Is buying a house a great investment or is it a total waste of money? My mortgage is only going to be £2,000 a month and so we might as well buy a house because then we get to keep the asset. Are you trying to get me mad right now? I'm starting to sweat just hearing this because you're right, that's what they say. In this video, I'm going to be reacting to Ramit Sethi on his viral interview on the Diary of the CEO. Now, like many financial gurus, I don't agree 100% with everything that Ramit says, but I like a lot of what he talks about. Especially if he's not talking about politics or his political views or his harsh takes on insurance or annuities, I actually think a lot of what he says in his book and his videos are really solid. Maybe I'll make a video addressing that sometime soon. But in this video, Ramit talks about his take on renting versus owning, which can be a very emotional topic for so many of us. We're gonna be watching his video clip and then I'm gonna give my full response, including pulling up a calculator to run the numbers in real time. Before we jump in, I just want to point out that Ramit on this interview throws some shade at Robert Kiyosaki, the author of Rich Dad Poor Dad. Ironically, they seem to agree on this topic in their views around homeownership. So here's the clip. Investing or their investment rate. The only investment most couples make together is buying a house. Yeah, well, and that's questionably not even an investment. Most people think renting is wasting money. Yeah. And the logic goes, well, if my rent is $2,000 a month or £2,000 a month, My mortgage is only going to be £2,000 a month. And so we might as well buy a house because then we get to keep the asset. Are you trying to get me mad right now? I'm starting to sweat just hearing this because you're right. That's what they say. Should I just dismantle these arguments one for all right now? Sure. Okay. Renting is not throwing away money. Just like going to a sushi restaurant is not throwing money away on sushi. You're paying for something. You're getting value. It's fantastic. The next argument they use is... You're paying your landlord's mortgage. I go, okay, aren't you paying the sushi owner's mortgage when you go there and get sushi? Funny, we never think about it like that. We only think about paying the landlord's mortgage. Finally, we have to understand. Also, what I would just say is, why do we even care? And that buying a house can be a good financial decision. It can be. But renting and investing the difference can also be a good decision. And right now in the US, in the top 50 U.S. metro cities. it is cheaper to rent than to buy. So let me give you some math. Let's say, because I lived in New York close by, if the rent was, let's say, $3,000 a month, to own the equivalent property right next door would have been $6,600 a month. That's $3,600 per month more just to own. So most people don't know this. They don't factor in phantom costs like maintenance, taxes, transaction, opportunity cost. They simply look at a number. that says 3,600 or whatever the number may be. And they go, great investment. We have got to get more sophisticated with the biggest purchase of our lives. I'm just looking at some of the comments on our last conversation. Oh yeah, what'd they say? It's a balancing act. There's two groups of people here. There's a group of people who attest to the fact that they bought a house and it's the single best thing they did. Yep. This person said, I bought a house. It's the best thing I ever did. It's launched my mindset and new directions. Remember that having your own space has profound psychological impacts and can change your life. That's a good comment. Okay, let's talk about that first. I love that comment. We have to remember that life is not just about a spreadsheet. It's not. So when it comes to a major purchase like a house or a car, we got to start with the numbers. Okay, we have to start by running a buy versus rent calculation by running an amortization chart. I have a whole bunch of stuff on buy versus rent. And then we need to know, can we afford it? Is this part of our rich life vision? What if one of us loses our job and on and on and on? But then second, we need to say, what kind of lifestyle do we want? If we love to decorate, that's probably worth something. Maybe we need to buy a house. If we want our kids to be in a particular area, maybe we need to buy. There's so many non-financial reasons to buy or to rent. And so we can't just do one or the other. But my main argument is this, most of us never run the numbers. We will spend... a million dollars in total cost of ownership for a house and we won't run one calculation. So we got to play multiple notes doing the financial and non-financial parts. All right. So overall, I really appreciate where Ramit's coming from. And I love his restaurant analogy because anytime that I go to the restaurant, I don't think that I'm like, hey, I'm having to pay this person's mortgage or their lease. I'm usually making the decision that I'm choosing to do this experience and I'm