Excerpt from a March 6, 2024 YouTube video by Ramit Sethi arguing that the common anecdote that buying a house is always highly profitable is overly simplistic. Sethi emphasizes that homeowners often ignore maintenance costs, inflation, opportunity costs (e.g., investing the down payment), loan interest, and other factors when calculating returns.
This is how most people think about buying a house. They think, Grandma bought a house in Austin, Texas in 1970 for $100,000. Grandma just sold it. 50 years later for $1 million. Grandma made $900,000. They go, it's the most profitable thing you can do. Buy a house. I go, okay, that sounds really nice. Did Granny factor in how much she spent on maintenance for the past 50 years? No. Did Granny factor in inflation and how that affected her return? No. What's inflation? Did Granny factor in the OCC opportunity costs of what that down payment could have been used if invested in the s and P500? No. And did Granny look at all these phantom costs such as interest on the loan? No. It's not simply the bigger number minus the smaller number. That's wrong. That is simplistic. For the biggest purchase of your life, you've got to go deeper.
