Ramit Sethi breaks down why the "buy when mortgage equals rent" rule is wrong. Homeownership costs roughly 50% more than your mortgage payment when you add property taxes, maintenance, and interest. In expensive cities, investing that down payment in the S&P 500 often beats buying.
When it comes to owning versus renting, we often have these very simple black or white thoughts. We think if rent costs $3,000 a month and a mortgage costs $3,000 a month, well, I should get the mortgage because I'm building equity. Well, you got to understand that when you own a house, you should add, in my opinion, roughly 50% on top to account for all the phantom costs. Those phantom costs include interest, taxes, maintenance, which is huge. Yes, even the roof repair that's going to cost $20,000 nine years from now. You still need to account for that today. And opportunity costs, meaning the money you put down could be invested elsewhere, like the s and P500. When you run those numbers, often you are surprised. In cities that are very high cost of living, like San Francisco, Louisiana, New York, it often makes no financial sense to buy.