paying money. for this experience. I think when it comes to owning versus renting, so many of us mix in our head that we're getting a good investment along with this decision. And so we can kind of like write off bad decisions or not run the math because we just assume like, yeah, I'm living and I'm getting an investment. It's like a two for one. And I hope by the end of this video, you'll have a framework regardless of what you choose to be able to better think about, okay, when Ramit talks about running the numbers. What does he actually mean? What are some of the pros and cons that we should look at? So there's really three key aspects here to simplify this conversation. And number one would be, what is the monthly cost of living your life? Or what is the monthly cost of actual living? And that's something that you should analyze in whatever choice you go down. So if you go the owning route, if you go the renting route, or if you go route number three, what is the cost of making that decision on a monthly basis? The second question would be, How much money do you need to tie up for that situation? And you'll see in a sec, you know, renting, one of the benefits is you're not necessarily tying up as much money. There's an opportunity cost or opportunity upside to potentially that. Whereas, you know, tying up $10,000, $20,000, $30,000, $50,000, $100,000, a couple hundred thousand dollars could be very costly depending on what situations are out there and what you could be doing with that money. And then the third thing that you need to really be able to factor in, which is going to be a big, relevant area for this conversation of should you rent versus buy is what is the alternative investment return that you want to factor in? Now, from 2013 to 2023, the average house value grew by six to 8%. Now, that's historically thanks to low interest rates, COVID, and it was just bonkers over the time. I still, it's hard for me to comprehend. And so I think to be fair, six to is on the high end. 2023, it only grew by 1%. 2024, 4%. And I would say that over if I just look out in the future, I don't necessarily think we're going to be seeing those high 6%, 8%. I think we might see some 4s, 3s, 2s. In fact, there are some people that are saying that they could potentially be negative depending on what market you're in and what type of house you are. And so like anything, averages can be misleading. I knew people that actually lost money in their home over the last 10 years just depending on their situation. So that's something to factor in. So you could maybe say Over the last 10, 15 years, it grew by anywhere from 3% to 5%. In the future, my guess would be it's going to be on the lower end, just where you look at interest rates and some other things that you can factor in. So that's just my humble thought and guess. Now, if we look at the S&P 500 from 2013 to 2025, the market annualized return was around 13%. Now, again, this doesn't include fees, emotions, taxes, but to be fair. The other side, when we're looking at the average growth of homes that also we didn't factor in emotions, taxes, and fees. And so to be fair, you could very much look at what rate of return you're looking at, and you could very much justify a big range, which is why you have to really figure out over the next 5, 10, 15 years, what kind of rate of return do I feel comfortable in, do I feel confident in, or would I not want to tie my money in? And those are. Three same questions, but different questions depending on what paradigm you're in. And so what we're going to do is I'm going to look at the pros and cons of both owning and renting, just so you can understand how I'm thinking. And then we're actually going to run the math on a calculator. And then I'm going to give you my conclusion on where my takes are, if it's not already obvious on how I'm talking in this video. Okay, so let's look at the benefits of owning. And there's six, and I'm going to go through these quick. Number one is you get to lock in your payment. I think that's a huge benefit. And from a planning standpoint, the fact that you know potentially what your payment could be 5, 10, 15 years from now, huge benefit thanks to inflation. Your cost of living is never going to feel more expensive than it is today thanks to inflation. Number two is you could potentially write off your interest. I say potentially because I don't know what's going to happen over the next 10, 15, 20, 30 years. But as of right now, there can be some tax benefits to writing off that interest, especially if you have a 30-year mortgage. Number three is you get that equity, which is known as that forced savings. This is all relative, but I think the fact that it is built in for savings is something that is important. A lot of times, whether you believe you're going to invest a difference or not, this is very much built in. And so there can be some insurance policy built into just your financial life by having a house. Number four is the use of competitive leverage. I believe, and I've said this many times, and I get a lot of hate for this. But the 