accept $1k/mo less than the mortgage as rent…and not factor in the taxes AND not make a profit….a $1m house with 250k down payment is $4543/mo which means you'd rent it for $5k IF LUCKY which is $60k/yr in rent…almost double compared to his numbers. Buying is still better.

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