You Need to Buy a Home, Renting is Expensive!

The narrative that “renting and investing the difference” is always better than home ownership is oversimplified and problematic. Ramit Sethi (Author, millionaire, and financial influencer) has been on a personal crusade to encourage a generation to live as perpetual renters. Why?

He is a fervent believer that most people will get rich doing this. Unfortunately, he misses the mark.

Let’s break it down.

Return on Investments from Renting and Owning

Owning a home isn’t just about the monetary Return on Investment (ROI). It’s about having a space that’s truly yours, a sanctuary where memories are made. This intangible value is irreplaceable and can’t be measured solely in financial terms.

While the potential returns from the stock market can be high, it requires consistent and disciplined investing. Many individuals might not have the discipline or the know-how to invest wisely. Buying a home acts as a sort of forced savings plan, ensuring that you’re putting money into an appreciating asset.

Each mortgage payment builds equity. Over the years, this equity can be tapped into for other financial needs or investments, providing homeowners with financial flexibility.

How to Beat Inflation while Banking on the Benefits of Owning

While inflation affects many aspects of our lives, real estate often appreciates over time, especially in growing areas like Austin, Texas.

Furthermore, homeowners have the choice to renovate and upgrade their property, adding value in the process. Even accounting for renovation costs, Grandma’s home still appreciated by a significant amount.

Homeowners often benefit from tax deductions on mortgage interest and property taxes, which renters don’t get. This can equate to substantial savings over time.

Rent Costs up 58% since 2020

Rent isn’t static. Over the years, renting can become progressively more expensive, especially in booming cities. Homeowners with fixed-rate mortgages have predictable monthly payments.

Rental prices were by far the “largest contributor” to the rise in inflation on an annual basis in March, according to data released by the Bureau of Labor Statistics. While consumers paid less for gasoline and grocery, causing the consumer price index – a widely used measure of inflation – to moderate to 5% in March from a year earlier, housing costs went up 8% during the same time period.

2023 fair market rent data shows that compared to 2020, the last fair market rent data release before COVID-19, one-bedroom unit rents increased in 58% of counties in the US after adjusting for inflation.

Real estate is a tangible asset that contributes to one’s net worth. While the stock market can offer high returns, it’s also volatile. Real estate provides a more stable investment avenue for many.

“90% of all millionaires become so through owning real estate.”

This famous quote from Andrew Carnegie, one of the wealthiest entrepreneurs of all time, is just as relevant today as it was more than a century ago. Some of the most successful entrepreneurs in the world have built their wealth through real estate.

Is Renting vs Owning a Big Deal?

In essence, while renting and investing might work for some, homeownership offers a plethora of both financial and emotional benefits that can’t be dismissed. Most wealthy Americans own their home.

According to the Federal Reserve and Forbes, the median net worth of U.S. homeowners is 40 times higher than the median net worth of renters. In 2019, the average net worth of homeowners was $254,900, while the average net worth of renters was $6,270. Check out this youtube video.

A deeper analysis by the Gifford Group found that homeowners are wealthier than renters at every income level. The majority of homeowner wealth comes from housing for every income category except for the very top earners. 

In the end, the decision to rent or own belongs to you. My wife and I found incredible value in ownership versus renting at +50% in the DMV. Besides renting means you are paying someone else’s mortgage.

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