Renting a home may be more financially prudent than buying one, experts say
San Jose, California — Matthew Richmond makes a good living running a successful pest control company in Northern California's Silicon Valley.
"I'm living the American dream," the 32-year-old told CBS News.
Richmond can afford to pursue his passion for adventure. If he wants to buy a motorcycle or dirt bike, "I can go write the check and buy it," he said.
However, what he has not purchased is a home, even though he says he could afford one.
"Somehow, we've been led to believe that you have to own a home in order to be living the American dream," said Ramit Sethi, host of the Netflix series "How to Get Rich." "And that's just not true. For a lot of people, renting can actually be a better financial decision."
A study released last month from Realtor.com found that U.S. median rental prices dropped in May for the first time since the start of the COVID-19 pandemic in 2020.
A May study from Redfin also found buying a home is cheaper than renting in only four U.S. cities: Detroit, Philadelphia, Cleveland and Houston.
Another study released in May by the real estate company Clever Real Estate determined the top 10 U.S. cities where it may be better to rent than buy, taking into consideration current home prices. First on the list was San Jose, followed by San Francisco, Seattle, Denver and Los Angeles.
"We have this idea that if I could rent a place for $2,000 a month, and if I could buy a place for $2,000 a month, I should buy, because I can build equity," Sethi said.
Sethi said that potential homebuyers need to consider the total cost of a home, including mortgage rates, property insurance and property taxes.
"I call them phantom costs, because they're mostly invisible to us until they appear," Sethi said. "I actually add 50% per month to the price of owning. That includes maintenance, including a $20,000 roof repair, eleven years from now, that I don't even know I have to save for yet."
An analysis released earlier this year by the apartment listing service RentCafe, using data from the U.S. Census Bureau, found that the number of high-income renters making $150,000 or more jumped 82% between 2015 and 2020, while the number of millionaire renter households tripled during that period.
Sethi told CBS News he could also purchase a home now, but still prefers to rents as well.
"And so I love to talk about why I don't," Sethi said. "I have run the numbers carefully living in cities like San Francisco, New York and L.A., and it makes no financial sense for me to buy there."
If Richmond bought a home in Silicon Valley, his housing expenses would likely double. He said that he is "totally happy" renting at the moment.
"It does not bug me at all," Richmond said.
"A rich life really is about saying yes to the things you want to spend money on," Sethi said. "And it could be a house, but for many people, it's not."