30-year mortgage, I believe, is one of the greatest financial tools out there when it comes to planning and planning for wealth. And the fact that we can use a 30-year mortgage is something that… is valuable. If we did not have a 30-year mortgage or if they were all variable interest rates or they're ballooned rates at five years, meaning who knows what kind of payment you would have to have over five years or something, I would feel a lot more at risk. And I honestly would push so many people away from owning. But the fact of the matter is that we have a 30-year mortgage set up. That is an advantage that I just want to acknowledge. Number five is the emotional aspect that the house is yours. And I think that is ultimately going to be the trump card is if there's if you at the end of this video, even when you run the numbers and all, if you just are like I sleep better at night knowing that I own this home, then I think it's hard for me to argue against sleeping well at night. And then number six is the control, the ability to stay put. And you could say that this is very similar to number five, but there is an aspect of a control aspect, long-term control that you get to lock in very much like the lock-in payment. Now, for every pro, there's cons. And so I have four cons that you could look at. Number one is if you buy, most likely you're going to have a higher initial payment. And so while you have the ability to lock in that payment, it's initially going to be higher. And that is something that when it comes back to the cost of living your life may factor in. And then the second thing is the opportunity cost of not. investing or using that down payment. Whatever your down payment is, whether it's super small or whether it's a large down payment, that's money that's tied up into your home. You're not able to invest or use it elsewhere. Number three is the unknown cost of owning a house. You could call this phantom cost. And let me tell you, this is something that's real. Any homeowner will agree with me. It just is like one of these things that you buy a home, you run the math, and then I would just encourage you to factor in what that would be. And I would love to know from you in the comments like what type of percentage you would factor in from that phantom cost. Or if you actually look back, how much from a percentage basis do you put into your home over time when you look at how many years have you've had the house? Not talking major renovations, I'm just talking about just the cost of wear and tear and the cost of life. And then number four, the cons of owning is a lack of flexibility. And this might be a weird thing to say because it's like, wait, what do you mean? And like, don't I get control and all? But if you own a home, you don't necessarily, like you're kind of at the mercy of being able to sell it or maybe a bank refinancing and you're kind of at the mercy of other things and you may not be able to have the flexibility to say, you know what, I'm going to move to another city or I'm going to go take this opportunity or I'm going to move to this area or I'm going to go travel for six months. Like you can do that, but that doesn't guarantee that you're going to be able to do something with your home. Now, there might be people that are like, I can rent this out and all, but depending on what... Where you are, some people don't allow Airbnb. So at the end of the day, lack of flexibility is valid. Some people have a lot more flexibility when they own. Some people have little to no flexibility. But the lack of flexibility is a thing when you own. So now let's break down the pros and cons of renting. So when I think of the pros of renting, there's really five things that come to my mind. Number one, no down payment. That's a huge pro, especially if you're watching this, investing the difference. Or if you're someone that's an entrepreneur, that's money that you can use to be able to invest or use somewhere else. Number two is a lower initial down payment. Now, this doesn't necessarily be true across the board. But if you look at like house versus being able to rent today, it's a lower initial payment, which is, again, the cost of living your life today should be able to factor in. Number three is flexibility and optionality. The fact of the matter is if you have a six months, a year, I mean some people are signing. multiple year leases, which I guess lower their flexibility. But you do have more flexibility from a standpoint of being able to maybe get out or maybe just be able to not renew your lease if you don't want to. Number four is you get to invest the difference, which I think we need to be fair. Not everyone's going to invest the difference, but some people will. And that is something that is the benefit, especially if you believe that your investments are going to grow more than the average house price. And then number five is not having to worry about property upkeep. Now, Some houses that I've rented in the past, like I've had to do like the lawn and I've had to do some basic upkeep. And some places I've had to not worry