"I have made more money renting": Why buying is not always best

It’s good to hold on to your dreams, but for now, it may be time to pivot from the one about the house: Homeowners spend an average 37% more overall than renting.

According to a Bankrate study published in 2024, “It’s cheaper to rent than to buy in all of the top 50 metros. The typical monthly mortgage payment of a median-priced home ($412,778, per Redfin) in the U.S. is $2,703, while the national typical monthly rent is $1,979 as of February — a 36.6% difference.”

Personal finance expert and TV host Ramit “I will teach you to be rich” Sethi, has been famously railing against wasting money on homeownership and takes it on in his new book, Money for Couples.

He often gets pushback on his position and implores would-be buyers to do the math before diving in. “You just have to run the numbers, and you have to realize there are lots of ways to build a rich life, whether you own or whether you rent.”

“In America, when you even suggest that maybe buying a house is not the best financial decision, that seems to attack American number one religion, which is homeownership,” he said.

“Instead of buying a house, which meant I had to go to fix things and repair things and put money inside, I just simply invested the money, and I have made more money renting for the last 20 years in superior locations with zero maintenance than I would have by owning a place.”

The key is to invest the money you’re saving by renting, Sethi said.

"What about equity?"

Sethi continually ruffles feathers when he talks about renting vs. buying. “This is like telling people the sky is green — they simply cannot compute it, and they use the same argument. What about equity? Well, I have equity, too. It just happens to be in the top 500 companies in America.”

While real estate can be a solid investment over time, the stock market regularly outperforms the housing market.

Paying all cash for a home eliminates interest and mortgage interest payments, but you’ll still need to insure and maintain it, pay taxes and possibly HOA dues. If you put down 20% ($100,000) and sign a 30-year loan at 6% on a $500,000 property, your monthly payment is $2,706 — without even factoring in taxes and insurance. Over 30 years, you’ll have paid an additional $328,833 in interest.

If you’d rented a place for the same $2,706 a month and invested your initial down payment in the stock market, business or other vehicle that assumes a modest 6% return with daily compounded interest, you’d end up with $604,875.26 at the end of 30 years without having to add another dime to the principal — quite a nice portfolio to pass down as a form of generational wealth, to help with retirement or to buy a home in cash.

There’s also a cultural component. “We have a very distorted view of housing in America, because deep down we believe successful people own housing and poor people rent," Sethi said. "Not only is that wrong, that actually makes many people, particularly young people and people of color, feel ashamed that they cannot compete in today's housing market.”

"But my grandparents bought a home on one salary"

The American Dream did make sense long ago, when housing was relatively less expensive and even a one-income family wasn’t spending 30% or more of its income on housing. 

What happened? People often point fingers to corporate holding companies that buy homes in bulk and create scarcity, forcing prices up, but Sethi says that even corporate landlords must adhere to a realistic market strategy. You may know and love the real culprits behind the housing shortage.

“It's actually your neighbors and parents who have conspired to rig local governments across every city in America to make it incredibly hard to build housing. It's as simple as that,” he said. People who already own homes put incredible amounts of pressure on their local and state governments to keep development at bay — they show up at meetings and create petitions to stop growth. Their NIMBYism (“not in my backyard”) in aggregate ends up becoming BANANA, “build absolutely nothing anywhere near anything.”

It’s changing, but not quickly enough. Federal mortgage financing enterprise Fannie Mae recently reported that vacancy rates are staying low in most of the country, except for places where there’s been a deliberate expansion of multifamily housing supplies, notably, in the South and southwestern cities of Austin, Phoenix, San Antonio and Raleigh.

“Amongst comparable major countries, the United States is the only one in which the housing stock grew more slowly than the population between 1995 and 2020. … fewer new homes were built in the 10 years ending 2018 than in any decade since the 1960s,” the study says.

"But I want to paint my living room purple"

Still, there are compelling reasons to purchase a home that have little to do with money — being in a certain school district, staying near friends and family, the ability to renovate and decorate as you want, having control over when you move and being able to budget with a set monthly payment are just a few. 

“I don't think buying a house is, on its own, a bad idea,” Sethi said. “I’m sure I’ll buy a house, and when I do it will be a horrible financial decision, but not everything has to pencil out on a spreadsheet.”