Why Buying A House Makes Zero Financial Sense | ft. Ramit Sethi

Sam Parr

Alright everyone, this episode is going to make a bunch of people angry. I think it's going to make a bunch of people angry, and here's why: we're going to discuss renting versus buying. I saw recently on TikTok or something like that, there were so many people complaining that it's too expensive to buy a house. They're also complaining about renting. I've got a surprise: I think it's way better to rent, and I'm going to explain my reasoning. I know that on the surface, that's going to make a lot of people angry, but hear me out. We have my friend Ramit Sethi with us. Ramit is famous for writing a book called *I Will Teach You to Be Rich*. He also has a famous Netflix show with the same title, and he gives his explanation as well. I think this might anger a bunch of people. Listen to the entire thing before you judge, and then comment on YouTube. So go to YouTube and comment, and let me know what you think. By the way, I just looked at YouTube right now: 70% of people who watch our videos are not subscribed to our channel. That is ridiculous to me because we have a gentleman's agreement with this podcast. What does that mean? It means if you've ever listened to more than one video or podcast, you need to go to YouTube, go to *My First Million*, and click subscribe. We call it the gentleman's agreement because we can't track that you're actually doing it. But Sean and I, along with people like Ramit, we make content for you all the time. All we ask in exchange is just clicking subscribe. It means very little to you, it costs you very close to nothing, and it means a lot to us. So please do that, and I hope you enjoy today's episode. Let me know what you think in the comments on YouTube if you agree or disagree about renting versus buying. Alright, let's get to it. Alright, we're live, Ramit. So today, I had you on because you and I are in agreement on a few topics. One of them being that even if we think that we can't afford it—which I'm sure we could, we could afford to buy a home—we actually prefer to rent. Most people, at least online and among our friend group, think that that's insane. I wanted to have you on to discuss your opinion on buying versus renting, to discuss some of the numbers behind it. We're going to get tons of comments, and we're going to try to defend our argument against all of them before they actually come.

Ramit Sethi

I need to defend it. I already know the answer; there's no defending. It's math. It's basic math. Here's my position: let me state it very clearly. For the last 13 years, I've gotten about 150 comments a day telling me that I'm stupid. I think I turned into the Joker around 2012 when random people were telling me, "It never makes sense to rent. You're always throwing money away on rent. You're not building any equity. Equity is really important. What are you going to leave to your kids?" And on and on. I don't want to pay my landlord's rent, etcetera.

Sam Parr

Well, you actually do a funny job, by the way, of sharing the comments that you get on all your YouTube videos. Typically, the comments are something like, "Land is always a good investment," or "Yeah, you're not really wealthy if you don't actually own land." Or like they...

Ramit Sethi

People tell me that I'm poor because I don't own a house. First of all, that's actually quite insulting. Not everyone can afford to buy a house. It doesn't mean you're poor just because you're renting.

Sam Parr

There are.

Ramit Sethi

Actually, a lot of people who rent by choice, including me and potentially you. But anyway, here's my position on the biggest purchase of your life, which for almost everybody is a house. You have to run the numbers because sometimes it's financially beneficial to buy, and other times it's financially beneficial to rent. This should not be controversial; it's a very straightforward concept. Especially if you have lived in a high cost of living city like New York, San Francisco, or LA. I've lived in all three cities. However, for some reason, saying that basic concept is like me telling everybody that the sky is green.

Sam Parr

And by the way, you said sometimes it is profitable, sometimes it isn't. There's a third part of that sentence, which is also, "Who cares?" That is an important thing when people... So usually, my take on this situation is that I try my hardest never to use certain words. I would never say "always" or "never." That's nonsense; that's crazy to say that. But usually, my take is, or my take now is, historically, in many cases, in fact, maybe even most cases, buying a home is not more profitable than renting. What people say is, "Well, why are you buying a home?" They'll say, "Well, because it makes me happy." Why did I buy a steak last night? You know, why did I do this other stuff? This, you know, it makes me happy. My other point is that doesn't mean it's a horrible investment. I'm just saying, compared to all alternatives, I actually think it's not great. Then people will say, "Well, but I made money on my house," and "This house, I've done it before." I say, "Yeah, it can happen sometimes. Yes, it definitely happens sometimes." And particularly, they'll also say, "So should I never invest in real estate?" It's like, "No, because investing in an apartment building or some type of development where the intention is cash flowing and the intention is number one investment, many times, can be a great idea." But historically, if you look at the trailing 50 years of the S&P 500, the average home growth annual growth rate, and rent that is of equal quality, if you just run the numbers, I think more often than not— in fact, not sometimes, yes sometimes no— more often than not, it's actually not as profitable or it's less profitable to buy than to rent. Have you ever done the historical math?

Ramit Sethi

I've seen the historical math on how the appreciation of purchased homes, which shockingly for over about 100 years is right around inflation. People find that very hard to believe.

Sam Parr

It's like **3.5%**.

