Felix Sets 5% Rule on Home Costs to Debunk Rent-Versus-Mortgage Math

Ben Felix

Homeowners incur roughly 5% of property value each year in unrecoverable taxes, maintenance, and capital costs, making renting mathematically superior whenever monthly rent falls below that annual total divided by 12.

AI-assisted summary of Renting vs. Buying a Home: The 5% Rule — original source. Check the original for full context.

Source published: 2019-05-11

Key ideas

Comparing monthly mortgage payments directly to rent is fundamentally flawed because mortgage payments build equity while rent is purely an unrecoverable operational expense. (0:00)
Homeownership incurs an estimated 5% annual unrecoverable cost consisting of property taxes (1%), maintenance (1%), and cost of capital (3%). (1:28)
Under the 5% Rule, renting is mathematically preferable if equivalent housing can be rented for less than the purchase price multiplied by 5% and divided by 12. (6:13)
The benchmark adjusts downward to 4% for conservative investors or those investing in taxable accounts, as lower expected investment returns reduce the opportunity cost of equity. (7:33)

Detailed notes

## Background Published by portfolio manager Ben Felix on YouTube on May 11, 2019, this video addresses the flawed intuition of comparing monthly mortgage payments directly to rent. The video description explains that a sound housing decision requires evaluating total unrecoverable costs, offering a simplified calculation originally framed for a Canadian audience.

## TL;DR Ben Felix argues that comparing a mortgage payment to monthly rent is fundamentally flawed because it ignores the unrecoverable operational and capital costs of homeownership. He establishes the '5% Rule,' which breaks down annual unrecoverable home costs into roughly 1% for property taxes, 1% for maintenance, and 3% for the cost of capital, reflecting both mortgage interest and the opportunity cost of forgone global stock returns. Multiplying a home's purchase price by 5% and dividing by 12 provides a clean monthly threshold where renting a comparable home becomes mathematically advantageous. The benchmark can also be adjusted down to approximately 4% for individuals in higher tax brackets or those maintaining conservative, bond-heavy portfolios.

## Atmosphere & style The presentation is calm, analytical, and intensely methodical, devoid of emotional real estate salesmanship. Felix speaks with deliberate, authoritative clarity, relying on historical market data and clean balance-sheet logic to unpack a topic often clouded by cultural assumptions. The experience feels like a grounded, academic consultation with a financial advisor who systematically replaces gut instinct with disciplined mathematical modeling.

## Bulletin - [00:00](https://www.youtube.com/watch?v=Uwl3-jBNEd4&t=0s) Comparing monthly mortgage payments directly to rent is fundamentally flawed because mortgage payments build equity while rent is purely an unrecoverable operational expense. - [01:28](https://www.youtube.com/watch?v=Uwl3-jBNEd4&t=88s) Homeownership incurs an estimated 5% annual unrecoverable cost consisting of property taxes (1%), maintenance (1%), and cost of capital (3%). - [06:13](https://www.youtube.com/watch?v=Uwl3-jBNEd4&t=373s) Under the 5% Rule, renting is mathematically preferable if equivalent housing can be rented for less than the purchase price multiplied by 5% and divided by 12. - [07:33](https://www.youtube.com/watch?v=Uwl3-jBNEd4&t=453s) The benchmark adjusts downward to 4% for conservative investors or those investing in taxable accounts, as lower expected investment returns reduce the opportunity cost of equity.

## Key takeaways - [00:00](https://www.youtube.com/watch?v=Uwl3-jBNEd4&t=0s) Evaluating rent versus buying requires comparing the total unrecoverable costs of both options rather than mortgage payments to rent. - [00:00](https://www.youtube.com/watch?v=Uwl3-jBNEd4&t=0s) An unrecoverable cost is capital spent that delivers zero residual equity or financial value to the spender. - [01:28](https://www.youtube.com/watch?v=Uwl3-jBNEd4&t=88s) Property taxes represent a pure unrecoverable fee averaging roughly 1% of a home's market value annually. - [01:28](https://www.youtube.com/watch?v=Uwl3-jBNEd4&t=88s) Ongoing home maintenance reliably costs approximately 1% of a home's asset value each year across routine fixes and major capital repairs. - [01:28](https://www.youtube.com/watch?v=Uwl3-jBNEd4&t=88s) The cost of capital covers both borrowed debt (mortgage interest) and equity capital committed as a down payment. - [01:28](https://www.youtube.com/watch?v=Uwl3-jBNEd4&t=88s) Mortgage debt interest averaged approximately 3% in prevailing market conditions, representing an unrecoverable financing cost. - [03:06](https://www.youtube.com/watch?v=Uwl3-jBNEd4&t=186s) Down payment equity carries an economic opportunity cost equivalent to the expected return premium of equities over real estate. - [03:06](https://www.youtube.com/watch?v=Uwl3-jBNEd4&t=186s) Historical data from 1900 to 2017 shows global real estate returned 1.3% real compared to 5.2% real for equities. - [03:06](https://www.youtube.com/watch?v=Uwl3-jBNEd4&t=186s) Recent regional real estate surges cannot be projected to continue indefinitely because markets price assets based on forward expectations. - [03:06](https://www.youtube.com/watch?v=Uwl3-jBNEd4&t=186s) PWL Capital models a forward nominal equity return of 6.57%, establishing a conservative 3% opportunity cost premium over real estate. - [06:13](https://www.youtube.com/watch?v=Uwl3-jBNEd4&t=373s) Because both the cost of debt and the cost of equity equal approximately 3%, the cost of capital totals 3% regardless of leverage. - [06:13](https://www.youtube.com/watch?v=Uwl3-jBNEd4&t=373s) Summing 1% property tax, 1% maintenance, and 3% cost of capital produces the 5% annual unrecoverable cost of homeownership. - [06:13](https://www.youtube.com/watch?v=Uwl3-jBNEd4&t=373s) A $500,000 property incurs roughly $2,083 per month in unrecoverable costs, making renting below that amount a financially sound alternative. - [06:13](https://www.youtube.com/watch?v=Uwl3-jBNEd4&t=373s) A $3,000 monthly rent payment is financially equivalent to the unrecoverable carrying costs of owning a $720,000 home. - [07:33](https://www.youtube.com/watch?v=Uwl3-jBNEd4&t=453s) Taxable investment accounts reduce after-tax expected equity returns, effectively lowering the equity opportunity cost of buying a home. - [07:33](https://www.youtube.com/watch?v=Uwl3-jBNEd4&t=453s) Investors with conservative asset allocations or taxable portfolios should adjust the benchmark downward to a 4% rule.

## Detailed walkthrough ### [00:00](https://www.youtube.com/watch?v=Uwl3-jBNEd4&t=0s) The Flawed Comparison of Rent vs. Mortgage

Portfolio manager Ben Felix begins by tackling a deeply ingrained real estate assumption: the belief that if someone can buy a house and pay a monthly mortgage that matches or undercuts their monthly rent, purchasing the property is automatically a smart financial choice. Felix rejects this intuition outright, insisting that this framework blinds prospective buyers to reality. A mortgage payment blends distinct financial mechanisms—repaying principal while servicing debt—whereas rent is a pure operational expense. Attempting to match these two numbers on a napkin is fundamentally comparing apples to oranges.

Instead, Felix argues that a sound financial evaluation requires comparing only the true "unrecoverable costs" of renting against the unrecoverable costs of owning. An unrecoverable cost represents money spent with zero residual value returned to the spender. For renters, identifying this unrecoverable cost is straightforward: it is simply the full amount paid in monthly rent. Homeowners, however, face unrecoverable costs that are far more concealed beneath monthly principal paydowns.

