Why Ramit Sethi Believes Buying a House Is Not the Best Investment

Many or all of the products here are from our partners that compensate us. It’s how we make money. But our editorial integrity ensures our experts’ opinions aren’t influenced by compensation. Terms may apply to offers listed on this page.


  • Rent doesn't always cover a landlord's monthly costs.
  • Housing costs are more than just your mortgage. They also include phantom costs like fees, taxes, and more.
  • Sethi suggests keeping your total housing costs under 28% of your gross monthly income (GMI) and your total household debt under 36% of your GMI.

Owning a home isn't just a financial investment. It's also a lifestyle decision.

Buying a home is one of the most significant (and expensive) financial decisions most individuals and families make in their lifetime. With rising housing costs, it's easy to get caught up in wanting to purchase a home before you're priced out of the market. It's also easy to get caught up in the seemingly endless debate of renting versus buying a home.

Financial expert and influencer Ramit Sethi is all too familiar with this debate. He recently shared his take on Twitter:

"Is buying a house the best investment of all? (No)

Have I made more money renting than buying? (Yes)

Can buying a house be a good decision? (Yes)

But it's counterintuitive.

For the biggest purchase of your life, learn how to run the numbers."

Keep reading to see why Sethi isn't keen on calling homeownership a good investment and the steps he recommends taking if you're thinking about buying a house.

Why buying a house is not the best investment

Buying a home will likely be one of the largest purchases you'll ever make, but according to financial expert Ramit Sethi, it's not the best investment you'll make. American culture often perpetuates the myth that renting is a waste and that you're throwing your money away. At the same time, there's a push to equate homeownership with wealth building, and that's not always the case.

Ramit's three steps to buying a house

Sethi offers a three-step method to help individuals and families consider buying a home soon. Through the process, he shares insights that can help consumers ask the right questions, analyze the correct data, and determine whether homeownership is the right choice.

Step One: Be aware of the myths and propaganda

The first step in deciding if you should buy a house is to get past myths and misconceptions passed through American culture, media, and other sources. Sethi specifically targets four myths that he claims aren't true:

  • MYTH 1: Renting a house means you're just paying your landlord's mortgage
  • MYTH 2: If you're paying rent, you're throwing money away
  • MYTH 3: Housing prices will keep going up
  • MYTH 4: Buying a house is always a great financial investment

According to Sethi, the reality is that rent payments are based on the market and can sometimes be less than landlord expenses. He also says that when you pay for rent, you're paying for value, like having a roof over your head, a great view, and more. It's not a waste if you're getting value out of renting a house or apartment.

Housing costs fluctuate as do rental rates, according to Sethi. Rising housing prices won't last forever. If you can't afford a house right now, wait to see if prices drop. There's also no guarantee that you'll earn a return on your home, especially when you factor in costs like maintenance, taxes, and more. Building equity in a home can take years.

Step Two: Figure out if buying a house is part of your "Rich Life"

After busting through the myths of homeownership, Sethi says you need to determine what you want out of life, including whether buying a home lines up with your life goals. It's not just a financial decision but a lifestyle decision. It could be that buying a home isn't the best investment or that it's a decision for another season of your life.

Sethi shares the following examples as good reasons for buying a home:

  • You have kids and you want to stay in your area, school district, and build memories in the same house for at least 10 years
  • Your parents are moving in with you
  • You want to design a house together with your spouse
  • You love repairing and tinkering with a house and making it your own
  • You just want to

Step Three: Run the numbers

It's imperative to run the numbers to understand if you should buy a home right now. When comparing renting versus buying, many people make the mistake of only comparing monthly rent payments to mortgage payments. Sethi says, "Rent is the maximum you will pay, but a mortgage is the minimum you will pay." You must also factor in phantom costs when determining the true cost of owning a home. Phantom costs can include closing costs, interest, maintenance, and more. Sethi suggests adding 30% to 50% to account for phantom costs.

Sethi suggests asking yourself the following two questions and if the answer is yes to both, you're probably ready financially to buy a house:

  • Can you afford it based on your income and debt?
  • Have you saved a 20% down payment?

Sethi shares that total housing costs should be less than 28% of your gross monthly income and that your total household debt shouldn't exceed 36% of your gross monthly income. He refers to this as the 28/36 rule. Keeping costs below these numbers will help you avoid being overwhelmed financially during emergencies and hardships while still allowing you to qualify for a mortgage.

Providing a 20% down payment will help you avoid private mortgage insurance (PMI), but Sethi says there's another benefit — “Building the habit of saving is critical before you buy and have unexpected housing expenses such as a broken water heater, roof, or unexpected taxes.”

The key, according to Sethi, is to "be honest about where you are in your life today, if buying a house is what you really want, and if you can afford it." If it's not the right time financially, Sethi suggests cutting costs, finding ways to increase your income, and optimizing your spending to save more money for a house.

Use this checklist before deciding to buy a house

"Ultimately, the choice is completely up to you," exclaims Sethi. He shares the following checklist to help guide your decision:

  • Will I live here for 10+ years?
  • Is my total housing cost lower than 28%
  • Have I saved 20% for a down payment?
  • Am I OK if the value of my house goes down?
  • Am I excited to buy a house?

He says you should be able to answer yes to all of these questions if you're ready to own a home. If not, evaluate your goals and finances to determine if renting is a better option now and if homeownership makes sense down the road.

Alert: our top-rated cash back card now has 0% intro APR until 2025

This credit card is not just good – it’s so exceptional that our experts use it personally. It features a lengthy 0% intro APR period, a cash back rate of up to 5%, and all somehow for no annual fee! Click here to read our full review for free and apply in just 2 minutes.

Our Research Expert

Related Articles

View All Articles Learn More Link Arrow