Ramit Sethi

I think... and what they typically will say, their first response is quite funny. They go, "My house went up 26% in the last 2 years." And I go, "I wonder if anything historically, a historical aberration, happened in the last 4 years, such as a worldwide pandemic and generational shifts." I wonder. But that comment is actually quite revealing because it reveals **recency bias**. The fact that what happened to us in the last 2 or 3 years is something that we extrapolate will happen forever. You hear people saying this all the time. They're like, "Remember when we were younger?" It's like people would say stuff like, "MySpace is always gonna be on top; it's dominant." That changed. People believe that right now about Amazon, Facebook, and Apple. That will change in our lifetime. When there's a major world war, people believe things will never recover. They do. So if you want to be a great investor, you know you gotta look at a big, big, big picture. And sure, things have appreciated. That's awesome for the people who own a house and can make their payments. I think that's awesome; I'm really happy for them. But I still made more money renting than I would have owning.

Sam Parr

And by the way, I'm in the category where I currently own a home. I own my home now, but I'm moving and renting a house. I haven't decided if I'm going to sell my house or rent it out. I'm making that decision in the next couple of weeks. But if I decide to sell it, I'm actually going to have made a profit because I got very lucky and it just worked out. Now, here's...

Ramit Sethi

I gotta tell you something. You said something the other day on Twitter that I really liked. You said, "The older I get, the more I appreciate what role luck played in my success."

Sam Parr

What I said was, what I believe is basically, when I started my career, it was like "pull yourself up by your bootstraps, make it happen." I'm the only one responsible for my wins and losses. I actually think that that's an alright attitude to have when you're doing it because you think the internal locus of control... like it is up to me, I have to do something great. But then, when things work out in my favor, I reflect after a few years and I'm like, "Oh my gosh, that worked out perfectly and had nothing to do with me." For example, when I sold the company, the CEO of HubSpot, a few days after the deal closed, got into a life-threatening accident. Had that happened three days before, or one week, or two weeks before the deal closed, everything could have changed. That had nothing to do with me; it was just luck. There are many examples where I just got lucky. In the case of selling my home and buying my home, everyone thought it was not going to be a good investment, and I didn't think it would be either. It just totally got lucky that... that is luck.

Ramit Sethi

I think that it's okay to be lucky. It's actually great—fantastic! Sometimes luck strikes, and let's take it as fantastic. But I also think it's super important to be honest about when you are good or when you are lucky. So, I have a question for you. I've found that when people buy a house, they rarely want to rent afterwards. Now that you're going to rent, what does that feel like for you?

Sam Parr

Alright, I want a quick break to tell you about HubSpot. This one's easy because I'm going to show you an example of how I'm doing this at my company. When I say "I," I mean not my team; I mean I'm the one who actually made it. I've got this company called Hampton. You could check it out at **joinhampton.com**. It's a community for founders, and one of the ways that we've grown is by creating these surveys. We ask our members certain questions that a lot of people are afraid to ask, such as what their net worth is and how their assets are allocated. All these interesting questions go into a survey. I went and made a landing page, so you can check it out at **joinhampton.com/wealth**. You can actually see the landing page that I made. The hard part with Hampton is that we are appealing to a sort of higher-end customer, similar to brands like Louis Vuitton or Ferrari. So, I needed the landing page to look a very particular way. HubSpot has templates, and that's what we used. We just changed the colors a little bit to match our brand. It's very easy; they have this drag-and-drop version of their landing page builder, and it's super simple. I'm not technical, and I'm the one who actually made it. Once it's made, I then shared it on social media, and we had thousands of people see it and thousands of people who gave us their information. I can then see over the next handful of weeks how much revenue came in from this wealth survey that I did. I can track where the revenue came from—Twitter, LinkedIn, whatever. I can actually go and look at it and say, "Oh, well that worked, that didn't work. Do more of that, do less of that." If you're interested in making landing pages like this, I highly suggest it. Look, I'm actually doing it, but you could check it out. Go to the link in the description of YouTube and get started. Alright, now back to MFM. I'm moving to a place where I intend to rent. I don't know how long I'll rent it for—2 years, 5 years, I don't know. I wanted to rent a completely furnished home because I didn't want to own much of anything. I didn't want to own a lot of stuff because I have a small house in Austin, and it's 2,210 square feet. I have to fix stuff all the time, and that's a small place. Historically, I have rented for 3 months out of the year when I go to visit family in New York, and I love it. I love being able to call someone and just say, "Fix this, please." It brings so much joy that I don't have to find a vendor or fix something myself. It feels like there's a burden lifted off my shoulders—that's what it feels like.

Ramit Sethi

Just from looking at you, I would have assumed you like to fix stuff.

Sam Parr

I do like to fix stuff, but only the things that I enjoy fixing. For example, I like to do Legos; that's fun for me. I also enjoy working on old motorcycles. However, I don't want to have to fix something like an electrical issue in my home that is essential, like, "I don't have light tonight if I don't fix this."

Ramit Sethi

Okay, now looking at me, you also agree that I like to fix stuff too, right? A lot of tools.

Sam Parr

I a

Ramit Sethi

A lot of grime under my fingernails, right?

Sam Parr

If I had to guess, you have never stepped foot in a Home Depot.

Ramit Sethi

Only the last time I went was when my dad made me go, which I was probably about 11 years old.

Sam Parr

Yeah.

Ramit Sethi

My goal, my rich life, is to never set foot in a Home Depot ever again. So far, I'm 41 years old, and I've done it. I think I can keep it going.

Sam Parr

Okay, and so that's great that you know what you want. When you're thinking of the buying versus renting thing, what percentage of your equation is based on math and numbers, and what percentage is based on emotion and happiness?

