Smiling couple toasting with coffee cups on sofa in moving empty apartment

Here’s how to make more money renting than owning, according to Ramit Sethi

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

key point

  • Generally, homeowners have higher net worth than renters because owning a home helps build wealth.
  • Financial expert Ramit Sethi has some advice on how to get rich as a renter.
  • He recommends investing his savings in housing costs by renting instead of owning.

Generally speaking, owning a home is one of the easiest ways to build wealth – if you make an informed decision when buying a home. If you get an affordable mortgage and pay it off on time, you’ll gain a very valuable asset (especially if your property has appreciated in value) for just paying monthly housing costs. This is a big reason why homeowners tend to have higher net worth than renters.

However, that doesn’t mean that buying a home is the right way for everyone to get rich.Actually the author I will teach you to be rich, Ramit Sethi explains how you can actually make more money than renting. This is what he recommends doing.

Sethi suggests building wealth as a renter

On Twitter, Sethi explained that he’s “renting more money than owning” by taking some key actions.

Sethi explained that he lives in an area where the cost of living is high. He chose to rent a nice place there rather than buy a property. However, the monthly cost of the house he rents is lower than the cost of owning the property. He then invests the difference between the rent he pays and the amount he pays to own the home.

So the secret to his success is basically spending less on renting than he does owning, and putting that money into assets that will give him a reasonable return. Over time, it’s those investments that will allow him to gain more than he thinks he can get through real estate appreciation.

Did this method work for you?

Sethi’s approach is sound. After all, if you can rent a home for hundreds or thousands of dollars cheaper than buying it, that can give you a lot of extra money that you can put into the investment to perform well for you.

Considering the historical performance of the stock market versus real estate, it is reasonable to assume that putting money into the market can often yield better returns than you would expect your property to appreciate in value.

However, this approach doesn’t work for everyone for several key reasons.

Here’s why it probably won’t

First, you probably won’t live in an area where you can rent a similar property for less than your cost of ownership. Some areas have larger rental inventory than others, and if you can’t find a rental at an affordable cost you really want to live in, you’re better off buying.

Second, if you take this approach, you actually have to be disciplined enough to invest every month. If you are renting for $1,000 less than the purchase cost, you must make sure to put that $1,000 into the stock market or other investment. This is a big problem for a lot of people.

Most of us do everything possible to pay our mortgage, even if it means selling something or getting an extra job. But most people don’t go the same way to make sure they’re investing. In fact, there’s a good chance that $1,000, or whatever amount you should invest, will be eaten up by other fees.

The fact that a home is a form of forced saving often makes it the best wealth-building tool for many people. So if you want to follow Sethi’s plan and end up being a wealthier renter, you need to determine if you have enough discipline to actually invest – and check if there are affordable rental options where you live.

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