EP262: The Lie About Buying

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Imagine making more money renting your home than owning it—sounds crazy, right? But we’ve done it for 10+ years, building a 9-figure real estate portfolio and growing my net worth 10X in less than six years. Should you do the same?

Many people believe that buying a home is the ultimate financial goal, we also thought so. But what if renting could be more lucrative? In this video, we’ll share three compelling reasons why investing in multifamily apartment syndication can be smarter than owning a home.

Jumping into point one brings back memories of the struggles with timeshares. For the younger crowd, you might not be familiar with these. A timeshare is a vacation property where multiple people share ownership or usage rights. Each owner gets a specific period, usually a week, to use the property.

You’re sold on the dream of having a home in an exotic locale whenever you want, at a fraction of the cost. But reality hits hard with hefty annual fees, rigid booking schedules, and a resale market that’s more flooded than a sinking ship. It’s an “investment” that can leave you more stressed than relaxed—and probably harder to escape than cheating death itself.

And this leads us to Reason NO. 1: why renting might be a wiser financial choice than owning a home.  Similar issues that plague timeshares also apply to homeownership.

Reason NO. 1 – Financial Flexibility and Opportunity Cost

First, renting provides unparalleled financial flexibility. When you rent, you avoid the hefty down payment and ongoing maintenance costs associated with homeownership. Let’s break this down with an example. Imagine you have $100,000 set aside for a down payment on a house. Instead of locking that money into a home, you could invest it in real estate properties that offer higher returns.

Consider a scenario where you invest that $100,000 in a multifamily apartment property, for us, the Kitti Sisters, think 65 units and above. With a reasonable annual return of 8%, you’d be making $8,000 per year just from this investment. Over 10 years, this investment could grow significantly, especially if you reinvest your earnings. In contrast, that same $100,000 used as a down payment would not generate any returns and would be tied up in your home’s equity.

Moreover, renting allows you to avoid the ongoing costs of homeownership. Home maintenance, repairs, and property taxes can add up quickly. On average, homeowners spend 1-3% of their home’s value annually on maintenance. For a $500,000 home, that’s $5,000 to $15,000 per year. As a renter, you don’t have to worry about these costs, freeing up more money for investment opportunities.

Now, let’s talk about the current housing market. The US is experiencing the largest home buying vs. renting affordability gap in history. 

According to a report from Realtor.com, in 2023, the monthly cost of buying a home is 52% higher than renting. This gap is primarily driven by rising home prices and increasing mortgage rates. For instance, the median home price in the US has surged to over $400,000, while mortgage rates have climbed above 6%, making homeownership increasingly expensive.

In contrast, rental prices, although rising, have not kept pace with the costs of buying a home. The average national rent for a two-bedroom apartment is around $1,900 per month, significantly lower than the monthly mortgage payments, property taxes, and maintenance costs for a similarly priced home. 

This affordability gap underscores the financial advantages of renting, allowing you to allocate more funds to lucrative investments rather than being bogged down by homeownership costs.

Reason NO. 2 – The Myth of Equity

It’s like stir-frying vegetables. You toss a mountain of leafy greens into the wok, only to end up with a tiny portion of what you started with. Similarly, the myth of equity can wither away faster than you’d expect, leaving you with much less than you hoped for.

So, what’s the myth of building equity through homeownership? While it’s true that homeowners build equity over time, the reality of mortgage interest and “phantom costs” often diminishes the actual gain. 

For the first 20 years of a 30-year mortgage, the majority of your payments go towards interest rather than the principal. This means you are essentially paying rent to the bank in the form of interest.  

Let’s break this down with an example. Imagine you have a $180,000 loan with a 4.5% annual interest rate. 

Your monthly mortgage payments cover not only the loan balance but also other expenses like taxes and insurance. Over the life of the loan, you would pay:

Principal: $180,000 

Interest: $148,332.08

Taxes: $93,750

Insurance: $39,240

In total, you’d end up paying $461,322.08.

Additionally, there are “phantom costs” to consider, such as closing fees, private mortgage insurance (PMI), and, for some, homeowners association (HOA) fees.

These costs can significantly eat into the equity you think you’re building. In contrast, renting avoids these hidden costs, allowing you to invest more efficiently. By investing in rental properties or other real estate ventures, you can gain immediate returns without the burden of these additional expenses.

Reason NO. 3 – Lifestyle and Investment Freedom

Finally, renting offers lifestyle and investment freedom that homeownership cannot. As a renter, you can easily relocate for better job opportunities or lifestyle preferences without the hassle of selling a home. This mobility is crucial in today’s dynamic job market where opportunities may require you to move across the country or even abroad.

Let’s talk about investment freedom, particularly the benefits of investing in apartment syndication as a passive investor. When you invest in apartment syndication, you benefit from several advantages:

Passivity

As a passive investor, you don’t need to manage the property yourself. Professional property management teams handle day-to-day operations, maintenance, and tenant relations, allowing you to enjoy the financial benefits without the hassles of active management.

No Personal Guarantee

Unlike single-family home investments, where you might need to personally guarantee the mortgage, multifamily investments often do not require personal guarantees. This reduces your personal financial risk.

Efficiency in Large Complexes

Multifamily properties, especially larger complexes, are more efficient. If one tenant doesn’t pay rent, the impact on your overall cash flow is minimal compared to a single-family home where one missed payment can be significant. The risk is spread across multiple units, providing more stable and predictable income.

More Exit Strategies

Multifamily properties offer multiple exit strategies. You can sell to institutional investors, or individual investors, or even convert the property to condominiums. This flexibility attracts a broader pool of potential buyers, enhancing your ability to liquidate your investment when needed.

Scalability: Multifamily investments allow you to scale your real estate portfolio more effectively. Instead of buying 10 single-family homes, you can purchase a 100-unit apartment building, simplifying management and increasing your potential returns.

In addition, multifamily properties often appreciate faster than single-family homes due to their income-generating potential and demand from both individual and institutional investors. By investing in multifamily apartment syndication, you can achieve higher returns, greater stability, and enhanced flexibility.

Moreover, renting can provide a higher quality of life. You can live in a desirable location that you might not be able to afford to buy in. You can also avoid the stress and time commitment of home maintenance, allowing you to focus on growing your investments and enjoying your life.

To sum up, while owning a home is often seen as a financial milestone, renting can be a smarter, more flexible strategy. When combined with smart real estate investments, it can help create passive income.

By avoiding the hidden costs of homeownership, freeing up capital for investments, and maintaining lifestyle flexibility, you can build greater wealth and financial security. So next time you consider buying a house, remember: sometimes, renting can be the more profitable path.

Now if you want the fastest path to 2X your wealth, go watch this video and learn the 10 FAQs about multifamily apartment syndication.