Ramit Sethi

Great question! In the beginning, it was almost all about the numbers. When I was renting in San Francisco, it was a steal. Basically, the amount that I would have paid to own it was close to **two times** more for an equivalent place. Then I moved to New York and had a pretty nice place there. I would always keep my eye on the real estate market just for kicks. I was tracking stuff, and of course, every year I would negotiate my rent. In **11 years**, my rent went down **four times**. This is in Manhattan, so a lot of people think that rent only goes up. No, it doesn't! Depending on where you live, and even depending on the segment you're in, rent can go down. In New York, when I ran the numbers for an equivalent place that was just **two buildings over**—same view, same square footage, same everything—it would have cost **2.2 times** more to own than to rent. So let me break down the math because I was mathematically oriented. Let's pretend that I was paying **$5,000** a month. If I was paying **$5,000** a month to rent and to own that place, when I factor in taxes, maintenance, opportunity cost of the down payment, transaction costs, all of it...

Sam Parr

Can I wait? Let me ask you about those numbers. So, for opportunity cost, do you assume 7.5%?

Ramit Sethi

7% okay.

Sam Parr

So, you assume 7%. And then for maintenance, what do you assume? 2% of the property value a year?

Ramit Sethi

I am in New York. Yes, in other places I would go lower, but New York is just inherently more expensive.

Sam Parr

Okay, and then $1,000 per month for some buildings or apartments versus other stuff. You'd have an HOA in New York, correct? That's expensive.

Ramit Sethi

Yeah.

Sam Parr

I have friends who have an HOA that's $5,000 a month. It's very expensive.

Ramit Sethi

Yeah, that's totally normal in a high-end building in New York. Yeah, completely normal.

Sam Parr

Alright, so you have opportunity cost, you have maintenance, you have HOA. What else do you factor in?

Ramit Sethi

In there, transaction costs when you buy and sell, it's massive.

Sam Parr

Was that like realtor fees, 4%?

Ramit Sethi

I forget the calculation I used back then, but it's like $100 of $1,000 for a unit. That's when you count both ends. Okay, and then furniture. This is something not to be missed. You don't get the same furniture in a rental as you get in a place you bought for a lot of money. You get nicer furniture. You need to factor that in. You need to be honest. Also, renovations. People are not really renovating their rentals, but they're renovating their other ones. So I factored it all in. Okay, and again, you can play with the assumptions. In New York, I always prefer to estimate high.

Sam Parr

What do you use for future growth? Do you use 3.5%?

Ramit Sethi

I used 3% for rental growth, and I think I used 3.5% or in the ballpark of that for owning. Again, we need to factor in appreciation because there are a lot of buildings in high-cost-of-living cities that lose money every year, but they make it on appreciation. Okay, so I factored it all in. I was like, "Wait a second, if I'm paying $5 over here" [as a sample number], "it would cost me $11 per month to own the same basic unit with the same view, etc." I thought, "I'm good. I'll take the $6,000 per month, I'll invest it," and that's exactly what I did. I've been doing that for like close to 20 years, so that turns into a lot of money over time, and you get to live in amazing places. Now, that's the math part, but at a certain point, my wife and I will decide to buy, which one day we probably will.

Sam Parr

Do you have a time frame? Or, like, not a time... Do you think that maybe in the next 5 years you might? Or is it just whenever you...?

Ramit Sethi

Probably not in the next five, but after that, yeah, probably like after that. That's my guess. When we go to make that decision, my goal with anything really important in my life is that I don't want cost to be the number one consideration. I don't want it to be number two or even number three. I want to have enough money that I can go and be like, "That's what I want." It's totally irrational, but it's exactly what I want, and I don't really care what it costs.

Sam Parr

Is your mentality okay? So, money is number 3 or number 4. I think you said 4 or 5 on that list. So, in your mentality going into buying a home, do you think it's going to be like, "I would like to not lose money on this," or, if possible, "I want this to be a store of value" or something like that? No?

Ramit Sethi

I will lose a huge amount of money. It will be the worst financial decision I ever make. It will cost me $1,000,000. It will cost us $1,000,000. I know that, and it's okay.

Sam Parr

Well, you said that money is number 4. So if it's number 4, no...

Ramit Sethi

I don't want it to be number one, number two, number three. It's going to be like a distant number. For example, my wedding. When my wife and I got married, I had been saving for over a decade, well before I knew her. Because I knew, you know, I'm Indian, I wanted to have an amazing wedding, and I didn't want cost to be relevant at all.

Sam Parr

You should have brought that.

Ramit Sethi

Up on.

Sam Parr

Your first date, like, "Hey, I’ve been saving for our wedding, by the way."

Ramit Sethi

That's not weird. That's not weird at all. That's what people often in the personal finance community want you to do. They're like, "Pull out your Roth IRA, show me your allocation." I'm like, can you guys go on a first date for once in your life, please?

Sam Parr

During dessert, you're like, "What's your credit score?" And by the way, can we go over our budget for our wedding?

Ramit Sethi

So, that was an example where I knew that something inevitable was going to happen. One day, I was going to get married. I wanted to be married, and I was like, "This is going to be awesome." I didn't want cost to be relevant at all—okay, within reason—but I was happy to pay a lot. The same goes for a house. It's a luxury purchase; it's not an investment. It's a horrible investment in a high cost of living area. So, I'm just approaching it as a pure luxury, as if I was going to buy a beautiful sweater or car or whatever. I don't care; I'm going to lose money. It's pure desire.

