Curious what everyone thinks of this article, “Renting can make you wealthier than owning a home”
https://www.cnbc.com/2023/05/02/ramit-sethi-why-renting-can-be-better-than-owning-a-home.html 'How to Get Rich' star's 'most controversial' money opinion: Renting can make you wealthier than owning a home
Coach
This is the mathematical truth in the vast majority of cases.
Home ownership is indentured saving. That is, it forces people to save, indirectly. The process is inefficient. The dollar cost of owning a home is far more than it is made out to be.
You could grow your money in a far better way if you were to rent and have the discipline to save and invest the delta, that is over and beyond the cost of home ownership minus rent.
Renting is also servitude. We just bought a home that’s twice the size of where we were renting. The mortgage with taxes and insurance is the same as our rent was, even with the higher interest rates. Plus they just increased rent for the next tenants by 22%. So our rent would have been more if we stayed. We also did most basic maintenance ourselves at the rental.
Renting has its place, but you’re never getting that money back like you can with purchasing a home. Most people aren’t going to make 8x in four years, that was a special perfect storm that lead to those numbers that C1 achieved.
“That simply doesn’t make sense, especially now, when the price of housing has gone way up and the effect — especially on young people, people without money, minorities — is to make them feel that they are failures,”
This explicitly counters his point that renting will make you better off. Anyone who owns a home either a) was not impacted by increased housing costs or b) was able to capture the increase as they sold their home and moved to a new one.
Yes, in most cases rents are cheaper than the mortgage+taxes+maintenance. But in 15 years, the rent will have far surpassed the fixed mortgage payments. And there will come a time that the mortgage is gone while you are still paying rent. The prospect of having virtually zero housing costs in retirement makes all the difference, even if you somehow have less wealth than someone who rented the whole time.
This is a hard one. If you look at the costs at a first glance, it does look like you are paying double than rent, and rent looks more attractive because it is also less work. but if taken the time and the effort to get everything calculated properly, it can be find that actually owning is a way better decision long term. A few things to consider:
- Mortgage Interests tax write off
- Property taxes write off
- 500k with zero tax over capital gains
- Mortgage is fixed, over 10 years rent will surpass principal and interest.
It’s not as liquid as stocks, but it’s also less volatile and risky.
What’s also interesting is that the average you get from 2000 to today on SPX is 6%, which is lower that what a home would ideally appreciate. With the end of QE, houses actually will hold better value through the years.
His advice is false for 95% of top 30 metro areas in the US. It’s only true for rare, outlier circumstances which are not applicable to most of the population. ECD1 enumerates some of the reasons why above.
I bought his first book and I liked his approach to the topic. The principles behind getting rich are boring as hell and the fact that he’s into entertainment now tells you all you need to know about the quality of his advice these days.
Yeah. Best financial advice I got was “get equity” in terms of building wealth. I think it’s very hard to be wealthy without equity and for many owning a home is the first step.
Coach
It’s true. Ppl are too focused on home ownership. Wait till you have to replace a roof or a HVAC. Buying a home is relying on appreciation. The difference between your mortgage payment along associated costs and what you could rent for can be $3k a month. Look at Austin and compare a similar rental’s rent price.
Ppl in this app think they’re the smartest ppl yet probably own one or 2 homes and have benefited from appreciation. Yet I bet they didn’t even realize that appreciation. It’s paper money, not real until you realize it
That’s obviously incorrect, no need to even explain. But this guy is kind of a tool. Gives the most “obvious” advice whether it’s correct or not.
I could teach exactly what he teaches.
Having just paid off my house, I have to disagree. Now almost all of my income is disposable. I know that feels like forever at a young age, but there is a point in the future where renting just no longer makes sense. I’m a long term planner and it has paid off in my case.
Having your own home is the best Investment that one can make, even thought it may have more expenses such as property tax and insurances, once you pay it off it becomes and asset in the future and it could give u passive income if you want to rent it and also increases in value years later. Owning a home is not expensive if you buy it within your means. I paid my house off too, and believe me when I tell you how much money I save up easily because I do not have that mortgage payment and at the end of the day I feel secured by having a roof over my head.
