'Renting Can Make You Richer,' Self-made Millionaire Explains Why You Should Not Buy A Home

The rent versus buy debate is something that has been going on for many decades, right??

People are still searching for an answer when it comes to making a decision, particularly because it is not just a mathematical decision. Many people end up buying a home due to the mental satisfaction they get and the emotional connection they feel from having a home they can call their own.

getty

But should you really buy a home instead of renting? Well, an Indian-origin self-made millionaire advises not to do so.?

"Home Ownership Is Overrated"

Ramit Sethi, a 40-year-old self-made Indian-origin millionaire and star of Netflix’s “How to Get Rich,” says his “most controversial money opinion” is that homeownership is overrated.?

“I’m tired of the blind obsession with homeownership in America,” Sethi said recently, as per a?CNBC report.?

Homeownership is an expensive investment that shouldn’t be taken lightly, yet the idea that property is always a great investment has become a “religion” in the U.S., he said.?

thecinemaholic

Also Read:?Bengaluru Man Addicted To?Stock Market?Trading Loses ?30 Lakh

“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,” Sethi says. “You’re not a failure if you rent.”

Even though renting is often a cheaper option compared with owning, people always say it’s like “throwing your money away” since the money is going to a landlord rather than into an investment, says Sethi. But that ignores the true costs of ownership. In addition to mortgage payments, homeowners must cover closing costs, homeowners association fees, utilities and maintenance, the report mentioned.

Sethi has rented homes in some of the most expensive rental markets in the country, including San Francisco, New York and Los Angeles. “I rented in all of those places by choice. And I made more money renting than I would have owning,” he says, referring to the potential profit from selling a home.

Also Read;?'Houses & Cars Are Terrible Investments,' Bengaluru Based CEO's Tweet Sparks Debate

He Advises To Invest In Stock Market Instead Of Buying A Home

Despite a surge in home values over the last few years, real estate has not offered the same returns as well as the stock market historically. Plus, home sellers often don’t account for the “phantom” costs of financing and upkeep when calculating the total return on a property, says Sethi.

For that reason, it’s worth it for buyers to consider whether they’d be better off investing in the market instead of real estate, he says.

When Sethi himself rented an apartment in Manhattan, he also looked at one that was for sale next door. It had the same view, square footage and the same number of bedrooms, he says.

Expenses Of Owning A Home Are Double

cnbc

But when he calculated the costs plus maintenance, the monthly expenses of ownership worked out to roughly double the amount he was already paying for rent. Instead of spending thousands on home ownership, he put that money into other investments.

“This is one example of how renting can sometimes be a better financial decision than buying,” he says, adding that paying rent is also less of a hassle compared with the risks and responsibilities in owning a home.

40-year-old Sethi encourages people to “run the numbers” to “see if it’s a better decision to buy, or to rent and invest the difference.”

Also Read:?Does It Make Sense To Invest Your Surplus Or Prepay Existing Home Loan With It

For more such interesting content and the latest financial news,?keep reading Worth.?Click here.