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

Is buying a home still the smartest financial decision you can make? David Bach is a bestselling author, financial expert and creator of The Automatic Millionaire, one of the most influential personal finance books of the last two decades. In this moment, David Bach challenges one of the biggest debates in personal finance: whether owning a home is still worth it. He explores the decisions that quietly shape long-term wealth, why some people struggle to build financial security, and the difference between simply earning money and actually keeping it. Listen to the full episode here! Spotify: https://g2ul0.app.link/SnK5eeqn85b Apple: https://g2ul0.app.link/eydpDFHn85b Watch the Episodes On YouTube: ⁠⁠https://www.youtube.com/c/TheDiaryOfACEO/videos David Bach: https://davidbach.com/

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:04Steven Bartlett?

  This is one of the hot topics of conversation we've had on this show several times is 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.

• 0:19Speaker 01

  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, 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.

• 0:59Steven Bartlett?

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

• 1:04Speaker 01

  It actually does. And I'm going to go through that here. So the average renters were $10,000, right? So why, why does buying a home build wealth? And how much wealth in the United States is now in home equity? Wall Street Journal 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

• 1:44Speaker 01

  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 costs more to have a house than 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'll have to pay real estate taxes and you'll have to

• 2:29Speaker 01

  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. No, 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, 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

• 3:13Speaker 01

  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

• 3:57Speaker 01

  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 homeownership and you rent in your twenties and you rent in your thirties, you're going to turn around in your forties and having not been built any net worth. When I wrote The Automatic Millionaire 20 years ago, two things have happened since then. The stock market has gone up in 20

• 4:36Speaker 01

  years, 600%. Okay. So if you had a $100,000, just that has gone to $600,000. If you bought a house, the house has gone up 400%. So when you read this book with all these, there's a whole chapter of updated success stories. There are a lot of ordinary people that started saving $5, $10, $15, $20 a day, bought a starter house, and today they're millionaires.

• 5:04Steven Bartlett?

  So am I not better off renting and investing in the stock market versus buying a house? Because obviously, when I, when I, when I buy a house, I'm paying a premium on the house so that I can get a mortgage.

• 5:21Speaker 01

  I want to bust this myth because what happens is people come on and they go, the stock, look, I can tell you right now, the stock market over the last 20 years is average over 10% annually. People go, the returns are better in the stock market than in real estate. Yeah, but that's not apples to apple comparison. Why? When you buy a piece of real estate, when you buy a home, people don't typically pay cash for their first house. They put down 20% and they borrow the other 80%. So you take like an example of a, take a $200,000 home. $200,000 home, you put 40 grand in. Home goes from $200,000 to $400,000 in 10 years. This has happened to so many people in the last five years.

• 6:03Speaker 01

  Since COVID, there are markets all over the US where housing prices have gone up 100% to 200%. So a person buys a $200,000 home, they borrowed 80%, it's doubled, so they've made $200,000 in profit. They didn't put in $200,000, they put in 40. So they got a five times return on their down payment. They go to sell their house, they don't pay taxes on the gain. Because when you own a home, at least in the United States, you own a home for over two years, if you're single, you get $250,000 in tax-free gains. If you're married, you get over half a million dollars in tax-free gains. You get tax deductions on the mortgages. So what happens is people come here and they go, you know what, you

• 6:47Speaker 01

  shouldn't be, you shouldn't be tied down. You need to be flexible when you're young. You don't want to have the responsibility. And you should take the extra money and you should put it in a mutual fund. And you know what happens in the real world, Stephen? People don't do that. They rent an apartment that's nicer than what they can afford and they spend all their money. And then they turn around in their mid 30s and they have no equity because they haven't bought anything and they also haven't saved money. It is an absolute fricking myth that people take this extra money that they could have used to buy a house and they're going to put it in the stock market. They don't do that.

• 7:28Speaker 01

  And that's why also, by the way, corporate America got into the game of buying up real estate all over America, houses and building apartments to rent to an entire generation hoping these people never buy. This, like 10 days ago, Trump came out and basically said, he wants the institutions out of buying up all the homes in America. Why does he want to do that? Because he, because he recognizes how serious of a problem it is to have a generation of Americans who are renters. I'm telling you, when you look at average Americans, average, I'm talking about ordinary Americans, when you look at where their wealth

• 8:12Speaker 01

  is, it's in home equity and it's in the stock market. And this is the last thing I'll say. Generational wealth is created, for better or worse, through home equity. So when you look at, you know, you asked the question about causation. If a family doesn't buy a home, the likelihood the next generation can buy a home is very low. Because it's when someone dies, the money that is in the house, that home equity, is often what transfers to the next generation, helps the next generation buy a house.