Coach
I think he just gets rich off of being controversial
My rent is $4000, when I try to buy a comparable house in Seattle, PITI is coming around $8000 with today’s interest rates. Plus maintenance. Only $900 is paid towards principal, rest is just throwing away. If ppl talk about renting is throwing away money, what about this. I am not forgetting the interest tax break, but that’s not that much. I love to have my own place but when I run numbers, it doesn’t make sense.
Well let me see my house rose 400K in the last few years and totals over half my net worth and I would not have had that renting. Sounds like bullshit. Especially in this market. There is a reason investors are pouring in - it’s because there is money to be made.
He’s right about the home expenses being a lot though we have paid maybe 50K in repairs and upkeep and taxes are also high over the past ~3-4 years.
The nuance here is the market dynamics are pushing towards long term capital gains, which edges in favour of home ownership in most cases.
Also - with inflation it’s much better to have a mortgage, because now long term mortgage debt is being devalued whereas rental prices would rise with inflation.
But I mean I think he gives advice to people who don’t know anything at all about personal finance so he probably hadn’t factored in debt devaluation.
I'm finding this to be true where I'm living now. We rent a 4br/2ba house with a view in SoCal for $4400/mo. A similar house just sold down the street without a view for $1.5M. With 20% down we would pay over 9k/month for a less desirable property AND have to take 300k out of the market for the down payment. If we did a 5% down payment, we would owe roughly $11k/month.
It's hard to even consider buying with those differences.
Agree, M2. There are plenty of markets where buying is no longer a good financial decision. I purchased last year and in hindsight think it has set me back significantly. I simply didn’t account for the true costs of home ownership, and the tax savings are minimal.
Sure - but there are non-monetary “wealths” that owning can give you, such as: gardening, renovations, customizing to be exactly what you love, turning garage into something you love/utilize often (like home gym, etc.), possibly running a business out of the home, etc. Yes, you can do some of these in a rental as well, but it would be done to a property that you have no vested interest in, and just benefiting the landlord.
I guess just making the point that “wealth” can be monetary and non-monetary, so depends on your priorities, lifestyle, etc. Some people’s hobbies bring them so much joy and that is a form of wealth, for example.
Yes. You buy because you want the non-financial advantages of owning a home. If you don't have some insider information about the local real estate market or other tangible advantage beyond the general public, you're just rolling dice.
I’d say this advice is relative to people and dependent on each persons situation. Understanding one’s finances and goals is very important. If buying a house compromises a persons financial stability and introduces fear to taking certain life or career decisions, then maybe it’s not a good time. I have been in that situation and it sure wasn’t a good place to be. I survived and better of for it now but it could have turned out differently, so I can relate. The book ‘The Wealthy Renter’ by Alex Avery shares the same opinion and goes into more details. Haven gone through the book and listened to the host of ‘How to get rich’, I’m still pro home ownership, but when and why is relative to different people. Buying a home because everyone is doing it is certainly not a good idea. Till when the time is right, rent and enjoy the perks while it last 😁
Honestly I think that guy is a total quack.
Love this thread! Great points to consider on both sides! Thanks for sharing!
I think the answer is depends and you need to compare the economics and decide, the answer is not one or the other, its a decision based on a math exercise
Subject Expert
He’s comparing percentage gains in the stock market to percentage gains in housing appreciation.
That’s dubious reasoning that ignores monthly equity building
Equity building comes from appreciation of asset which together with opportunity cost of down payment should be compared against putting down payment in stock market
Idiot article, didn’t read
F
Depends on the city and your lifestyle. I was living in a studio with no balcony during covid, so decided I either needed a house in the suburbs with a backyard or I needed a bigger rental. The cost of 1BR rental was 50% more than my rent at the time, now I pay 50% more on a mortgage + expenses, but I have all that I needed. The house would need repairs and renovations at some point, but just the luxury of having my own backyard and being out there in the summer is worth every Penny. House is an emotional purchase more than a monetary gain, but if you use your HELOC for investments then any house would be a better investment than renting any day.