Sam Parr

You said that you want to be able to buy cash. Will you get a mortgage, or does that depend on the rates?

Ramit Sethi

Maybe, maybe so. One, I have 10 money rules; they're online. One of the rules is to be able to pay in cash for any large purchases, such as a wedding, honeymoon, car, or house. Now, people are always like, "What the hell are you talking about? Pay for a house in cash?" The origin of this is I had a mentor when I was an intern, much younger, and he told me, "Ramit, we have a no debt policy in our house. No debt." I said, "Wow." In my head, I'm thinking, "Must be nice." The guy lived in a very elite Bay Area city. As I got older and my business grew, I started to realize that it actually takes discipline to have a no debt policy in your house. Now, we can quibble about whether debt is good or bad, and sometimes it's leveraged and whatever, but just the idea that he had a philosophy, a point of view on debt, I really love that. So, one day when we buy a house, I want to make sure we have enough somewhere in our net worth that if we wanted to, we would pay with cash. Will we do it if it's a 1.5% mortgage? No, we'll take that mortgage all day. But I'm not going to buy a house that we don't already have the available cash for, purely as a matter of discipline.

Sam Parr

And I want to ask you about your future home. What attributes do you want it to have? Does it factor in how often you're going to move? For my rules for buying a home, one of the rules I have is that I want to live there for 25 years.

Ramit Sethi

Dude, you and I agree on so much. Basically, all of our podcasts are two bros agreeing with each other. I love it! Okay, I totally agree. When we go to buy a house, the general suggestion I give to people is, "You better plan to live there for at least 10 years." I think the same way—long term. Let me explain the math behind it because this is quite counterintuitive as well. We've all heard the phrase, "You're throwing money away on rent." I go, how come you don't say the same thing when you go eat sushi on Saturdays? You're throwing money away on sushi! Or how come you don't say, "You're paying your sushi owner's mortgage"? How come we only use that ridiculous sneer for a landlord? I don't care if a landlord makes money as long as I'm making money. Everybody can make money; it's great! In the case of buying a house and staying there, then moving in a few years, it's usually a really big financial mistake. Let me tell you why. I ran a quick calculation before we talked. Let's take the median house; it's like $417,000. Let's even be conservative. Let's say you put 20% down, which is pretty hard to do, but let's just say you do.

Sam Parr

Do most people do 20% or less?

Ramit Sethi

I think they do less, especially now because it's so unaffordable. That's a median price house; that's really expensive. Let's say you have a 7.1% interest rate. I calculated this with really good credit, but that's the interest rate right now: 7.1%. Insane! Okay, listen to this. This is going to blow your mind, everybody: you are paying more in interest than in principal for the first 20 years. Not 1 year, not 2 years, but for 20 years! Only in year 21 are you paying more towards the principal than you are in interest. So, in other words, for all the people who leave me hundreds of comments every single day saying, "Why are you throwing money away? I rent! So dumb!" I just have one simple answer: I don't like to throw money away on interest.

Sam Parr

Do you think that your opinion... and this is more so because I know you get these comments all the time. I'm recently in this category and I'm reflecting on how I feel. Do you think that your opinion would change if you had 2 or 3 kids?

Ramit Sethi

Family definitely factors in, for sure. In fact, I was going to ask you, how does family factor into your decision? But it's so interesting because you're choosing to rent right now. I love that.

Sam Parr

Well, it's going to factor in for me when she's of school age. She's not yet; I have a 4-month-old. And so, that's why I said through the... By the way, the lease that I got, I negotiated down a significant amount. I got them down by signing a 2-year lease and paying 6 months upfront.

Ramit Sethi

So good.

Sam Parr

And so, like, I think we got a **30% discount**.

Ramit Sethi

That's amazing! Yeah.

Sam Parr

It was a significant discount because we did a 2. Then I called them and I said, "Look, we are the perfect tenants." We have stable jobs, we don't party, and I've got a newborn. We are the best possible tenants you could ever want.

Ramit Sethi

But like, at what...? Did you say, by the way, have you ever heard of "My First Meal"?

Sam Parr

Never. I actually don't like bringing that up.

Ramit Sethi

Okay, I have to tell you something. My friends are always like, "After my Netflix show came out, they're like, dude, what's it like being famous? Like, do you get into any restaurant you want?" I was like, "What? What are you talking about?" They're like, "Don't you have your agents call and get you into places?" And I'm like, "Is this what people do? Because if so, I need to learn. I need to learn how to name drop my first million."

Sam Parr

And say, first of all, I never named myself. Second of all, I'm not famous. When people make fun of me, like my friends do, and they'll say I'm famous, I'm like, "No, I'm popular amongst a handful of nerds." So anyway, for me, when factoring in children, I think that when they're of school age and if we decide to go to public school, the school district matters and things like that. In which case, buying will be a no-brainer. But my whole thing with the hardest part about deciding when to buy is not the rules; it's deciding what I want. The hardest part is seeing what features of a house I actually care about. What I love to do is, when I visit my family in different parts of the country, I purposely rent a variety of Airbnbs. Sometimes I'll splurge and rent a 10,000 square foot place; other times, I'll rent a really small apartment. Other times, I'll rent a place in the city, sometimes in the suburbs. So I get to live for two weeks or whatever, just to see what this lifestyle is like and if I like it. I'll give you an example.