about that at all. But overall, you don't have to worry about if something major breaks, if a water heater breaks or something major. Like it's not like you're on the hook to having to shell out a ton of money, which again, for some people, they love like the feeling of homeownership and all. And for some people, you feel like emotionally taken care of that you're like nothing is going to happen where it's going to wipe me out. In fact, I've known someone that was renting, they had mold in their house and it was on the landlord to take care of it and they had to get, they got a new home, the landlord figured all that stuff out and they renovated this whole house. And the people now get the benefit of almost a brand new home, and they didn't have to pay for that because they're renting. And so that's an example of some flexibility. Now, here are the cons to renting. Rent can and will increase over your time. So while it might be initially cheaper, over the next 30 years, I think it's safe to say that rent will for sure be more if you stay in the same place, which you probably won't. Your rent will increase. And then there's a long-term control aspect of the property that you're not going to get. So, you know, some people, like if you love this home and you want to stay in it for the rest of your life, well, you're not guaranteed anything if you rent. And that's just straight up. Now, I will say that we live in a free market. So just because you're renting today doesn't mean like you're always going to rent for the rest of your life. So, for example, like if you choose to rent in this season of your life, that doesn't mean that's your identity and you have to rent the rest of your life. mention is the free market is essentially you can rent and you can buy if you want. You're not having to commit to the rest of your life on a strategy. But then number three is can't do major renovations. For someone like me, that's a huge benefit. But for some people, it's again, some of you may feel like it's just not your own. And so the idea of being able to really get your hands dirty and renovate the kitchen and all may make it feel more like home. And that's not, you can't major renovations, which... will be a pro for me, but are cons for some other people. And then I think number four, which you could lump into number three if you want, is just the feeling of not owning, which I've actually highlighted because that is the thing that you just really need to address, is the numbers are pretty clear for many of you. Renting makes a lot of sense unless you find your dream home. And yet there's this aspect that we feel. like we're not succeeding. We feel like we're not successful. We feel like we're behind you. Even there's even people that there's like a stigma between like, you know, renting versus owning. Like people will call people out on internet and say like, they're living in this big mansion, but they don't own it. It's like there's, so there is for sure a stigma. I get that. But I'm, my hope is, and the reason I'm making you these videos is I'm hoping that these, that that's, that you're not just making your, one of your biggest financial decisions because of a stigma. And so while the feeling of not owning is a negative. I also think we need to challenge that feeling. So now what we're going to do is we're going to run the numbers, just very much like Ramit says. All right, so I just looked up calculator.net, rent versus buy calculator. And what I did, and again, I'm looking at Nashville prices because this is something that is really relevant to me, is we're looking at a $650,000 home price. And what I'm going to do is I'm going to put a 5% down payment. You could put 20%, but just to be fair, I'm going to say 5%. Right now, the interest rates... are 6.7%. So I'll just put 6.7. That might be high, that might be low, but I'm just going to put that. I'm going to put a 30-year mortgage. I'm going to assume a 2% closing cost. I'm going to assume a 1.5% property tax. I'm going to assume that property tax is increased by 3%. You know, let's say 2%. That might be high. Let's do 2% increase. Homeowner's insurance, 2500 sounds about right I'm going to say no HOA, maintenance fees, 1.5%. That's the phantom cost. I have a feeling that could be low, but we're just going to keep it at 1.5%. We're going to assume that the house appreciates at 3%. I think that's generous, personally. And if I were running the numbers, I would lower that because if you're basing a home appreciation as the only reason you're buying, probably you're going to regret that decision, but we'll say 3%. percent Cost of insurance increased 3%, and then selling cost all in 7%. I think that's fair. It might be a lot cheaper in the future to sell your home, but right now, let's include that. Now, for renting, I'm going to say you could rent for $3,000. I'll tell you right now that's high. That's high. We can tweak that number, but you'll see in a second because if I put it much lower, you'll see that it doesn't even become close. So I'll just say I could rent at $3,000 today. That's a pretty