As Ben Felix puts it bluntly: > “Comparing a mortgage payment to rent is not an apples to apples comparison.”

[01:28](https://www.youtube.com/watch?v=Uwl3-jBNEd4&t=88s) Deconstructing Homeownership's Unrecoverable Costs

To evaluate the true ongoing drag of homeownership, Felix categorizes ownership costs into three core pillars: property taxes, maintenance, and the cost of capital. Property taxes represent a direct fee paid to local governments simply for owning the land and structure, carrying no residual equity whatsoever. As a baseline guideline, property taxes reliably average roughly 1% of the property's total market value each year, serving as the first constituent of his framework.

The second component is ongoing maintenance. Felix acknowledges that tracking maintenance expenses is notoriously difficult because reliable macroeconomic data is sparse, and the costs range from massive, lumpy capital outlays like replacing a roof or gut-renovating a kitchen down to small routine expenses like re-caulking a bathroom bathtub. Nevertheless, broad industry consensus sets long-term average maintenance reserves at 1% of the property's value annually.

Finally, Felix introduces the third and most consequential component: the cost of capital. This cost must be separated into debt capital and equity capital. If a buyer puts 20% down on a home purchase and finances the remaining 80% through a conventional mortgage, the borrowed debt accumulates explicit interest expenses. Observing market rates available online in April 2019, Felix identifies mortgage interest rates floating just above and below 3%, setting 3% as a reasonable unrecoverable debt financing cost.

```mermaid flowchart TD accTitle: The 5% Rule Cost Breakdown accDescr: Three unrecoverable costs of homeownership summing to five percent of property value.

subgraph OwnershipCosts["Homeownership Unrecoverable Costs (5% Total)"] PT["Property Taxes: 1%"] MC["Maintenance Costs: 1%"] subgraph Capital["Cost of Capital: 3%"] Debt["Cost of Debt (Mortgage Interest) ~3%"] Equity["Cost of Equity (Opportunity Cost) ~3%"] end end

PT --> Total["5% Total Unrecoverable Annual Cost"] MC --> Total Capital --> Total ```

[03:06](https://www.youtube.com/watch?v=Uwl3-jBNEd4&t=186s) The Cost of Equity and Long-Term Market Returns

While property taxes, maintenance, and debt interest are relatively intuitive, Felix emphasizes that the cost of equity capital is far less obvious to buyers. When an individual commits 20% cash down on a property, they forgo the opportunity to leave that capital compounded in global equities. This forgone return is not hypothetical; it represents a genuine economic opportunity cost. Estimating this opportunity cost requires establishing realistic, long-term expected returns for both real estate and equities.

Drawing on historical figures from *The Credit Suisse Global Investment Returns Yearbook 2018*, which tracks asset classes dating back to 1900, Felix notes that global real estate delivered an annualized real return (net of inflation) of 1.3% from 1900 through 2017, compared to 5.2% real for equities. Assuming a baseline inflation rate of 1.7%, nominal expected returns shake out to 3.0% for real estate and 6.9% for equities. Felix addresses common objections from Canadian viewers who argue that Ontario housing returns easily hit 5% to 10% annually:

> “We can't assume that high recent historical returns like we've had Canada will persist forever.”

Markets set asset prices according to current information; no seller would accept $500,000 today if they knew with certainty that a buyer could pocket $550,000 one year later. Historical global stock figures already incorporate catastrophic disruptions, such as the total wipeout of Russian and Chinese equity markets and the destruction of two World Wars. Rather than relying on simple past averages, PWL Capital models future stock returns by blending 50-year trailing returns with current cyclically adjusted valuations based on price-to-earnings ratios. Given elevated market valuations in 2019, PWL projects a forward nominal equity return of 6.57%.

- Real estate global real return (1900–2017): 1.3% (3.0% nominal at 1.7% inflation). - Global equity historical real return (1900–2017): 5.2% (6.9% nominal at 1.7% inflation). - PWL Capital forward nominal return projection for 100% equities: 6.57%. - Net difference in expected return (equity opportunity cost over real estate): 3.57%, rounded conservatively down to 3.0%.

[06:13](https://www.youtube.com/watch?v=Uwl3-jBNEd4&t=373s) The 5% Rule Mechanics and Practical Examples

Because the conservative 3% cost of equity capital mirrors the prevailing 3% cost of debt capital, the homeowner's total cost of capital comes out to 3% regardless of the exact leverage or down payment ratio used. Combining this 3% cost of capital with 1% for property taxes and 1% for ongoing property maintenance produces the overarching 5% Rule: a homeowner reliably pays approximately 5% of their home's total asset value every year in purely unrecoverable expenses.

To apply this rule in daily life, prospective movers can perform a quick two-way calculation: 1. **Evaluating a purchase:** Take the purchase price of the home, multiply it by 5%, and divide the result by 12. If comparable rental housing costs less per month than this calculated threshold, renting is the mathematically superior choice. For a $500,000 home, the annual unrecoverable cost is $25,000, which equals $2,083 per month. 2. **Evaluating a rental:** Take the monthly rental rate, multiply by 12, and divide by 5% (0.05). A $3,000 per month lease implies an annual cost of $36,000. Dividing by 0.05 reveals that renting at $3,000 per month is financially equivalent to shouldering the unrecoverable costs of owning a $720,000 home.