• 8:51Steven Bartlett?

  I was looking at some stats here because I want to, what I want, I wish I could sit, sit down all of the guests that have been on my show that have had a difference of opinion and have said that buying a house is a bad investment.

• 9:00Speaker 01

  It could be a really interesting conversation, right?

• 9:02Steven Bartlett?

  It would be a really interesting conversation. What I've done as an alternative to that approach is I've pulled up what they've said. And I'm going to give you some of the things they've said, just so, so you can rebuttal them and have your say on them. One of the things that they often say is that long-term real inflation-adjusted home price appreciation in the US is about 1% annually. And one of my guests cited Robert Shiller as the evidence of that. After maintenance, which usually equals 1% to 2%, and property taxes, which equals about 1%, insurance and transaction costs, the net real returns approach roughly zero on average. So when you say housing is a great investment, are you referencing the gross appreciation, which is the, the total appreciation, or the net returns after taxes, maintenance, insurance and selling costs?

• 9:46Speaker 01

  So when you dig into these kinds of numbers like this, what they are is they're numbers, but they're not real world, right? So like when you, when you talk to someone who owns a home today and they've owned it for 20 years, and you ask them, how much of your net worth is now in the equity in your house? Over 50% of their net worth is in their house. You will see people on your YouTube channel that literally, if you read the comments, and I'm sure you do.

• 10:13Steven Bartlett?

  I do, yeah.

• 10:14Speaker 01

  Where people say, it's not true. There was, I read a comment yesterday on your YouTube page. All I know is, I bought a house and it's gone up in value three and a half times. And the rent when I bought the house was $1,200 and the rent today to buy that, if I had that house, if I was renting, it would be $4,000. So the thing is, you have to understand is that rents always go up, Stephen. Like I lived in New York City for 18 years. When I moved to New York City in 2001, a really nice apartment, a nice apartment was like

• 10:53Speaker 01

  $6,000 a month. When I left New York, that same apartment was $25,000 a month. Follow the, follow the insanity of that math. Now, that apartment went from being $2 million apartment to a $5 million apartment. So I could have been renting it, but in my case, I owned it and it went up in value $3 million. So I have friends who have been renting in New York for 20 years. They have built no net worth. I have no vested interest in this conversation, meaning I don't sell real estate. I'm not a real estate agent. I'm not selling real estate. I've just seen in the real world how people have built wealth. The, the McIntyre's

• 11:37Speaker 01

  in this book, The Automatic Millionaire, when they came into my office and they were worth $1.8 million and he was 52 and able to retire, having earned an average of $40,000 a year, all their money wasn't in the stock market. They had bought a home in San Leandro, California, what he, what they called a middle-class neighborhood. Their home at the time was worth about $300,000. They had paid their mortgage off and they had bought one more house on their street. They rented the first house. They bought a second house on their street. They paid that mortgage off. And so they owned two homes, Frank and Claire, one house they got income from, one house they lived in with no debt, and then they had saved money in their 401K plan.

• 12:21Steven Bartlett?

  So if I was a young person, or not even a young person, a middle-aged and older person, who took my down payment that I was going to pay into the house of, let's say it was, say my down payment was $20,000 and I put that into the S and P 500 instead, over the long run, won't that grow larger than the total home equity potentially?

• 12:41Speaker 01

  Here's why the index fund theory doesn't work. You can't live inside an index fund. You can't live inside a mutual fund. You have to live somewhere as long as you're alive. Here's what people should do. Take a look at what you're paying in rent. Now ask yourself a question. If I am paying $5,000 a month in rent, which lots of people are, right? Do you know people paying $5,000 a month in rent?

• 13:11Steven Bartlett?

  Yes.

• 13:11Speaker 01

  Okay. So they're paying $60,000 a year. Let's take that number.

• 13:14Steven Bartlett?

  Yeah.

• 13:15Speaker 01

  So over 10 years, they're going to spend $600,000 in rent.

• 13:19Steven Bartlett?

  Yeah.

• 13:20Speaker 01

  If the rent doesn't go up.

• 13:21Steven Bartlett?

