Renting a home versus buying one has always been a controversial topic — but especially now more than ever thanks to inflation and the (very) high cost of living.
If you've been following the housing market, I'm sure you've noticed how much of a rollercoaster it has been in recent years with rates as high as 7%. This is enough to confuse people who don't know if they should continue renting or take a risk and put a downpayment on a home.
Personally, I have always dreamed of buying my own place. However, nowadays I'm honestly feeling quite discouraged at how difficult it is during these times to do just that and unsure what I — or any of my generation — should do financially.
I decided to turn to Ramit Sethi — who is a podcast host, New York Times bestselling author, and host of the Netflix series How to Get Rich — to get some expert advice.
"America is obsessed with owning a house. You can tell that it is an obsession because we throw around trite little phrases that don't really mean anything," Ramit explained to BuzzFeed.
"[People say] 'You're throwing money away on rent.' We don't say that you're throwing money away eating out at that Italian restaurant. 'You're paying your landlord's mortgage.' We never say you're paying the sushi restaurant owners' mortgage. Because we have these ideas repeated thousands of times since we were young from everyone from our parents, friends, etc. — we start to believe it," he said.
Ramit is the first one to admit that his take on renting versus buying is quite controversial. "It can sometimes be a better financial decision to rent than to own," he said.
"People get mad when I say renting can be a better financial decision. I'm not telling you what to do with your money. I'm simply saying for the biggest financial purchase you will ever make, you better run the numbers," he told BuzzFeed.
According to Ramit, to run the numbers means to add up all the different costs you might have when purchasing a home. Things like mortgage payments, interest, taxes, and cost of maintenance.
Then Ramit suggests comparing that total sum to a comparable rental property. If your rent is way less than the total cost of home ownership, Ramit says it makes more sense to rent, take the cost difference and invest that money.
"You can make decisions based purely on the numbers and you can also make decisions based on things beyond the numbers. But overall, know your costs before you make that [big financial] decision," he told BuzzFeed.
If you're someone who does decide to rent, Ramit explained a few important things to keep in mind — one being that you should always try to negotiate your rent.
"It does depend on the power dynamic. Sometimes, renters have the upper hand, sometimes landlords have the upper hand. You have to know who is in the power dynamic. In times where there's more supply than demand, renters have the upper hand and they should leverage that," he added.
Ramit also shared a helpful guideline for figuring out what you can afford to rent.
"A good guideline that's been used for a long time is that your total housing costs should not exceed 28% of your gross income. I will admit that that is a really hard number to hit these days because housing affordability has gone way down, especially in high-cost-of-living cities, particularly for young people," Ramit continued.
"It's okay to stretch that number a bit, it's very common that people will have 30% 32%, even 34%. Keep in mind that the higher you go, the more at risk you are. You're at risk of not being able to save and invest enough for your future, you're at risk of not being able to spend money on things you love — like going out, traveling, and eating out. Another risk is if you lose your income, it will be very likely you will lose where you live because you don't have enough in savings," he added.
Overall, renting or buying property is a personal decision that is based on various factors. Regardless of which one you choose, make sure to go over your finances to help make the best decision for yourself.