As Felix summarizes the decision boundary: > “Take the value of the home that you were considering, multiplied by 5% and divide by 12. If you can rent for less than that then renting is a sensible financial decision.”

[07:33](https://www.youtube.com/watch?v=Uwl3-jBNEd4&t=453s) Nuances: Taxes, Asset Allocation, and the 4% Adjustment

Felix acknowledges that the standard 5% rule is necessarily an oversimplification. The equity opportunity cost hinges directly on tax shelters and risk tolerance. The baseline 6.57% expected equity return represents a pre-tax figure, which holds true inside registered tax-advantaged accounts such as a Canadian RRSP (Registered Retirement Savings Plan) or TFSA (Tax-Free Savings Account). However, for an investor subject to Ontario's top marginal tax bracket in 2019 investing in a taxable account, after-tax equity returns compress down toward roughly 4.6%.

Likewise, if an investor maintains a balanced or conservative portfolio containing bonds rather than a 100% equity allocation, the expected portfolio return falls, which shrinks the gap between real estate appreciation and alternative investment returns. When the opportunity cost of equity declines, the overall unrecoverable cost of homeownership drops along with it.

Felix highlights this counter-intuitive dynamic clearly: > “The cost of owning a home decreases if you have maxed out your registered accounts or if you can't handle the volatility of an aggressive portfolio.”

Consequently, while aggressive stock investors who have unused contribution room in their RRSP and TFSA should benchmark against the full 5% rule, taxable investors or those holding conservative portfolios should dial the ownership cost estimate downward to roughly 4%. Either way, framing the dilemma around true unrecoverable drag transforms an emotionally clouded housing decision into a disciplined, apples-to-apples comparison.

[10:04](https://www.youtube.com/watch?v=Uwl3-jBNEd4&t=604s) Outro and The Rational Reminder Podcast

Wrapping up the discussion, Ben Felix points viewers toward additional content if they have reached the end of his YouTube catalog. He invites the audience to seek out his other long-form audio discussions if they want to continue exploring evidence-based personal finance and investing concepts.

Ben Felix concludes the video with a direct invitation: “If you've run out of 'Common Sense Investing' videos to watch, you can tune into weekly episodes of The 'Rational Reminder' podcast wherever you get your podcasts.” The video then fades out to upbeat background music.

## Notable quotes > [06:13](https://www.youtube.com/watch?v=Uwl3-jBNEd4&t=373s) Take the value of the home that you were considering, multiplied by 5% and divide by 12. If you can rent for less than that then renting is a sensible financial decision. — Ben Felix

> [00:00](https://www.youtube.com/watch?v=Uwl3-jBNEd4&t=0s) Comparing a mortgage payment to rent is not an apples to apples comparison. — Ben Felix

> [07:33](https://www.youtube.com/watch?v=Uwl3-jBNEd4&t=453s) The cost of owning a home decreases if you have maxed out your registered accounts or if you can't handle the volatility of an aggressive portfolio. — Ben Felix

## Mentioned Ben Felix, PWL Capital, The Credit Suisse Global Investment Returns Yearbook 2018, RRSP, TFSA, The Rational Reminder podcast, Common Sense Investing

## Video description Meet with PWL Capital: https://calendly.com/d/3vm-t2j-h3p

Please note that while this content is broadly applicable, it was originally intended for a Canadian audience.

You can't compare rent to a mortgage payment. This way of thinking about the rent versus buy decision is extremely flawed. Comparing a mortgage payment to rent is not an apples to apples comparison. In order to properly assess the rent versus buy decision, we need to compare the total *unrecoverable costs* of renting to the total unrecoverable costs of owning.

That may sound like a complicated task, but I have boiled it down to a simple calculation.

Referenced in this video: The Case for Renting a Home – Part 1 - https://www.pwlcapital.com/the-case-for-renting-a-home-part-1/ The Case for Renting a Home – Part 2 - https://www.pwlcapital.com/the-case-for-renting-a-home-part-2/ The Case for Renting - https://www.pwlcapital.com/resources/the-case-for-renting/ The Credit Suisse Global Investment Returns Yearbook 2018 - https://www.credit-suisse.com/media/assets/corporate/docs/about-us/media/media-release/2018/02/giry-summary-2018.pdf

Read up on more investing advice, insights and white papers here. https://www.pwlcapital.com/teams/passmore-felix/?utm_source=youtube&utm_medium=copy&utm_campaign=ben2019&utm_content=5percent

------------------ Follow Ben Felix on - Twitter: https://twitter.com/benjaminwfelix - LinkedIn: https://www.linkedin.com/in/benjaminwfelix/

PWL Capital Blog Post: https://www.pwlcapital.com/rent-or-own-your-home-5-rule/

Follow PWL Capital on: - Twitter: https://twitter.com/PWLCapital - Facebook: https://www.facebook.com/PWLCapital - LinkedIn: https://www.linkedin.com/company/pwl-capital/

You can find the Rational Reminder podcast on Google Podcasts: https://www.google.com/podcasts?feed=aHR0cHM6Ly9yYXRpb25hbHJlbWluZGVyLmxpYnN5bi5jb20vcnNz Apple Podcasts: https://itunes.apple.com/ca/podcast/the-rational-reminder-podcast/id1426530582?mt=2 Spotify Podcasts: https://open.spotify.com/show/6RHWTH9iW7hdnA7eAg7ukO?si=hjZNfLKuSjSeWX38GPqhVA ------------------

[Source](https://www.youtube.com/watch?v=Uwl3-jBNEd4)

中文简报

菲利克斯提出5%房产成本法则，打破买房与租房算术误区房主每年在不可收回的税费、维护和资本成本上支出约相当于房产价值的5%，只要月租金低于该年度总成本除以12，租房在数学上就更具优势。本·菲利克斯认为，将房贷月供与月租金直接比较存在根本性缺陷，因为这种做法忽视了购房所涉及的不可收回运营及资本成本。他提出了“5%法则”，将每年的不可收回住房成本细分为约1%的房产税、1%的维护费用以及3%的资本成本，后者反映了房贷利息以及放弃全球股票收益的机会成本。将房屋总价乘以5%再除以12，即可得出一个明确的月度门槛，低于该门槛时，租住同等条件的房屋在数学上就更划算。对于高税率人群或持有偏向债券的保守型投资组合者，该基准还可下调至约4%。将房贷月供与租金直接对比存在根本性缺陷，因为房贷支付积累了资产净值，而租金纯属不可收回的运营开支。 (0:00) 购房每年会产生约占房产价值5%的不可收回成本，其中包括房产税（1%）、维护费（1%）和资本成本（3%）。 (1:28) 根据5%法则，如果租下同等住房的花费低于房屋售价乘以5%并除以12的金额，那么在数学上租房更为有利。 (6:13) 对于保守型投资者或在应税账户中投资的人士，该基准可下调至4%，因为较低的预期投资回报降低了权益资本的机会成本。 (7:33)