Ramit Sethi

I love that.

Sam Parr

I used to want to buy a brownstone in Brooklyn. I thought they looked so cool. I rented one for a month, and it was a lot of money. I splurged, and what I found is they stink. For what my preference is, an old or a renovated brownstone is still an old building. Things break all the time, and you hear the noises. So, I got to test that out, you know what I'm saying? I do that all the time. When you're thinking about buying a place, what attributes do you want it to have?

Ramit Sethi

I have a very, very specific and growing list because, like I said, it's a luxury. A luxury means you get exactly what you want. It's not about price; it's about getting exactly what you want.

Sam Parr

How long is your list?

Ramit Sethi

It's pages, as in pages. Oh, just...

Sam Parr

And it bullet points.

Ramit Sethi

Yeah, just bullet points. For example, we rented an Airbnb.

Sam Parr

That's amazing, right?

Ramit Sethi

During.

Sam Parr

That we can test it.

Ramit Sethi

Amazing, amazing! Honestly, it was a huge gift to be able to say, "Oh, I can live in a different house that I would never have access to." Living there, even for a week, you see things you didn't notice before. We rented an Airbnb one time, and the owner was a chef. Oh wow! It made a lot of sense because the kitchen was extremely efficient. I found that, even though I'm not in the kitchen a lot, I enjoyed being there. I later learned there's something called the "kitchen triangle" or something like that. It's a highly efficient way of setting your kitchen up. Then I connected the dots: "Oh, this is a chef, so they knew what they were doing."

Sam Parr

Like two dishwashers, things like that.

Ramit Sethi

Exactly. It's all within reach.

Sam Parr

Yeah.

Ramit Sethi

So you're not wandering around. I also, you know, I love hotels.

Sam Parr

Yeah.

Ramit Sethi

Right, so every time I go to hotels, which I consider the best hotels, they have the absolute best designers, the best hospitality, and the best thinking about what's going to make an amazing experience. For example, the best bathroom in the world that I've ever encountered is at Amon Kyoto. It's amazing! So, what makes it amazing? Okay, first of all, they have a beautiful mirror. The lighting looks incredible, and the setup has huge counter space with beautiful Hinoki wood right behind you. The toilet is in a separate room. The Toto toilet alone I think is $20,000, and it looks like a spaceship. It's incredible!

Sam Parr

Our friend Noah has one of those. Oh, really?

Ramit Sethi

That's cool.

Sam Parr

I think... I think so. It's like a really expensive, smart toilet, right? Wait, yeah, yeah.

Ramit Sethi

Hold on, are you sure Toto has like 20 models?

Sam Parr

Well, I don't know which... I know that it was like north of $10,000, and it has like a "woah," and it has like a remote control.

Ramit Sethi

Noah, okay, that’s amazing! I did not know that. Wouldn’t it be funny if we got Noah on right now? We’re like, “Noah, join this link right now,” and then we’re like, “Noah, show us your toilet.” And he’s like, “Show you? I’m sitting on it right now!”

Sam Parr

No, it's a fancy toilet. As a gift, he bought Neville one as well—a really fancy toilet. Wow! So, Neville had this toilet with remote controls. Enough that when Neville's family member came to visit, they were really intimidated because they were like, "I don't know how to work this toilet."

Ramit Sethi

It is a little nerve-wracking for sure.

Sam Parr

So, you want a fancy bathroom. You want an efficient kitchen.

Ramit Sethi

A couple of other things: the bedroom is small. I'm not interested in a huge bedroom. I don't want a couch in the bedroom; it's so irrelevant, it's so dumb. I want a place to put packages because we get a lot of packages, and I don't like seeing cardboard everywhere.

Sam Parr

In the South, they call that a mudroom. You want a mudroom?

Ramit Sethi

A mudroom.

Sam Parr

That's what they call it.

Ramit Sethi

Great! I like that we want... well, my vision is multiple pavilions. So, three small houses or structures. One would be an office, physically separate; one would be a guest house, physically separate; and one is a house. I don't like a house that's huge. I don't like anything above 3,000 square feet. I find it quite cavernous and more human-sized. My parents taught me this really interesting thing. You know, we grew up, we didn't have a lot of money; we had a pretty big family. I was asking my dad, you know, as I got older, "How did you decide to buy a house? How'd you calculate all this stuff?" He said, "Let me give you a piece of advice. Don't get too big of a house." I was like, "What? How come you say that?" He goes, "If you have too big of a house, kids will go into different areas and they won't congregate. You want them to congregate because that's how you build a family." I was like, "Whoa!"

Sam Parr

Dude, I interviewed this guy on Tuesday, Wednesday, or maybe it was yesterday. He has a **25,000 square foot home**. I asked him about the expenses for that, and he told me all the answers. I also asked, "How much time do you spend a week managing vendors?" He said, "Like 15 or 20 hours a week." He retired, so he mentioned, "I kind of like doing it because I don't have anything to do."

Ramit Sethi

Okay, and...

Sam Parr

He's like, at the time I was divorced and remarried a woman who had a bunch of kids, and I had a bunch of kids. It was cool to have everyone around. Then they grew up and had kids, so I was like, "This is our compound that everyone hangs out in." But now I'm trying to downsize. It's just too much work; I can't handle it.

