Millionaire Prefers Renting Over Buying a Home to Avoid Wasteful Spending

Jakarta, CNBC Indonesia - The debate between renting and buying a home with a mortgage (KPR) continues, as the decision is heavily influenced by individual financial conditions and needs. Some view renting as an ideal stepping stone to eventual ownership, while others prefer a mortgage to curb expenses. Millionaire and star of the Netflix series ‘How to Get Rich’, Ramit Sethi, asserts that renting is not wasteful or ‘throwing money away’. He argues that renting offers distinct financial benefits not found in homeownership. ‘You are spending money for a place to live. You are paying the property owner to maintain that place, gaining comfort, and obtaining the flexibility to leave at the end of your lease,’ Sethi said. When viewing a home purely as an investment, renters often overlook the hidden costs of ownership beyond the monthly mortgage payment. These include property taxes, insurance, utilities, security fees, and repairs. Mortgage payments also carry high interest costs, particularly in the initial years. ‘Many people say they don’t want to throw money away on rent. I don’t want to throw money away on mortgage interest,’ Sethi stated. Sethi revealed that he built his wealth while renting, not owning. ‘I have actually made more money renting than I would have if I owned a home,’ he said, referring to investments made with funds that would have otherwise gone towards a down payment and hidden ownership costs for a comparable unit. However, he noted that this does not mean buying a home is a poor investment, especially considering property values have risen 85 percent since 2010. ‘We have become accustomed to very high appreciation in the real estate market, particularly during the home price surge after 2020,’ Sethi said. This can lead people to assume homeownership is the best way to build wealth, even though stocks have historically outperformed housing prices. ‘If someone believes that a housing shortage will cause prices to rise for decades, that is a very reasonable bet,’ Sethi said. ‘But you also need to calculate your alternatives. What is the cost of renting and investing differently? How much capital will be tied up in the down payment?’ He also highlighted lifestyle considerations that should be weighed when buying a home, such as the possibility of moving within a few years, needing more space for a family, or wanting to change neighbourhoods. ‘Or even just needing the flexibility to switch jobs quickly and increase your income,’ Sethi added. If these considerations apply, renting may be more suitable as it keeps all options open. Based on his experience, Sethi noted that homebuyers often fail to consider the opportunity cost of acquiring property, especially once they are set on owning a home. This often occurs because homeownership is viewed as a major life achievement and a societal cornerstone, leading to a narrow view of a property’s true value compared to other investments like a 401(k) or stock index funds. ‘I speak with couples who often tell me that the money in their retirement accounts doesn’t feel real. They’ll say, “I mean, it’s there. But I can’t actually touch it [like a house],”’ Sethi said. As buying a property is one of life’s biggest decisions, Sethi advises buyers to ‘weigh the numbers carefully’ before committing, including all hidden costs.