Reading summary

Portfolio manager Ben Felix argues that comparing rent directly to a mortgage payment is fundamentally flawed, proposing instead the '5% Rule' to measure the true unrecoverable costs of homeownership against renting. The Flawed Comparison of Rent and Mortgages (0:00) Felix rejects the conventional belief that buying a home is automatically superior whenever a monthly mortgage payment equals or is lower than rent. A mortgage payment conflates principal repayment—which builds equity—with debt servicing, whereas rent represents a purely operational, unrecoverable expense. To make a sound financial decision, an individual must compare only the unrecoverable costs of renting (the monthly rent paid) against the unrecoverable costs of owning. Deconstructing Ownership Costs and Capital Drag (1:28) Felix outlines three components that make up the unrecoverable costs of homeownership: property taxes, maintenance, and the cost of capital. Property taxes average roughly 1% of the property value annually, and long-term maintenance accounts for another estimated 1%, covering everything from routine repairs to major capital replacements. The remaining 3% reflects the cost of capital, combining mortgage debt interest (approximately 3% in April 2019) and the opportunity cost of equity. The Cost of Equity and Expected Market Returns (3:06) Committing equity to a property carries a substantial economic opportunity cost compared to investing in global equities. Citing historical data from The Credit Suisse Global Investment Returns Yearbook (1900–2017), Felix highlights that global real estate delivered an annualized real return of 1.3% (3.0% nominal at 1.7% inflation), while global equities delivered 5.2% real (6.9% nominal). Addressing Canadian expectations of perpetual 5% to 10% housing gains, Felix cautions against assuming past regional outperformance will persist. Factoring in elevated valuations, PWL Capital projected a forward nominal equity return of 6.57%, creating a net expected return advantage over real estate of roughly 3% after conservative rounding. Applying the 5% Rule to Buying and Renting (6:13) Because both debt financing and equity capital cost approximately 3%, homeownership generates an estimated annual unrecoverable cost of 5% regardless of leverage. Prospective movers can divide 5% of a property's purchase price by 12 to identify the break-even monthly rent; for a $500,000 home, renting a comparable property for under $2,083 per month is mathematically superior. Conversely, multiplying a $3,000 monthly rent by 12 and dividing by 0.05 shows financial parity with owning a $720,000 home. Adjustments for Taxes and Conservative Portfolios (7:33) Felix notes that the baseline 5% rule assumes equity investments are sheltered in tax-advantaged accounts like Canadian RRSPs or TFSAs. For an investor in Ontario's top marginal tax bracket investing in a taxable account, expected equity returns fall toward 4.6%. Furthermore, an investor holding a conservative portfolio with bonds faces a smaller return gap between financial markets and real estate. In taxable situations or for conservative investors with lower equity opportunity costs, Felix suggests adjusting the estimated annual cost of homeownership down to roughly 4%. While the 5% rule provides a simplified heuristic to strip out emotion from housing decisions, Felix emphasizes that the exact break-even point shifts based on an individual's tax shelter availability and risk tolerance, reducing the unrecoverable cost benchmark to 4% for more conservative or taxable investors.

精炼阅读摘要

投资组合经理 Ben Felix 提出，直接将月供与租金对照是评估买房与租房财务优劣的常见误区；科学决策应建立在对比两者不可收回成本的基础之上，并通过涵盖房产税、维护费和资本成本的“5%法则”进行定量测算。房贷对比租金的误区与不可收回成本 (0:00) Felix 指出，许多购房者误以为只要月供与当前月租相当甚至更低，买房在财务上就必然优于租房。这种直觉判断忽略了房贷与租金在金融机制上的本质区别：房贷还款同时包含本金偿还与债务利息，其中偿还本金属于资产累积而非纯粹消耗；而租金则属于纯粹的操作性运营支出。因此，将月供总额与租金直接对照，无异于将两类不可比的资金流强行对标。 Felix 强调，合理的财务评估必须严格聚焦于“不可收回成本”，即支付后无法产生任何残余资产价值的资金消耗。对于租房者而言，不可收回成本的计算十分清晰，即每月全额支付的租金；然而对于房屋拥有者来说，不可收回成本往往隐蔽在每月偿还的本金之下，容易被购房者严重低估。房屋持有成本的三大支柱分解 (1:28) 为了量化房产持有过程中的实际财务拖累，Felix 将房屋的不可收回成本拆解为三大核心支柱：房产税、维护成本与资本成本。首先是房产税，作为向地方政府支付的法定持有费用，该支出无法转化为任何房屋权益，业内基准通常将其设定为每年约占房产总市值的1%。其次是持续的房屋维护成本。Felix 承认由于缺乏宏观统计数据，且支出包含更换屋顶、翻新厨房等大额低频开支以及日常小修小补，维护费用极难精确统计，但行业广泛共识通常也将长期年均维护准备金锚定在房屋市值的1%。第三项则是最为关键的资本成本，它细分为债务资本成本与权益资本成本两部分。以两成首付、八成按揭为例，债务资本体现为房贷利息支出；参考2019年4月的市场利率环境，Felix 将不可收回的借贷利率基准设定为3%。权益机会成本与长期资产回报差距 (3:06) 相较于显性的房贷利息，买房首付所产生的权益资本成本往往被大众忽视。Felix 强调，将20%的现金锁定在房产首付款中，意味着放弃了将其投入全球股票市场复利增值的机会，这种放弃的收益代表着真实的经济机会成本。依据《瑞士信贷全球投资回报年报2018》自1900年至2017年的长期统计，剔除通胀后，全球房地产的年化实际回报率仅为1.3%，而全球股票的年化实际回报率达到5.2%。在1.7%的基准通胀假设下，两者的名义预期回报率分别为3.0%和6.9%。 Felix 反驳了部分加拿大投资者关于“安大略省房价能长期维持5%至10%年化涨幅”的乐观预期，指出近期的区域高回报不可能永远持续，资产价格已反映现有市场信息。结合周期调整市盈率与历史表现，PWL Capital 预测全股票组合的前瞻名义年化回报率为6.57%。扣除房产名义回报率3.0%后，股票相对房产的权益机会成本约为3.57%，Felix 保守将其向下取整为3.0%。 5%法则的测算机制与换算应用 (6:13) 在权益资本成本（3%）与借贷债务成本（3%）相近的假设下，无论购房者的首付比例或杠杆倍数如何，综合资本成本均稳定在3%左右。加上1%的房产税与1%的房屋维护成本，便构成了房产所有权每年约占房屋总市值5%的不可收回成本，即“5%法则”。该法则提供了清晰的双向评估工具：第一，在评估买房时，将意向房屋总价乘以5%并除以12个月，若同等品质的可选出租房月租低于此计算结果，则租房在财务上更为明智，例如一套价值50万美元的房屋，其月均不可收回成本为2083美元；第二，在评估租房时，将当前年租金总额除以5%，即可推算出其等效的购房价值门槛，例如月租3000美元折合年租金3.6万美元，对应不可收回成本等同于拥有一套72万美元的房产。税收环境与资产配置对比例的修正 (7:33) Felix 指出，标准5%法则是一种简化模型，实际应用时必须考虑税收优惠政策与投资者的风险承受能力。前述6.57%的预期股票回报率基于税前水平，主要适用于加拿大免税储蓄账户（TFSA）或注册退休储蓄计划（RRSP）等注册税收优惠账户。但在非注册的应税账户中，若按2019年安大略省最高边际税率测算，税后股票净回报率将压缩至4.6%左右。此外，若投资者的投资组合中配置了债券等防御性资产而非全股票组合，其投资预期收益率将随之下降，从而缩小股票相对房地产的回报溢价。因此，当投资者权益投资的机会成本下降时，持有房屋的机会成本也相应降低。Felix 指出，对于已经用满免税额度的应税投资者或风险偏好较低的稳健型投资者，房屋持有不可收回成本的测算基准应调低至约4%。 Felix 总结认为，“5%法则”（或经税收与风险偏好修正后的4%基准）通过剥离本金积累的干扰，将复杂的买房与租房抉择转化为纯粹不可收回成本的理性对标。不过，该法则本质上属于经验测算模型，其有效性依赖于房贷利率环境、长期权益资产溢价以及个人税收结构的假定，购房者在实践中仍需根据所处具体经济环境与资金配置渠道进行灵活调整。

Detailed notes — zh

