Run the Numbers Before You Buy a House
A house isn't automatically an investment — factor phantom costs, opportunity cost, and the 10-year rule
- Difficulty
- Moderate
- Time to result
- ~days to results
- Steps
- 3
- Confidence
- 91%
Sethi's antidote to the 'buying is always the best investment' myth: for the biggest purchase of your life, run the real numbers. 'Granny sold for $900k profit' ignores decades of maintenance, inflation, interest, and the opportunity cost of the down payment. Over a century, housing has roughly matched inflation. Renting can be the smarter financial and lifestyle choice — Sethi rents by choice — and you should only buy if you'll stay 10+ years to spread the transaction costs.
Origin
Sethi kept close watch on New York real estate and found an identical unit next door would cost 2.2x his rent, so he invested the difference and came out ahead.
Core principles
- 01Housing returns have roughly matched inflation over ~100 years.
- 02Add ~50% to a mortgage figure to capture phantom costs (maintenance, interest, taxes).
- 03Only buy if you'll stay 10+ years so transaction costs spread out.
- 04Buying can be a good decision — just run the numbers first, and never feel guilty for renting.
How to run it
- 1
Compute the true cost of owning
Take the mortgage and add maintenance, interest, taxes, and phantom costs — roughly +50%.
Pro tip The identical unit next to Sethi's cost 2.2x his rent to own.
Watch out It's not 'sale price minus purchase price'; that's simplistic for the biggest purchase of your life.
- 2
Compare against investing the difference
Model investing the monthly gap between renting and owning in a low-cost index fund.
- 3
Apply the 10-year test
Only buy if you're confident you'll stay 10+ years, so massive transaction costs amortise.
Pro tip Like an expensive jacket, cost-per-wear drops the longer you keep it — multiply by a thousand for a house.
Watch out Buying anchors your lifestyle; selling a house has huge transaction costs a car sale doesn't.
In the wild
Paying ~$3,000 rent versus ~$6,400 to own an identical unit, Sethi invested the ~$3,400 monthly difference.
→ He made more money renting-and-investing than he would have owning, plus lifestyle flexibility.
Common mistakes
Calling a primary residence an investment
Most people buy the place they want to live, then tell themselves it's an investment without running the numbers; often it's not.
Is it for you?
Best for
Anyone weighing renting versus buying their first or next home.
Not ideal for
Buyers certain they'll stay 10+ years who have already run the full numbers.
From the transcript
“for the biggest purchase of your life, you've got to run the numbers”
“over about a hundred years... it has essentially matched inflation”
From the episode
The Money Expert: "Do Not Buy A House!"... The 10 Ways To Make REAL Money: Ramit Sethi
Ramit Sethi