nice house that you can... rent, I'm going to say it increases by 3%, renters insurance $15 a month, security deposit. So this is an example of tying your money down, three grand, and then upfront costs saying 100. Now I'm assuming I can earn 6%. We can lower this number, but I'm assuming we can earn 6%. And I'm including a 25% tax bracket married file jointly, which is going to be beneficial for the mortgage deductions. Okay, so I hit calculate. And drumroll please. It says in this example, buying is cheaper if you stay in your home over 18 years or longer. And it's barely. Like we're, it's barely. Now again, the like. The pros and cons to this, we're assuming your house growth value is up by 3%. We're including rent is $3,000 and increasing by 3%. We're including a 6% return, so we'll see if you can only earn 5%, what that looks like. And so right now, mathematically, you have to stay in that home for over 18 years for buying to make sense. Let me go back and let me just adjust a couple of numbers. So the first number I'll adjust. is I will say, let's say rent is $2,500 because for what we're looking at, $2,500 is more like accurate, but it's hard to compare like asset versus like asset because I'm not seeing a house that's like, I'll rent for this or I'll sell for this. So you just got to base on a couple bedrooms, couple bathrooms. But if we calculate that now over 30 years, like actually rent in this scenario, Just a $500 difference. renting is cheaper over the next 30 years. So that's interesting. Let me go back and let me go back to 3,000 and let me say I can only earn 5%. Say I can only earn 5% not earning 6% if you calculate, then this is 14 years. 14 years. And so that's valid. Let's say we put a down payment 20% down. Let's see, 13 years. So there's... there's some pros and cons and the, no, the different, the reason is the, the mortgage rate versus what you can earn. Um, okay. So obviously if the house appreciates just to, just to be really clear, if let's say the house appreciates by 5% a year, and let's say your average investment can earn six, you calculate that now 40 years. So it's again, like you can see where these numbers can be really sticky. Um, and, and this is, this is when Ramit talks about running the numbers. It's just really smart to run the numbers. Let's say your house only grows by 2%. Now you're going to see that 29 years, you have to stay in your house 29 years to say it's a financially good scenario. And so the point that I want to make in this calculator is owning a home can make a lot of sense and it can be a quote unquote better move. But in a lot of cases, it's over a long period of time. And a lot of times... we're not assuming a huge rate of return on the flip side. So here's my conclusion. If you're someone that's going to invest a difference or you're an entrepreneur that's excited about the upside of the future, you may be better off financially renting. But if you're someone that's going to never invest the difference or start a business, then owning a house is a forced savings tool and can make it your best long-term investment, which, let's be honest, is a really nice way of saying you're not a very great investor. but But again, I just want to say when people say that their house is their greatest investment, a lot of times I'm thinking in the back of my head, well, I wouldn't be taking investment advice or following your track record when it comes to that. But again, there's exceptions to all rules when it comes to that. The other reason, and it's a big reason, by the way, that I would say buying makes sense is if you find that dream home. If you find that home that you're like, I am for sure, or I have a desire, or I have plan to live in this home for 15 plus years, and you find that property, and it's just perfect, then it would be impossible for me to, in full conscience, look at you and say, don't do it because the math doesn't make sense. Because at the end of the day, not everything is a math equation. And there is something to say about being happy, liking your environment, and especially when it comes to land, when it comes to maybe being next to friends, when it comes to having your kids want to grow up with. other other families or family or family like there's elements of this that is hard to measure that buying may be that solution and and maybe it doesn't even fit into that 15 year plus but you might be willing to say i'm willing to lose money in a scenario because of x y and z so i also want to address that if you're someone that buy homes and fixes them up and then resells them and flips them and you and you might be like no like i just want to say that That's a business and an investment. So if you're someone that's like in the comments that are like, hey, like I buy flip houses, we live in them, good for you. But that I would consider that a more of an investor mindset or an entrepreneurial mindset, not a, I want to buy a house to live and be able to nest. And so that's my take. We'd love to hear your thoughts in the comment. And again, subscribe for more videos like this.
.png)