Ramit Sethi

Yeah.

Sam Parr

And he's like, "I can't change the light bulbs. They're just too high, and I'm not going to get on the ladder. It's just way too much work." So, because I was thinking about size, I'm trying to decide how big I want. I think I actually want like **5,500 to 6,000 square feet**. The reason why I like that is because my in-laws can come and stay there, basically live, and have their own room. They could be with my family, and it doesn't feel like a burden that they're just living there. They could work from the house. By the way, working from home is an ordeal now. I record for a living, so I would need a dedicated room for that. My wife would like a dedicated room as well. I want space for my in-laws, and I have out-of-town family. I want them to be able to make themselves at home and not feel like they're a burden on me. So that's kind of how I decided on my square footage: about **5,500 to 6,000**.

Ramit Sethi

Okay, I'll tell you what. I like that it all kind of makes sense. You go, "I need this, I need that," and then it expands. I think that also brings me to the list. It's not just about the house. So, I went one level up because when my wife and I moved to LA, one day I was like, "Let's go take a driving tour of the most expensive houses in the city." So, I found all the expensive neighborhoods, and then we just drove around Bel Air and all these places. Most of them have huge gates, but you can kind of see through.

Sam Parr

And you're talking like $50 million to $100 million homes.

Ramit Sethi

Yeah, exactly. So I was like, "Write down that address, and we will look it up later." Sometimes there are photos; it's pretty cool just to see. As I was going through this, you know, while you're driving there for a minute, especially as an entrepreneur, you're like, "I could live here." Ramit Sethi, Bel Air, you know? You're kind of falling into the vision. Then I got home and I was like, "What the hell am I talking about?" I have a very small list of things that are absolutely important to me, and guess what's number one on that list? **Walkability.**

Sam Parr

Same.

Ramit Sethi

Walkability... So how am I going to have a Bel Air house where there's literally no sidewalks and then also reconcile that with walkability? That's why I think it's so important for us, as you get to know yourself, to just create a simple list of values. Because otherwise, even I will get enchanted by some cool thing I see, be like, "Oh, Bel Air is so cool!" and then I buy this thing that I don't even want. It could be a car, it could be a shirt, it could be whatever. So just having those values to remind you what is actually important to you.

Sam Parr

The place that I rented, through the second biggest reason why I did it, was it's across the street from a weekly farmer's market.

Ramit Sethi

I love that. So simple.

Sam Parr

I just want to eat fresh vegetables and fresh meat. That was like an ordeal. It’s just across the street from a farmer's market.

Ramit Sethi

I love that.

Sam Parr

And when you're this methodical about buying a home, are you this methodical about all the other things you like to purchase on a daily or weekly basis?

Ramit Sethi

Well, I think you should be **methodical** for the largest purchase of your life. That's what blows my mind: people literally buy a house and spend more time researching their local steakhouse. I'm like, "What?" So, no, I'm not as methodical. No, I don't spend years deciding, you know, what brand of chips to buy. But I do have a couple of rules that kind of make life simple. Like you, I don't want to be consumed with stuff. I find that, just like that older guy you mentioned, we buy stuff with good intentions, right? It's like, "I worked hard, the American dream, I'm gonna buy a car, a house, etc." And then suddenly, we blink our eyes and wake up one day, and we spend 50% of our time fixing stuff, repairing stuff, and thinking about stuff. I don't want stuff. I find that sometimes when people buy stuff, their world shrinks. It's like, "Oh, I gotta work on this roof thing outside." You can see how little I know about houses; that's the only example I have—like the roof. Yet, I want to expand. I want to be talking to friends, traveling, trying new foods, doing my business. I don't want to be focused on a light bulb; that's not of interest to me.

Sam Parr

So, tell me what your opinion on this is. I'm actually methodical about acquiring things on a daily basis.

Ramit Sethi

Like what?

Sam Parr

So, like, I don't have an Amazon Prime membership. I just found myself buying like $5 extension cords or a USB thing that I don't need. This is because, A, I don't want all the packaging coming to my home. I think it's ridiculous. Sometimes I have to spend more money, and it's not just about the money; it's the energy of what it's doing to the environment. Also, it affects my mental space. I have to spend money to get someone to come over to get rid of all the boxes because they don't fit in my trash can. B, it creates so much clutter. So, I've actually created a handful of rules when it comes to just buying things on a daily basis.

Ramit Sethi

Tell me, tell me.

Sam Parr

Yeah, so the first one is, when possible, I try to buy for life. That could mean a fancy leather jacket. For example, if I want a leather jacket, I'll spend more money than I normally would to buy a nicer one, hoping that it can last for 30 or 40 years. It could be classically styled, or it could patina nicely. I do that with cars as well. I like to buy something that I think can last for a long time because I don't want to deal with the cost—it's a little bit of a transaction cost, but it's more so the mental cost of just having too much stuff. The other thing that I do is I actually think that recycling is nonsense. I believe that most of the recycling in America just gets thrown into the garbage. So, I prefer to just reduce and reuse. The amount of energy that an Amazon truck takes to get something to my house, which it got from China overseas with the huge ship, and all the energy that goes into that, I find it to be disheartening. It hurts my heart to think about how much waste it is just for me to buy this silly USB thing that I could have just gotten at Target without all the packaging. Do you know what I mean? So, I prefer just to reduce and reuse. Finally, I try to be super intentional. For example, I bought a weighted vest the other day because I like to wear it when I take the baby for a walk. It's actually a fun way to get a little exercise. I try to be intentional about which type I want and how much weight I think I need for this weighted vest. In the past, I've bought three of them, thinking, "Oh, I'll just see whatever's cool," since they're only $25. Now, I try to be a little bit more intentional about what I'm going to acquire to make sure that it's the one I really, really want. I don't want my home full of clutter because it makes my brain cluttered.

