The author of 'I Will Teach You to Be Rich' says 'phantom costs' add 50% to the monthly expenses of owning a home

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• Ramit Sethi cautions that owning a home costs much more than just your monthly mortgage payment.
• "Phantom costs" like home insurance and maintenance can add up to 50% extra in monthly expenses. 
• Run the numbers to determine if owning or renting is a better decision for your wallet right now. 

Many people think that homeownership is the best way to create wealth. We've been told that renting is a waste of money and that owning a home is the path to growing wealth.

While a home can be a stable asset and a path to a solid financial future, some buyers may be shocked by how expensive homeownership can be.

Ramit Sethi, author of "I Will Teach You to Be Rich", cautions potential homebuyers about the very real costs that come with owning a home. "There are so many hidden costs associated with owning a home," Sethi says. "I call them phantom costs because they are mostly invisible to us until they appear."

Phantom costs add up quickly

"Phantom costs can include the down payment on the home, the interest paid to the bank, maintenance on the home, and the opportunity cost of buying a home as opposed to investing in other ways," says Sethi.

"Because of these costs I add 50% per month to the cost of owning a home," he continues.

This is why Sethi thinks that for many people, renting can be a better financial decision.

"This blind obsession with homeownership may not put you on solid footing financially and can actually take a huge bite out of your wallet," he says.

I agree with this. When I was a homeowner, the costs of maintaining my home easily surpassed my monthly mortgage payment. From repairing the basement after a flood, paying for the removal of a tree that had fallen, and even replacing old windows and doors with energy-efficient ones, those expenses added up quickly and weren't something I even considered when I bought my home.

Do the math on renting vs. buying

It's important to run the numbers and make sure that buying a home is the right financial decision for you.

Sethi recommends that potential homebuyers use a rent vs. buy calculator. Factor in the phantom costs of ownership like taxes, maintenance, and insurance. You might discover that for where you live it doesn't make any financial sense to buy a home.

For example, I live in New York and real estate is very expensive here. I could make homeownership a goal right now and work really hard to save a sizable down payment and jump through all of the hoops it would take to buy property in New York. Or I could do what I am doing, which is rent, save money, and really decide if New York is the place I want to buy a home or if I should buy somewhere less expensive.

Sethi is not against homeownership. Not at all. He just advises that instead of rushing into buying a home because that's what we've always been told to do, we should really understand the true cost of homeownership, and make sure that it's the best financial decision.

This article was originally published in October 2023.