'How to Get Rich' star's 'most controversial' money opinion: Renting can make you wealthier than owning a home
Ramit Sethi, self-made 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 tells CNBC Make It.
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 says.
"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.
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.
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.
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.
Sethi encourages people to "run the numbers" to "see if it's a better decision to buy, or to rent and invest the difference."
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