## Background 该内容由 PWL Capital 的投资组合经理 Ben Felix 于 2019 年 5 月 11 日发布在 YouTube 频道上。视频简介指出，将房贷月供与租金直接对比是一种极其有缺陷的思维方式；要正确评估租房与买房决策，必须对比两者各自的“不可收回成本”，作者为此总结出了一套简明易懂的速算方法。 ## TL;DR Ben Felix 破除了“月供等于或低于租金就该买房”的直觉误区，提出必须从“不可收回成本”这一维度对租房与买房进行平等衡量。买房真正的不可收回成本由房产税（约 1%）、房屋日常维护成本（约 1%）以及资本成本（约 3%，涵盖房贷利息与首付放弃股市收益的机会成本）三大支柱构成，合计约占房屋总市值的 5%。通过“5%法则”，购房者可快速用房屋总价的 5% 除以 12 个月折算出对等的平衡租金，进而判断租房还是买房在财务上更为划算；对于高税率应税账户或偏保守的投资者，该比例可适度微调至 4%。 ## Atmosphere & style 整期节目展现出严谨、冷静且极具说服力的学术科普风格。Ben Felix 以标志性的条理化叙事和理性克制的语调，将复杂的金融学资产定价逻辑与超长周期历史数据拆解得深入浅出。观看体验如同置身于一场高效的个人财务私享课，没有煽动性情绪或营销话术，而是用冰冷而坚实的数据打破大众对“买房必胜”的直觉迷思，带给人一种拨云见日的清醒感。 ## Bulletin - [00:00](https://www.youtube.com/watch?v=Uwl3-jBNEd4&t=0s) 拿房贷月供对比租金是严重的认知误区，理性的租买决策应基于对比双方的“不可收回成本”，租金属于纯损耗，而房贷月供中的本金偿还本质上是强制储蓄并积累房屋净值。 - [01:38](https://www.youtube.com/watch?v=Uwl3-jBNEd4&t=98s) 买房的不可收回成本由房产税（约1%）、房屋维护保养（约1%）及资本成本（约3%）构成，三者合计构成年均占房产总市值 5% 的持有成本基准。 - [03:06](https://www.youtube.com/watch?v=Uwl3-jBNEd4&t=186s) 权益资本成本源于首付款放弃投入股市的机会成本；历史与前瞻测算显示全球股票长期预期名义年化回报（约6.57%）较房地产（约3.0%）高出逾3个百分点。 - [06:33](https://www.youtube.com/watch?v=Uwl3-jBNEd4&t=393s) 应用“5%法则”可直接换算：房屋总价乘 5% 除以 12 即为同等租金门槛（如50万美元房产对应月租2,083美元），若实际租金低于此值则租房在财务上更优。 - [06:33](https://www.youtube.com/watch?v=Uwl3-jBNEd4&t=393s) 在应税账户投资或配置保守股债组合时，股票预期税后超额收益被压缩，买房的不可收回成本测算基准可合理下调至 4%。 ## Key takeaways - [00:00](https://www.youtube.com/watch?v=Uwl3-jBNEd4&t=0s) 对比房贷月供与租金并非对等维度的比较，评估租买选择的核心在于对比双方的“不可收回成本”。 - [00:00](https://www.youtube.com/watch?v=Uwl3-jBNEd4&t=0s) 租房的不可收回成本为全部租金支出；房贷月供则包含本金积累与利息损耗，不能将月供等同于不可收回成本。 - [01:38](https://www.youtube.com/watch?v=Uwl3-jBNEd4&t=98s) 持有房产的不可收回成本由房产税、维护成本与资本成本三大支柱构成。 - [01:38](https://www.youtube.com/watch?v=Uwl3-jBNEd4&t=98s) 房产税每年约占房屋总市值的 1%，支出后不产生任何权益残值回报。 - [01:38](https://www.youtube.com/watch?v=Uwl3-jBNEd4&t=98s) 房屋维护成本涵盖翻新屋顶等大修与琐碎小补，行业通行的年均经验基准为房屋价值的 1%。 - [01:38](https://www.youtube.com/watch?v=Uwl3-jBNEd4&t=98s) 资本成本分为房贷债务利息成本与首付款的权益机会成本，两者在当前市场环境中均可近似按 3% 估算。 - [03:06](https://www.youtube.com/watch?v=Uwl3-jBNEd4&t=186s) 首付款投入房产意味着放弃了投资股票市场的潜在收益，这一机会成本是房主必须承担的真实经济代价。 - [03:06](https://www.youtube.com/watch?v=Uwl3-jBNEd4&t=186s) 根据瑞信 1900 至 2017 年超长周期数据，扣除通胀后全球股票的实际年化回报率（5.2%）显著高于全球房地产（1.3%）。 - [03:06](https://www.youtube.com/watch?v=Uwl3-jBNEd4&t=186s) 不能以过去局部房产市场的短期暴涨来线性外推未来收益，资产定价已充分反映公开信息与长期风险溢价。 - [03:06](https://www.youtube.com/watch?v=Uwl3-jBNEd4&t=186s) PWL Capital 结合高估值动态调低前瞻预期，设定全球股票名义预期回报率为 6.57%、房产为 3.0%，差额约为 3%。 - [06:33](https://www.youtube.com/watch?v=Uwl3-jBNEd4&t=393s) “5%法则”计算公式：房屋总价乘以 5% 再除以 12，若市场上同等条件的月租金低于该金额，则租房在财务上更明智。 - [06:33](https://www.youtube.com/watch?v=Uwl3-jBNEd4&t=393s) 反向换算表明，每月支付 3,000 美元的租金，在财务纯损耗层面上等同于持有一套价值 720,000 美元的房产。 - [06:33](https://www.youtube.com/watch?v=Uwl3-jBNEd4&t=393s) 当投资者在应税账户投资导致收益受边际税率削减，或采取稳健防御资产配置时，资本机会成本下降，评判标准可微调至 4%。 ## Detailed walkthrough ### [00:00](https://www.youtube.com/watch?v=Uwl3-jBNEd4&t=0s) 租房与买房决策的思维误区与不可收回成本公众在面对“租房还是买房”的抉择时，普遍存在一个根深蒂固的误区：只要每个月还的房贷金额等于甚至小于原本要付的租金，买房就是一笔划算的交易。PWL Capital 的投资组合经理 Ben Felix 在《Common Sense Investing》节目中直截了当地反驳了这一逻辑：“Comparing a mortgage payment to rent is not an apples to apples comparison.”（拿房贷月供去和租金作对比，根本就不是同维度的对等比较。）要想在财务上做出严谨、合理的评判，不能只看每个月的现金流出，而必须对比租房与买房各自承担的“不可收回成本”（unrecoverable costs）。所谓不可收回成本，是指你实际支付出去、但完全不会产生任何剩余残值的费用。对于租客而言，不可收回成本一目了然，就是每个月交给房东的全部租金；但对房主来说，情况要隐蔽且复杂得多。房贷月供并不等同于不可收回成本，因为月供被拆分成了两部分：一部分是本金偿还（principal repayment），这相当于一种强制储蓄并转化为房屋净资产；另一部分则是纯粹损耗的利息（interest）。因此，买房真正的不可收回成本并非房贷本身，而是由三大板块构成：房产税（property taxes）、房屋维护保养成本（maintenance costs）以及资本成本（cost of capital）。 ```mermaid flowchart TD accTitle: 租房与买房不可收回成本对比 accDescr: 对比租房和买房两者的不可收回成本构成，指出房贷月供并非不可收回成本 subgraph Renting["租房不可收回成本"] Rent["每月租金支出<br/>(无残值，纯损耗)"] end subgraph Owning["买房不可收回成本"] PT["房产税 (约 1%)"] MC["维护成本 (约 1%)"] CC["资本成本 (约 3%)<br/>(债务成本 + 权益机会成本)"] end subgraph Mortgage["房贷月供的本质拆解"] Principal["本金偿还 (累积房屋净值，属可收回)"] Interest["贷款利息 (纯损耗，属不可收回)"] end Mortgage -.->|"并非整体属于"| Owning Interest --> CC ``` ### [01:38](https://www.youtube.com/watch?v=Uwl3-jBNEd4&t=98s) 拆解“5%法则”的三大支柱：税费、维护与资本成本为了让大众能够快速、直观地在租房与买房之间建立平等的对比坐标，Ben Felix 提出了著名的“5%法则”（The 5% Rule），该比例由三大核心要素相加而成： 1. **房产税（Property Taxes，约 1%）**：这是持有房产必须按期缴纳的税收，支出后没有任何残值或权益回报。通常在房产估值中，每年的房产税支出大约占房屋总价值的 1%。 2. **房屋维护保养成本（Maintenance Costs，约 1%）**：维护成本涉及的开销跨度极大，既包括更换屋顶、翻新厨房以维持房屋市场价值等大额资本开支，也包括修补浴室填缝剂（caulking）这类琐碎细节。尽管业内很难获取精准详尽的平均维护支出数据，但业内普遍推荐的经验法则是每年按房产总价值的 1% 来预估维护费用。 3. **资本成本（Cost of Capital，约 3%）**：这是 5% 法则中最核心、最重要的一环，必须进一步细分为债务成本（cost of debt）和权益资本成本（cost of equity）。以常见的购房方案为例：买家支付 20% 的首付款，剩下的 80% 办理房贷。对于这 80% 的按揭贷款，买家必须支付银行利息；以 2019 年 4 月的市场行情来看，线上能轻松查到的房贷利率大约就在 3% 上下徘徊，因此债务利息可按 3% 的不可收回成本来计。 - 房产税基准：约为房屋总市值的 1%/年 - 房屋维护基准：涵盖大修（翻新、换顶）与小补，约为 1%/年 - 债务利息基准：按当时主流按揭利率计为 3%/年 ### [03:06](https://www.youtube.com/watch?v=Uwl3-jBNEd4&t=186s) 权益资本的机会成本：股市与房地产历史回报的现实碰撞房产税、维护成本与房贷利息在直觉上很容易被人接受，但首付款（20% 权益资本）背后蕴含的“机会成本”，才是许多人经常忽略的隐形成本。“When you put 20% down you are making a choice to invest in a real estate asset. Alternatively, you could have continued renting and invested the down payment money in stocks.”（当你付了 20% 的首付款，你就做出了一项将资产押在房地产上的投资选择；而另一种选择则是继续租房，将这笔首付资金全部投入股票市场。）这种因放弃更优投资渠道而产生的机会成本，是房主承担的真实经济成本。为了量化机会成本，需要测算房地产与股票的预期收益率差距。根据《瑞士信贷全球投资回报年鉴2018》（The Credit Suisse Global Investment Returns Yearbook 2018）追踪自 1900 年至 2017 年的超长周期数据： - 全球房地产在扣除通胀后的实际年化回报率（real return）仅为 1.3%。 - 全球股票在扣除通胀后的实际年化回报率则高达 5.2%。若假设长期通胀率为 1.7%，推算出来的名义年化回报率（nominal return）即：房地产为 3.0%，股票为 6.9%。面对许多观众在评论区反驳称“3% 适用于全球，但在加拿大安大略省太低了，安省至少得有 5% 到 10%”，Ben Felix 进行了严肃的反驳。他指出这种线性外推过去辉煌收益的思维非常危险：金融市场是依据当前所有已知信息来对资产定价的。“You would never sell your house for $500,000, if you knew that the buyer could resell it a year later for $550,000.”（如果你明知买家一年后能把房子以 55 万美元倒手转卖，你绝不可能在今天以 50 万美元卖给他。）过去加拿大房产的局部暴涨不可能永远持续，投资决策必须立足于市场长期风险溢价，而非侥幸押注过去的超额表现。而且，全球股票 6.9% 的历史数据甚至包含了俄国与中国股票市场归零的极端历史，以及两次世界大战的毁灭性冲击；如果单独挑出美股数据，股票回报的优势还会更悬殊。在 PWL Capital 的实际操作中，团队不会生搬硬套历史平均回报，而是结合过去 50 年历史表现与当前市场市盈率（P/E ratio）进行动态调整。当前美股等资产估值处于历史高位，因此模型下调了未来预期收益： - 100% 全球股票投资组合的当前名义预期年化回报率设定为 6.57%（低于 6.9% 的历史均值）。 - 房地产的名义预期年化回报率设定为 3.0%。 - 两者之间的预期收益差额为 3.57%（6.57% - 3.0%）。为了保持计算的简便与保守，Ben Felix 将这一差额向下取整为 3%。极为巧合的是，3% 的权益资本成本恰好与 3% 的债务利息成本完全一致。