'Renting Is Not Throwing Away Money' – Ramit Sethi Reveals How To Build Wealth While Renting

Financial advisor and Netflix host Ramit Sethi has taken aim at a popular financial belief – the idea that renting a home is a waste of money.

In a recent episode of Steven Bartlett’s “Diary of a CEO” podcast, Sethi dismantled common misconceptions about property ownership, arguing that renting can be a savvy financial strategy when combined with smart investing.

“Renting is not throwing away money,” Sethi told Bartlett, comparing housing payments to other service expenses. “It’s just like going to a sushi restaurant is not throwing money away on sushi. You’re paying for something, you’re getting value.”

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The “How to Get Rich” host pointed to current market conditions to support his stance. “Right now, in the U.S., in the top 50 U.S. metro cities, it is cheaper to rent than to buy,” Sethi noted, using New York City as an example, where the monthly cost difference between renting and owning identical properties can exceed $3,600.

Speaking separately to CNBC, Sethi elaborated on the often-overlooked expenses of homeownership. “People say they don’t want to throw money away on rent. Well, I don’t want to throw money away on interest,” he said, referencing how mortgage payments in the first few years can comprise up to 80% interest.

The “phantom costs,” as Sethi calls them, include property taxes, insurance, maintenance and homeowners association fees – expenses that many prospective buyers fail to factor into their calculations.

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Drawing from personal experience, Sethi shared his financial success story with CNBC. “I’ve made more money renting than I would have owning,” he said, referring to investments made with funds that would have otherwise gone toward a down payment and property expenses.

While Sethi doesn’t discourage home buying entirely, he advocates for a more nuanced approach to the major financial decision. He recommends that prospective buyers conduct thorough financial analyses, including amortization calculations and careful consideration of alternative investment opportunities.

“Most of us never run the numbers,” Sethi explained during the podcast. “We will spend $1 million in total cost of ownership for a house and we won’t run one calculation.”

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The financial expert suggests directing 5% to 10% of monthly income toward investments. “I don’t try to brush my teeth, I don’t try to save, I make it automatic. That’s what I want couples to do,” he said.

Sethi acknowledges that home values have appreciated as much as they have, rising 85% since 2010. However, he cautions against assuming real estate is the only path to wealth, noting that stock market investments have historically outperformed housing prices.

Sethi recommends considering both financial and lifestyle factors, from job flexibility to family planning, for those wrestling with the rent-versus-buy decision. The key, he says, lies in making informed decisions based on analysis rather than societal expectations about homeownership.

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