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It’s a bold statement — and there’s truth to it.
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There’s a message that renters tend to be on the receiving end of, and it’s not exactly a positive one. Statements like “renting is a waste of money” and “you’ll never build wealth if you don’t own a home” tend to monopolize the media, driving renters to bemoan their choices and push themselves to buy homes of their own.
But while homeownership has long been hailed as the American Dream, the reality is that it’s not right for everyone. And to be clear, this isn’t only a matter of income. You could earn a $500,000 annual salary and have $2 million in your savings account, and you can still make the argument that renting instead of owning is the right choice for you.
There’s perhaps no one who agrees with this sentiment more than financial guru Ramit Sethi. In a recent tweet, he tried to explain that he’s not “anti real estate” as some might accuse him of being. Rather, he believes in running the numbers before you buy a home and seeing through pro-homeownership propaganda. And while the latter may be a bold statement, it’s an easy one to back it up.
Consumers are often pushed to buy
There’s a lot of pressure out there to buy a home due to the financial benefits, which is why Sethi feels that pro-homeownership propaganda is so prevalent in the U.S. But the reality is that homeownership isn’t right for everyone. And it’s very important to recognize that renting a home is not akin to throwing money away.
When you rent a home, you don’t build equity in it — this much is true. But you do get something in return, and it’s a place to live.
When you own a home, you get a place to live and the chance to potentially make money when you sell your property down the line. But you’re not guaranteed to make money by any means. And even if you’re able to sell your home for a higher price than what you paid for it initially, that doesn’t mean you’re going to end up coming out ahead financially.
Let’s say you buy a $300,000 home that you eventually sell for $600,000 in 20 years’ time. At first, it might seem like you’re making a $300,000 profit.
But how much will you have spent during those 20 years on mortgage loan interest, property taxes, homeowners insurance, maintenance, and repairs? When you add it all up, you may not end up profiting at all.
Plus, when you own a home, you tie up lots of money in a single asset. That could limit your ability to invest and profit elsewhere.
Buy a home because you want to, not because you’re pressured to
There’s a lot of work and financial commitment that goes into owning a home. So if you’re going to buy one, do so because you want to — not because you feel compelled to. There are plenty of successful people who rent their homes rather than own them. And if you feel that homeownership isn’t for you, there’s nothing wrong with being a lifelong renter.
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