这意味着，无论你首付付多少、无论贷款比例怎么安排，资本的综合成本都可以统一估算为 3%。将房产税（1%）、维护费（1%）以及资本成本（3%）相加，便得到了房产每年不可收回成本的总和：房产价值的 5%。 ### [06:33](https://www.youtube.com/watch?v=Uwl3-jBNEd4&t=393s) 5%法则的应用测算与税收环境下的修正 “5%法则”提供了一个极度简便的速算口诀，帮助人们在租房和买房之间进行对等权衡： 1. **买房转租房基准**：拿目标房屋的总价乘以 5%，再除以 12 个月。如果你能在市场上以低于该金额的月租金租到同等条件的房子，那么选择租房在财务上是更明智的。例如一套 500,000 美元的房产，一年的不可收回成本约为 25,000 美元，折合每月 2,083 美元。若类似房屋租金低于每月 2,083 美元，租房胜出。 2. **租金转买房基准**：如果你心仪的房源月租为 3,000 美元，将其乘以 12 个月后再除以 5%，可得 720,000 美元。这意味着，支付每月 3,000 美元的租金，在不可收回成本的纯财务损耗维度上，完全等同于持有一套价值 720,000 美元的房产。 | 评估对象 | 计算方式 | 案例计算 | 财务含义 | |:--- |:--- |:--- |:--- | | **50 万美元房产** | $500,000 \times 5\% \div 12$ | 2,083 美元/月 | 若同等条件房屋月租金低于 2,083 美元，租房在财务上更划算 | | **3,000 美元/月租金** | $3,000 \times 12 \div 5\%$ | 720,000 美元 | 每月 3,000 美元租金对应的不可收回成本，相当于持有一套 72 万美元的房产 | Ben Felix 坦承，5% 法则无疑是一种高度简化的模型。当将实际税率与投资组合的资产配置（股债平衡）纳入考量时，该模型需要做出向下微调： - **税收影响**：6.57% 的股票预期收益是税前数据。如果投资者在加拿大免税账户（如 TFSA）或延税账户（如 RRSP）中投资，能享受该回报；但若在应税账户（taxable account）中投资，按 2019 年安大略省最高边际税率折算，税后收益率可能降至 4.6% 左右，这直接压缩了股市与楼市的收益差距，进而降低了权益资本成本。 - **风险偏好影响**：如果投资者无法承受 100% 纯股票组合的波动，而是配置了包含债券的稳健组合，其预期权益回报也会下降，相应的权益机会成本随之收缩。 “The cost of owning a home decreases if you have maxed out your registered accounts or if you can't handle the volatility of an aggressive portfolio.”（如果你已经用满了各类注册免税账户额度，或者你无法承受激进组合的剧烈波动，那么持有房产的机会成本就会随之降低。）对于那些免税额度尚未用满、风格激进的权益投资者，5% 法则是非常犀利的评判工具；而对于在应税账户投资、或持仓偏向保守防御的投资者，将评判标准下调至 4% 会更加贴合实际。但无论具体参数落在 4% 还是 5%，从“不可收回成本”的视角审视买房与租房，都能彻底破除表面上“月供换租金”的思维迷思。 ### [10:04](https://www.youtube.com/watch?v=Uwl3-jBNEd4&t=604s) 结语与相关内容推荐：Rational Reminder 播客在视频结尾处，Ben Felix 向观众提供了进一步获取投资与理财知识的渠道。他提到，如果观众已经把频道中所有的《Common Sense Investing》系列视频都看完了，还可以去收听他每周更新的播客节目《The Rational Reminder Podcast》。该播客可以在各大主流播客平台上收听。 Ben Felix 总结道：“if you've run out of "Common Sense Investing" videos to watch, you can tune into weekly episodes of The "Rational Reminder" podcast wherever you get your podcasts.” 随后，视频在轻松明快的片尾音乐中结束。 ## Notable quotes > [00:00](https://www.youtube.com/watch?v=Uwl3-jBNEd4&t=0s) Comparing a mortgage payment to rent is not an apples to apples comparison. — Ben Felix > [03:06](https://www.youtube.com/watch?v=Uwl3-jBNEd4&t=186s) When you put 20% down you are making a choice to invest in a real estate asset. Alternatively, you could have continued renting and invested the down payment money in stocks. — Ben Felix > [06:33](https://www.youtube.com/watch?v=Uwl3-jBNEd4&t=393s) The cost of owning a home decreases if you have maxed out your registered accounts or if you can't handle the volatility of an aggressive portfolio. — Ben Felix ## Mentioned Ben Felix, PWL Capital, Common Sense Investing, The Rational Reminder Podcast, The Credit Suisse Global Investment Returns Yearbook 2018, TFSA, RRSP ## Video description Meet with PWL Capital: https://calendly.com/d/3vm-t2j-h3p Please note that while this content is broadly applicable, it was originally intended for a Canadian audience. You can't compare rent to a mortgage payment. This way of thinking about the rent versus buy decision is extremely flawed. Comparing a mortgage payment to rent is not an apples to apples comparison. In order to properly assess the rent versus buy decision, we need to compare the total *unrecoverable costs* of renting to the total unrecoverable costs of owning. That may sound like a complicated task, but I have boiled it down to a simple calculation. Referenced in this video: The Case for Renting a Home – Part 1 - https://www.pwlcapital.com/the-case-for-renting-a-home-part-1/ The Case for Renting a Home – Part 2 - https://www.pwlcapital.com/the-case-for-renting-a-home-part-2/ The Case for Renting - https://www.pwlcapital.com/resources/the-case-for-renting/ The Credit Suisse Global Investment Returns Yearbook 2018 - https://www.credit-suisse.com/media/assets/corporate/docs/about-us/media/media-release/2018/02/giry-summary-2018.pdf Read up on more investing advice, insights and white papers here. https://www.pwlcapital.com/teams/passmore-felix/?utm_source=youtube&utm_medium=copy&utm_campaign=ben2019&utm_content=5percent ------------------ Follow Ben Felix on - Twitter: https://twitter.com/benjaminwfelix - LinkedIn: https://www.linkedin.com/in/benjaminwfelix/ PWL Capital Blog Post: https://www.pwlcapital.com/rent-or-own-your-home-5-rule/ Follow PWL Capital on: - Twitter: https://twitter.com/PWLCapital - Facebook: https://www.facebook.com/PWLCapital - LinkedIn: https://www.linkedin.com/company/pwl-capital/ You can find the Rational Reminder podcast on Google Podcasts: https://www.google.com/podcasts?feed=aHR0cHM6Ly9yYXRpb25hbHJlbWluZGVyLmxpYnN5bi5jb20vcnNz Apple Podcasts: https://itunes.apple.com/ca/podcast/the-rational-reminder-podcast/id1426530582?mt=2 Spotify Podcasts: https://open.spotify.com/show/6RHWTH9iW7hdnA7eAg7ukO?si=hjZNfLKuSjSeWX38GPqhVA ------------------ [Source](https://www.youtube.com/watch?v=Uwl3-jBNEd4)

Source quotes

[0:00] Ben Felix: Comparing a mortgage payment to rent is not an apples to apples comparison. [3:06] Ben Felix: When you put 20% down you are making a choice to invest in a real estate asset. Alternatively, you could have continued renting and invested the down payment money in stocks. [6:33] Ben Felix: The cost of owning a home decreases if you have maxed out your registered accounts or if you can't handle the volatility of an aggressive portfolio.

Source quotes

[6:13] Ben Felix: Take the value of the home that you were considering, multiplied by 5% and divide by 12. If you can rent for less than that then renting is a sensible financial decision. [0:00] Ben Felix: Comparing a mortgage payment to rent is not an apples to apples comparison. [7:33] Ben Felix: The cost of owning a home decreases if you have maxed out your registered accounts or if you can't handle the volatility of an aggressive portfolio.

Original transcript