Ramit Sethi

Yeah, I totally agree. Wow, amazing! I love those. I love how intentional you are that you just have them. I have to say that I think we kind of grew up fairly similarly, like socioeconomically.

Sam Parr

My mother was a teacher, and my father was a small business owner. He did okay, but that was when I was in high school.

Ramit Sethi

Yeah, okay, so it's so interesting that often, you know, on my podcast, I speak to these couples about money. Sometimes, there are trends that emerge from different types of couples. For example, one insight that is quite obvious, if you ever listen, is that parents who have credit card debt can never say no to their kids. They have an inability to say no to themselves and an inability to say no to their kids. It's classic. Another one you'll find is that people who have credit card debt, sometimes I'll be like, "Hey, pick up your computer and take me over to your closet." They'll show me their closet, and wow, is that intimate.

Sam Parr

Well, you had a lady on your show who was kind of... I don't know if she was broke, but she was in a money crunch. She had tens or hundreds of thousands of dollars worth of purses and things like that.

Ramit Sethi

Yeah, but the interesting thing is, she had a lot of money on the Netflix show, Natalie. In couples that often have financial problems, they're overspending. Sometimes, I'll ask them to show me their closet. Usually, they're kind of withholding; they're not really opening up. So, I say, "Show me your closet." They love it; they open up because for many people, their closet is their identity. I don't mind; I love my clothes. They start telling me about them, and what you see in the closet is often chaos. It's just tons and tons of stuff. I'll say, "Hey, if you were given the option to buy one $150 shirt or ten $15 shirts, what would you take?" Okay, before I tell you what they say, Sam, what would you say?

Sam Parr

Less quantity any day of the week.

Ramit Sethi

Exactly. They never say that. They say, "I want more. It provides me memories. It shows me that I can get it," etc. What I see is that class, money, and socioeconomic status all intersect. What you're talking about is so interesting because as you have made more money and met people who have a lot of money, you also realize that when you go into their houses, there's a lot less stuff in there. It is really fascinating and extremely taboo to talk about in our culture how what you see in someone's house actually tells you a lot about who they are. Their identity is so revealing.

Sam Parr

Yeah, and it creates huge amounts of headache. This isn't just a financial thing. I think that, usually, the desk where I work needs to be clean. I remember you said something like, "I love beauty, and if I surround myself in my home or my office with beauty, I feel inspired and I feel more productive." I don't need beauty. I'm not inspired by particular paintings or things like that, but I need it to be clean. I need it to be clutter-free. So, the desktop on my computer is always empty, and it's just white space.

Ramit Sethi

And I like that. You know, there's this quote: "Luxury is that which can be repaired." It strikes me when you talk about, you know, reducing and reusing. It's the same exact thing. One example I shared that people went berserk over—they loved it—was I have these tennis shoes. The company that I bought them from is expensive, and they do free repairs.

Sam Parr

So, what's the name of the company?

Ramit Sethi

That's pretty cool! It's Brunello Cucinelli, a high-end Italian brand. Basically, anything at these high-end brands, if it ever breaks or gets frayed or anything, you take it in and they'll fix it for you, no questions asked. There's no cost, but it's very expensive on the front end.

Sam Parr

How much are shoes there? I know the brand, but I've never looked at their shoes.

Ramit Sethi

Well, I think those tennis shoes are like $700.

Sam Parr

That's a lot.

Ramit Sethi

But yeah, you know, it's not real. This service, they are doing it as a courtesy to me. Really, they want you to bring in your $11,000 coat.

Sam Parr

Got it.

Ramit Sethi

Which you've had for 25 years. They'll send it back to Italy, where only they know how to perfectly repair it, and then they'll ship it back.

Sam Parr

That's awesome! Which...

Ramit Sethi

Yeah, it's amazing, right? So, I posted this and showed my shoes. I wore some of these shoes on the show, and I really like to... you'll see me in sometimes the same outfits a lot because I want to wear my stuff. I buy it, I spend on it, and then I want to wear it. I don't want to just throw it up. So, I took these shoes and I took them to the store, and they were like, "Yeah, no problem." It took months. The other thing about buying nice stuff is that you're often not going to get the speed that you would get if you ordered from Amazon Prime or something else. Like, you go to H&M, you're buying it right there on the spot, you're tossing it, etc. But for this, it's like months away. Anyway, people loved it. They loved the idea that, "Oh my God, free repairs! Free repairs!" When I get stuff repaired for free, what they don't love as much is spending on quality in the first place. Hmm, right? It's not about the free repairs. Like, I can afford to get shoes repaired, so can you. But I think I like your mentality of being selective about what I buy. Not just by quantity, but really thinking about what's meaningful to me. I think that's really cool.

