Forget what you’ve always heard about renting being a waste of money. Renowned financial advisor and Netflix host Ramit Sethi is flipping the script on the age-old rent vs. buy debate. In a recent episode of Steven Bartlett’s popular podcast, “Diary of a CEO,” Sethi boldly declared that renting can be a strategically savvy financial decision, particularly when paired with smart investing.
Sethi, known for his best-selling book “I Will Teach You To Be Rich,” dismantles common misconceptions surrounding homeownership. He compares housing payments to other everyday expenses, arguing that just as spending money on a sushi dinner doesn’t mean you’re throwing money away, paying rent isn’t necessarily a financial misstep.
He backs up his claims with current market realities. “Right now, in the U.S., in the top 50 U.S. metro cities, it is cheaper to rent than to buy,” Sethi asserts. He points to New York City as a prime example, where the monthly cost difference between renting and owning identical properties can exceed a staggering $3,600.
Sethi also highlights the often-overlooked expenses of homeownership, which he calls “phantom costs.” These include property taxes, insurance, maintenance, and homeowners association fees – expenses that many prospective buyers fail to factor into their calculations.
Speaking to CNBC, Sethi further emphasizes the significance of mortgage interest. “People say they don’t want to throw money away on rent. Well, I don’t want to throw money away on interest,” he emphasizes. He points out that mortgage payments in the early years can be heavily weighted towards interest, potentially reaching up to 80% of the payment.
Drawing from his own experience, Sethi reveals to CNBC that his financial success has been fueled by renting, not owning. He asserts that investing the funds he would have used for a down payment and ongoing property expenses has yielded greater financial returns.
While Sethi doesn’t advocate against homeownership entirely, he urges a more nuanced approach to the decision. He recommends that prospective buyers conduct thorough financial analyses, including amortization calculations, and carefully consider alternative investment opportunities. He underscores the importance of running the numbers before making a significant commitment. “Most of us never run the numbers,” Sethi laments. “We will spend $1 million in total cost of ownership for a house and we won’t run one calculation.”
Sethi’s advice extends beyond financial considerations. He encourages individuals to factor in lifestyle elements, like job flexibility and family planning, when weighing the rent-versus-buy decision. He believes that informed decisions, based on thorough analysis rather than societal expectations, are crucial for achieving financial security.
Ultimately, Sethi advocates for a shift in perspective on renting. He argues that it’s not simply about throwing money away; it’s about making smart choices that align with individual financial goals and circumstances. His message? Be informed, be strategic, and don’t be afraid to challenge the status quo when it comes to housing decisions.