[0:00] - I have talked about the decision [0:01] around renting versus buying a home before. [0:03] But in this video [0:04] I wanted to take a bit of a different angle. [0:06] The common perception is that if you can purchase a home [0:09] with a mortgage payment that is equal to [0:11] or less than what you would otherwise pay in rent [0:13] then buying is a good decision. [0:15] This way of thinking [0:16] about the rent versus buy decision is extremely flawed. [0:20] Comparing a mortgage payment to rent [0:21] is not an apples to apples comparison. [0:24] In order to properly assess the rent versus buy decision, [0:27] we need to compare the total unrecoverable costs [0:30] of renting to the total unrecoverable costs of owning. [0:34] That may sound like a complicated task [0:36] but I have boiled it down to a simple calculation. [0:39] I'm Ben Felix, portfolio manager at PWL Capital. [0:42] In this episode of "Common Sense Investing" [0:44] I'm going to give you a simple way to think [0:46] about the rent versus buy decision. [0:48] (upbeat music) [0:51] Before we get to the 5% rule, [0:53] I need to lay out the assumptions that have gone into it. [0:56] An unrecoverable cost is a cost that you pay [0:59] with no associated residual value. [1:01] When we are talking about the total unrecoverable cost [1:04] of renting, the number is very easy. [1:07] It's just the amount that you're paying in rent. [1:09] For a home owner the unrecoverable costs are a bit harder [1:12] to pin down. [1:13] A homeowner has a mortgage payment, [1:15] which feels kind of like rent, [1:16] making it an easy number to compare to rent. [1:18] But it is not a meaningful comparison. [1:21] A mortgage payment is not an unrecoverable cost. [1:24] It is a combination of interest and a principal repayment. [1:28] The unrecoverable costs for a homeowner are [1:30] property taxes, maintenance costs, and the cost of capital. [1:35] It is these costs that we need to compare to rent. [1:38] Property taxes are pretty easy [1:39] for most people to grasp. [1:41] You pay the tax to own the home. [1:42] And there is no residual value. [1:45] Property taxes are generally 1% of the value of the home. [1:48] That's the first piece of the 5% rule. [1:51] Then we have to think about maintenance costs. [1:53] Maintenance costs cover a huge range of expenses. [1:56] It can be large items like replacing a roof [1:58] or renovating a kitchen to maintain the value of the home. [2:01] But it can also be small things, [2:02] like redoing the caulking in the bathroom. [2:05] Pinning down the right number [2:06] to estimate maintenance costs is not easy. [2:09] And the data on average maintenance costs [2:11] are not readily available. [2:13] But most people suggest using 1% [2:14] of the property value per year on average. [2:17] This is the second piece of the 5% rule. [2:20] Finally, the last and most important piece [2:23] to the 5% rule is the cost of capital. [2:26] This unrecoverable cost has to be broken down [2:28] into two components, [2:30] the cost of debt and the cost of equity. [2:33] Most homeowners finance the purchase [2:35] of their home using a mortgage. [2:37] Let's use a new homeowner as an example. [2:39] Say they put down 20% [2:41] and finance the remaining 80% with a mortgage. [2:44] The 80% that has been financed with a mortgage will result [2:46] in interest costs. [2:47] As of April, 2019, I can easily find the mortgages online [2:51] for just under and just above 3%. [2:54] Let's call mortgage interest a 3% unrecoverable cost. [2:58] Up until this point. I think that all [2:59] of the inputs to the 5% rule are fairly intuitive. [3:03] Property taxes, maintenance costs, and mortgage interest. [3:06] The last one, [3:07] the cost of equity capital is a bit less intuitive [3:11] and it requires digging into some data. [3:13] In our example for the mortgage, we put 20% down. [3:16] It's on that 20% that there's a cost of equity capital. [3:20] When you put 20% down [3:22] you are making a choice to invest in a real estate asset. [3:25] Alternatively, you could have continued renting [3:27] and invested the down payment money in stocks. [3:31] It is that alternative that creates an opportunity cost [3:33] which is a real economic cost incurred [3:36] by a homeowner. [3:37] To estimate this cost we need to come up [3:39] with an estimate for expected returns; [3:42] both for real estate and for stocks. [3:44] A good place to start is the historical data. [3:47] Looking at [3:48] "The Credit Suisse Global Investment Returns Yearbook 2018" [3:51] We can get an idea of the data going back to 1900. [3:54] Globally, the real return for real estate, [3:56] that's net of inflation from 1900 through 2017 was 1.3%. [4:01] While stocks returned 5.2% after inflation. [4:05] If we assume inflation at 1.7% [4:08] then we will be thinking about a 3% nominal return [4:11] for real estate and a 6.9% nominal return for stocks. [4:16] I have had many commentators [4:18] on my other real estate related videos mention [4:21] that 3% might work for global real estate, [4:24] but not for Ontario. [4:25] That's way too low for Ontario. [4:28] It should be closer to five or 10%. [4:30] Let's clear that up right now. [4:31] The problem with this thinking for any asset class, [4:34] is that markets price assets based [4:36] on the information that is available at that time. [4:39] You would never sell your house for $500,000, [4:41] if you knew that the buyer could resell it a year later [4:45] for $550,000. [4:47] If you knew that you wouldn't sell for $500,000. [4:50] We can't assume that high recent historical returns [4:53] like we've had Canada will persist forever. [4:56] That is not a sensible way to make a decision. [4:59] Instead, we can look at the risk premium [5:01] that the market has placed [5:02] on those types of assets over time [5:04] and use that as an estimate for the future. [5:06] That 6.9% historical return for stocks includes Russia [5:10] and China's stock markets