Sam Parr

Yeah, it's... I think that's exhausting. I remember as we were preparing to move, I was thinking, "Alright, so we're going to spend money to ship this." And I'm like, "But I don't even want this! Why am I... I don't even... why do I want to ship this thing that I don't even want?" It's kind of ridiculous.

Ramit Sethi

Yeah, I like how you kind of stop it before you even get it in the door. You're like, "I'm not even gonna get Amazon Prime." But I also think that once you have it in the door, if something's in your house, you can also... like I do a quarterly closet cleanse. That's in part because my wife is a personal stylist, so she's taught me how to always cleanse. It's just nice to get things out, and it frees up mental space. You know, when you open your closet, or when you open your office, or even your kitchen, every day I want to feel good. I want to open the fridge and see that things are in order. I don't want to feel chaos, like by 7:30 in the morning.

Sam Parr

It's really challenging, though, by the way, to throw away stuff. I used to make fun of the hoarder TV shows. I would think, "How are these people so ridiculous?" Then, when you go through that process of actually cleansing out and cleaning, I don't know if it impacts you, but it impacts me. I get emotional. I'm like, "Oh, but I've owned this thing for 15 years, even though I've never used it." It is hard, and I don't want to get into that rut.

Ramit Sethi

Yeah, I agree. I mean, I don't have an emotional attachment, but I do have a problem with piles. I get stuff and I just put it in a pile, and then I like never get to the pile—sometimes for years. It's just like, "Why am I doing this?" That's the one thing I really need to improve on as it relates to cleanliness because I'm like, these piles do not look good. They don't feel good either.

Sam Parr

So, for the listener, the takeaways in all this: we talked about running the math. You get criticized online all the time, and I think it's nonsense because all you're saying is, "Run the math." That's all you're saying. And don't do it. Even if it is unprofitable, do it anyway, but don't kid yourself and say that it is a good investment.

Ramit Sethi

Yes, you can total if you like. I have a friend who lived in New Jersey. New Jersey is notoriously known for high taxes. They were like, "Hey Ramit, we ran the numbers. It makes no sense, and we're buying anyway because of schooling and because of location to work." I go, "Fantastic! I give him a round of applause. Good job!" It doesn't matter to me if you buy or rent; it only matters that you're actually calculating everything. Math is one part of it. You need to know your numbers, but also there are other things: family, pure desire, anything you want. But you gotta calculate it all. You cannot simply say, "I want..." It's hilarious to me that so many 24-year-olds on Twitter are like, "My number one goal with money is financial freedom," and then they spend 630% of their net worth on a 30-year mortgage. It literally makes no sense. You need to be sure you're actually using your money to live your rich life, and part of that is calculating carefully the biggest purchase you'll ever make.

Sam Parr

And I wanted to ask one last thing. Amongst your friend group, is there a difference? Is there a pattern that you've noticed among people who earn a significant amount versus those who don't? I have a bunch of relatively high net worth friends who actually rent.

Ramit Sethi

Yeah, same.

Sam Parr

Have you seen a pattern in that?

Ramit Sethi

It's the ones who are especially savvy with personal finance. It's like me telling you, Sam, "Hey Sam, if you eat a lot, you're gonna get full." And you're like, "Yeah, I know." It's so simple when you understand it and you're not being blinded by this idea that you need to buy a house. By the way, this is the case for a lot of people in any expensive city. For everyone listening, did you know that it is currently more expensive to buy than to rent in almost every city in America? That did not used to be the case, but with interest rates as they are and with rising asset prices, it is crazy that people are still recycling the old phrases of "you're throwing money away on rent." When right now, in almost every city, it does not make financial sense to buy.

Sam Parr

Alright, man, we're going to wrap up there. I appreciate you doing this; this is awesome. If you're listening, I want you to go to our YouTube page. If you're listening on podcasts like Spotify or iTunes, go to our YouTube page. So, you know, type in "My First Million," find this episode, and I want you to put a comment if you agree or disagree with us. No, I'm very curious. And by the way, be nice... be nice about it!

Ramit Sethi

Alright, that was very nice of you to say. Thank you, Sam. Let me tell you something: you can always recognize someone who has never been to a high cost of living city by the comments they leave. I had a guy—this just happened like two days ago—who said, "For me, it's just such an idiot. I make more money owning; it's so much better," etcetera. So, I like to talk to people; I like to ask questions. I said, "Tell me more," and I had this very long conversation with him. He bought a house for like $75,000. Okay, he lives in a very inexpensive city, so in a city like that, it actually makes a lot of sense. Here's my simple request for anyone leaving a comment: before you leave a comment, I want you to look up properties in Palo Alto or Menlo Park. I want you to find a couple of properties that have rented and have sold, and I want you to understand the math of a really expensive city like Menlo Park or Palo Alto.

Sam Parr

Could do that with like Chicago as well or Atlanta. I bet you right now the numbers would actually still tell you the same story.

Ramit Sethi

You're totally right. I just want to show them, like, all the way in the most expensive cities in America. Because I want you to see that it is true: in some cities, it will never make financial sense, even after 30 years, to buy. Then, once you understand that, you go, "Wait a second. So if that's true, then what about Chicago? What about Atlanta? What about my own city?" Let me take a fresh look at this. That's when you really start to master money. When you take all the preconceived notions you have, you go, "Ah, maybe that wasn't true. Let me analyze it for myself."

Sam Parr

That's awesome! I appreciate you, and that's the part.