Most Replayed Moment: Is Renting Keeping You Poor? What's The Actual Cost Of Home Ownership? David Bach

Steven Bartlett (0:04)

This is one of the hot topics of conversation we've had on this show several times, as many of my guests that are sort of financial advisors say that owning a home is a bad investment. I think from what I understood from the research and from reading your books, that you feel differently about that.

David Bach (0:19)

Yeah, I mean, I couldn't feel more differently. When we look at where is wealth created in the United States and also abroad, it's in two places. It's in home equity and it's in the stock market. So when you look at housing and you take someone who owns a home, and we'll talk about it, I know it's hard to buy homes right now, but when you look at people who own a home versus people who rent, homeowners in America, follow this for one second, homeowners in America are worth 40 times more than renters.

So the average homeowner in America today is worth over $400,000.

Steven Bartlett (0:59)

But this doesn't establish causation. That doesn't mean that buying a home made them rich, right?

David Bach (1:04)

It actually does. And I'm going to go through that here. So the average renter is worth $10,000.

So why does buying a home build wealth? And how much wealth in the United States is now in home equity? Wall Street Troll just ran an article on this, came out two days ago. There's $34 trillion now in home equity in America. This number has gone up 90% since before COVID.

The other money is in retirement accounts, which is 60, 70% in stocks. There's $45 trillion now in retirement accounts. So those two things alone equal $80 trillion. Right? Like when you want to go like, where are the breadcrumbs? Where is wealth being created? It's right in front of us. Now, the problem that we have in the United States, but also look, we're here in London right now, the problem we have in so many cities is that real estate keeps going higher and higher and higher. And people's incomes are not keeping pace with the cost of buying a home. So when someone comes on a show like this and says, look, you don't have to buy a home. It's cost more to have a house and rent. You know, I watched one of the shows. I won't say who it was. It doesn't matter. They all say the same thing. Don't buy a house. You'll be trapped. You'll have to pay. You have to pay real estate taxes and you'll have to pay insurance. And things break. They go through all these expenses.

And it makes it sound like, oh, yeah, if I rent, it'll be cheaper. So who do you think pays these expenses when you rent?

You do. The landlord passes the cost of these expenses on to the renter ultimately. Why do they do this? Because people who buy real estate, buy it for an investment. They buy it for an investment. They're not subsidizing these costs. So it's a hard thing to hear. And especially when you're young, like I have a son who's 22, he's in Chicago. He's going to move to New York City. It'll be extremely hard for him to buy a place in New York. When he starts working right away. Just will be. Probably won't for two or three years. A lot of young people, when they move to a major city, they can't afford to buy right away. When I came out of college, like you, I was in credit card debt. I had $12,000 in credit card debt. I remember opening up my bills and having the room spin and thinking, I'm never getting out of credit card debt. How am I going to buy a house?

But I did. And in fact, I didn't buy a home when I was young by myself. I bought a home with a best friend. So how did I get my first house? First house we bought was a quarter of a million dollars. We put 10% down. And my best friend and I, Andrew, we split that down payment. So we each put $12,500 down. This is how we scraped it together. The house was a complete fixer upper. And we didn't have enough money to make the mortgage payments, so we rented out bedrooms. And we had friends rent bedrooms, and that helped us cover our mortgage. We scraped it together. And that's what a lot of people do when you're young. But if you don't get in the game of home ownership and you rent in your 20s and you rent in your 30s, you're gonna turn around in your 40s and having not built any net worth. When I wrote The Automatic Millionaire 20 years ago, two things have happened since then.