Here’s How to Make More Money Renting Than Owning, According to Ramit Sethi

If you want to increase your wealth but don’t want to buy a house, this advice might be for you.

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Important points

• In general, homeowners have higher net worth than renters because owning a home can help build wealth.
• Financial expert Ramit Sethi has some suggestions on how to get richer as a renter.
• He recommends investing the money saved in housing costs by renting instead of owning.

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In general, homeownership is one of the easiest ways to build wealth – if you make wise decisions when buying a home. If you can get an affordable mortgage and pay it off on time, you’re acquiring an asset that’s quite valuable (especially if your property has been appraised) just because you make a monthly home payment. That’s a big reason why homeowners tend to have higher net worth than renters.

But that doesn’t mean that buying a home is the right way to get rich for everyone. In fact, the author of I will teach you to be rich Ramit Sethi has explained how you can actually make more money owning than renting. Here’s what he suggests.

Sethi’s proposal for building wealth as a tenant

Taking to Twitter, Sethi explained that he makes “more money renting than owning” by taking some key actions.

Sethi explained that he lives in an area where the cost of living is high. He decided to rent a nice apartment there instead of buying a property. However, the house he rents has lower monthly expenses than owning real estate. Then he invests the difference between what he would pay in rent and what he would pay to own a home.

So basically, his recipe for success is to spend less on rent than you do on property and put that money into assets that give him a decent return. It is this invested money that will, over time, earn him more than he thinks he can earn from real estate appreciation.

Will this approach work for you?

Sethi’s approach is solid. Because if you could rent an apartment for a few hundred or a few thousand dollars less than it would cost to buy, that can net you a lot of extra cash that you can hopefully invest in investments that will do you good.

And given the stock market’s historical performance relative to real estate, it’s reasonable to assume that you can often get better returns by investing your money in the market than by hoping your real estate value will appreciate.

However, this approach won’t work for everyone for a few important reasons.

Here’s why it might not

First, you may not live in an area where you can rent a comparable property for less than the cost of owning it. Some areas have a larger rental stock than others and if you can’t find an affordable apartment that you actually want to live in then you might be better off buying.

Second, you must actually be disciplined enough to invest money every month if you take this approach. If you rent for $1,000 less than it would cost you to buy, you would need to make sure you invest that $1,000 in the stock market or other investments. And that’s a big problem for a lot of people.

Most of us would do anything to make our mortgage payments, even if it means selling stuff or getting an extra job. But most people won’t take the same route to ensure they invest. In fact, there’s a very good chance that the $1,000 or whatever amount you should invest will be eaten up by other expenses.

The fact that home ownership is a form of forced saving often makes it the best wealth-building tool for many. So you’ll need to decide if you’re disciplined enough to actually invest diligently — and see if there are affordable rental options where you live — if you’re going to follow Sethi’s plan to become wealthy as a renter.