Self-made millionaire claims that renting is more profitable than owning: "I've earned more through rent than I would through ownership."

Ramit Sethi, a self-made millionaire and the star of Netflix's "How to Get Rich," argues that renting is unfairly viewed as a waste of money because it goes to a landlord rather than being invested in building wealth.

When you pay rent, you're not just throwing money away, but you're investing in a place to call home. You're paying for a landlord to maintain your residence, providing you with a roof over your head and the convenience of being able to leave at the end of your lease.

Renters often fail to consider the additional expenses of owning a property when evaluating homes as an investment, apart from the monthly mortgage payment.

The initial years of a mortgage loan typically require high interest rates, which can amount to 80%, while closing costs, property taxes, insurance, utilities, homeowners association fees, and repairs are also paid upfront.

"Sethi says, "While some people claim they don't want to spend money on rent, I personally don't want to waste money on interest.""

You don't need to own a home to build wealth

Sethi rented homes in expensive cities like Los Angeles and New York because the cost of owning was too high.

He claims that he has earned more money through renting than he would have if he had owned, as his investments were made with funds that could have been used for a down payment and additional expenses for similar properties.

Financial wellness leads to happiness, wealth, and financial security.

Many Americans have built wealth by owning a home, as home values have increased by 85% since 2010, says he.

Sethi claims that people have become accustomed to irrationally high appreciation in real estate markets, especially during the run-up in home prices after 2020. This can lead people to assume that owning a home is the best way to build wealth, even though stocks have historically outperformed home prices.

"While it's understandable to assume that a housing shortage will lead to higher prices for an extended period, it's crucial to consider other possibilities. What are the potential costs of renting and investing differently? How much capital would be tied up in a down payment?"

When considering purchasing a home, there are various lifestyle factors to take into account, such as the possibility of relocating, needing more space for a family, changing neighborhoods, or requiring the flexibility to switch jobs and increase income. If any of these apply, renting may be a more suitable option as it allows for greater flexibility.

Do the math before you buy a home

Sethi observed that homebuyers often overlook the opportunity costs of purchasing property after deciding to become homeowners.

Homeownership is a significant milestone and a fundamental component of the American dream, deeply ingrained in the American psyche. As a result, it can lead to a lack of perspective on a property's actual worth compared to other investment options, such as 401(k) plans or stock index funds.

"Sethi remarks that couples often tell him that the money in their retirement account does not feel tangible. They say, "It's there, but I can't really touch it like a home." Sethi explains that there is something mesmerizing about a physical object that we can see and touch."

Sethi advises buyers to meticulously calculate all expenses, including hidden costs, before making a decision on purchasing property.

He argues that the American dream is not limited to purchasing a costly item that exceeds 100% of your net worth, leaving you financially drained due to unforeseen expenses.

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