going to zero. [5:13] It also includes the aftermath of world wars. [5:16] If we were to cherry pick, say US stocks, [5:18] the argument for stocks becomes a whole lot stronger, [5:21] but it doesn't make a whole lot of sense to do that. [5:24] That was a bit of a digression [5:25] but I think it was important to put it out there. [5:27] At PWL Capital we do not use the historical return [5:30] for stocks as the estimate of future returns. [5:32] We use a combination of the 50 year historical return [5:35] and the current expected return based [5:37] on the price earnings ratio. [5:39] The effect of this is that when prices are high, [5:41] as they are now relative to the past, [5:44] our expected returns are lower. [5:46] Our current nominal expected return [5:48] for a 100% equity portfolio is 6.57%. [5:52] Quite a bit lower than the historical average. [5:55] If we take these numbers [5:56] as they are: 3% for real estate and 6.57% for stocks, [6:01] we would have an expected return difference, [6:03] between real estate and stocks, of 3.57%. [6:07] To keep things simple, and to be conservative, [6:10] I think that we can round that down to 3%. [6:13] We now have a cost of equity capital of 3%, [6:15] which is conveniently equal to the cost of debt capital. [6:19] So no matter how you finance the home, [6:21] the cost of capital is 3%. [6:24] We now have a total of 5% of the value of the home [6:27] that you would expect to pay an unrecoverable costs. [6:30] Remember rent is an unrecoverable cost that is easy to see. [6:33] Homeowners also have unrecoverable costs [6:36] but they are harder to see. [6:37] The 5% rule can be used to think [6:39] about the unrecoverable cost of renting [6:41] and owning on an apples to apples basis. [6:44] I think that this thinking can be used as a quick reference [6:47] for anyone considering the financial aspect [6:49] of their rent versus buy decision. [6:51] Take the value of the home that you were considering, [6:53] multiplied by 5% and divide by 12. [6:56] If you can rent for less than that [6:59] then renting is a sensible financial decision. [7:02] A $500,000 home would be estimated to have $25,000 [7:06] in annual unrecoverable costs, [7:08] or $2083 per month. [7:11] It goes the other way, too. [7:12] If you find a rental that you love for $3,000 per month [7:16] you can take $3,000 multiplied by 12 and divide by 5%. [7:21] The result in this case is $720,000. [7:24] In other words, paying $3,000 per month in rent [7:26] is financially equivalent in terms of unrecoverable costs [7:30] to owning a $720,000 home. [7:33] There is no doubt that the 5% rule is an oversimplification. [7:37] When we start considering variables [7:39] like tax rates and portfolio asset mix, the 5% rule changes. [7:43] For example, the 6.57% expected return [7:47] for stocks is a pretax return, [7:49] which is fine in an RRSP or TFSA, [7:51] but in a taxable account the after-tax return might [7:54] be closer to 4.6% for someone taxed [7:57] at the highest marginal rate in Ontario in 2019, [8:00] reducing their cost of equity capital. [8:03] Similarly, if the investment portfolio is less aggressive [8:06] than 100% equity, [8:07] the cost of equity capital decreases. [8:11] If we think about this [8:12] in terms of making financial decisions, [8:13] it would just mean adjusting the 5% rule downward, [8:16] reducing the total unrecoverable cost of owning. [8:19] I feel like that might be a bit of a head spinner [8:21] if you haven't thought about home ownership [8:23] from this perspective. [8:24] So let me try saying it another way. [8:26] One of the largest cost of owning a home [8:28] is the opportunity cost of equity capital. [8:31] If you pay $500,000 cash for a home, [8:34] you have now spent $500,000 on real estate, [8:37] as opposed to using it for something else, [8:39] like investing in stocks. [8:41] The difference in expected returns [8:42] between real estate and stocks is an opportunity cost. [8:45] It is a real economic cost that the homeowner pays, [8:48] and it has to be accounted [8:49] for in the rent versus buy decision. [8:52] The opportunity cost [8:53] of equity capital changes depending largely [8:55] on your mix between stocks and bonds, [8:57] and whether or not your investments are being taxed, [9:00] and if they are being taxed, your tax rate. [9:03] Based on these variables, [9:04] the 5% rule might need to be decreased, [9:06] making home ownership less expensive in terms [9:08] of unrecoverable costs. [9:10] That is an interesting point to chew on. [9:13] The cost of owning a home decreases [9:15] if you have maxed out your registered accounts [9:17] or if you can't handle the volatility [9:19] of an aggressive portfolio. [9:21] For any aggressive investor, [9:23] who has not maxed out their RRSP and TFSA, [9:26] I think that the 5% rule can be a useful tool [9:28] in the rent versus buy decision. [9:30] For anyone with a more conservative portfolio [9:33] or for a taxable investor, [9:35] I might use something closer to 4%. [9:37] Either way, thinking about the cost [9:39] of home ownership in terms [9:40] of the estimated unrecoverable costs [9:42] makes it much easier to think about the financial side [9:45] of the rent versus buy decision. [9:47] How do you think about the financial side [9:49] of the rent versus buy decision? [9:50] Tell me about it in the comments. [9:52] Thanks for watching. [9:54] My name is Ben Felix of PWL Capital [9:56] and this is "Common Sense Investing". [9:58] If you enjoyed this video, [9:59] please share it with someone who you think could benefit [10:01] from the information. [10:03] Don't forget, [10:04] if you've run out [10:05] of "Common Sense Investing" videos to watch, [10:07] you can tune into weekly episodes of [10:09] The "Rational Reminder" podcast [10:11] wherever you get your podcasts. [10:12] (upbeat music)