Home Returns Match Inflation

Ramit Sethi and Sam Parr discuss their perspective on renting vs buying homes, challenging the common belief that buying is always better. They emphasize making decisions based on mathematical analysis rather than emotional arguments or societal pressure.

Key Points:

• Mathematical Analysis is Critical:

  • Run the numbers for the biggest purchase of your life
  • Sometimes buying is beneficial, sometimes renting is better
  • Current market conditions make renting cheaper than buying in most US cities
  • Historical home appreciation matches inflation (around 3.5%) over 100-year periods

• Common Misconceptions:

  • People often say "you're throwing money away on rent"
  • Many believe you're "poor" if you don't own
  • Recent housing gains create recency bias in people's minds
  • People overlook the true costs of homeownership

• True Costs of Ownership:

  • Maintenance costs (approximately 2% of property value annually)
  • HOA fees (can be thousands monthly in luxury buildings)
  • Transaction costs when buying/selling
  • Opportunity cost of down payment (calculated at 7% return rate)
  • More expensive furniture and renovations compared to rentals

• Personal Choice Factors:

  • Buying doesn't have to be purely financial decision
  • Can be a luxury purchase for personal satisfaction
  • Should plan to live there at least 10 years
  • Consider factors like school districts and family needs

• High Net Worth Perspective:

  • Many wealthy individuals choose to rent
  • Those savvy with personal finance often prefer renting
  • Understanding the math leads to more informed decisions
  • Freedom from maintenance and flexibility are valued