  Yeah.

• 13:22Speaker 01

  In 20 years, they're going to spend $1.2 million in rent. If the rent doesn't go up. In 30 years, they will have spent $2 million in rent if the rent doesn't go up. But the rent does go up. So the question you just have to ask yourself is, am I going to take all this money that I'm spending on rent and never build anything? And if you really believe that renting is better than owning, then you should still consider the idea of buying something that somebody else rents. Because I promise you, somebody's getting rich in the transaction. If you're the renter, you're not the one who's getting rich in the transaction of renting. It is a great short-term solution, renting. It is not a great term, long-term wealth building solution.

• 14:08Steven Bartlett?

  The other thing that people often talk about, and you cited earlier, is the mobility that renting gives you.

• 14:13Speaker 01

  Yeah.

• 14:15Steven Bartlett?

  Your son was here a second ago. He's 16 years old.

• 14:17Speaker 01

  Yeah.

• 14:18Steven Bartlett?

  Soon he'll be at the age where he's got his own place and he's thinking about different career opportunities. And I got AI, this big thing, so he might want to go to San Francisco. Then he might want to go.

• 14:26Speaker 01

  Right.

• 14:27Steven Bartlett?

  Live in Florence and wherever else. If he's bought a place, there is an interesting sort of psychological, but also financial component to the fact that it makes it harder for you to move with the opportunity of life. And if we are, if, if what people say about the future of work is true, that we're going to have many more careers in our lives than we did in the past, one might assume that we're also going to be more mobile. And so is there an argument to say that buying a house might hurt my professional opportunities, my ability to pursue professional opportunities?

• 14:57Speaker 01

  The answer is possibly, right? But here's the thing about rent. Rent's, interestingly enough, a major obligation, right? Usually when you go and you do a lease, you lock yourself into a one-year lease. Sometimes you lock yourself into a two-year lease. When you buy something, and this is assuming that you have the money to buy something, Stephen, look up, because you've got all the data at your fingertips here. Look what the average length of time it takes to sell a home in the United States. Just, just Google that right now. Because what I will tell you is in certain markets, you can put your home on the market and you can sell it in less than 90 days. Now, some markets, you

• 15:38Speaker 01

  can sell your home in less than 30 days. In many cases, you actually have more flexibility when you own something than when you rent. And that's if you want to sell it.

• 15:48Steven Bartlett?

  It says, the average time from listing to sale is about 47 to 62 days from listing to closing in 2025, including 16 days on the market and 30 to 45 days to close.

• 16:02Speaker 01

  That's called less than two months.

• 16:04Steven Bartlett?

  Even in hot markets, the process from putting a house on the market to legally selling it can take 1.5 to three months, meaning home equity isn't a quickly accessible investment.

• 16:13Speaker 01

  Yeah. But do you think that's pretty quick, 90 days?

• 16:16Steven Bartlett?

  No, it is, it is quick. I mean, it takes, takes you that much time to get out of a lease.

• 16:19Speaker 01

  Exactly. So now, so here you've got a piece of property that you can turn around and sell in less than 90 days. Now, this is the US. You can't do that. Like for instance, I live in Italy. That could be very hard to do that in Italy. But in the US, you've got something that's in a good market. It's liquid. The other thing is, you can rent it, right? You're, you're actually not trapped. If, if you start to build equity in your home and you pay your mortgage down slightly, next thing you know, you're able to rent that property and you can still move. Today, people are taking their homes and they're Airbnb-ing them. What I really want for people is the chance to be financially free. There's also an age at which it doesn't matter if you own. You know, once you start to get older and you've built financial security, you get in your 50s or your 60s or your 70s and you just want to travel and you don't want to own anything, that's a different

• 17:02Speaker 01

  stage of life. So the question just becomes, the money that you make, I go back to the $90,000 comment. When you make 90, when you work 90,000 hours over your lifetime, what's your plan to keep some of this money? You have to have a pay yourself first plan. That has to be your number one priority, is that when you earn money, the first person who you're going to pay is you. If you say, you know what, I watched Stephen and I saw David and I've seen a bunch of other people on his show, and I'm not going to buy a house. Okay. Then you have to pay yourself first more. Now, I go around the world for the last 30 years, starting with Oprah with The Automatic Millionaire. I launched this book

• 17:47Speaker 01

  on Oprah and I talked about, you have to save one hour a day of your income. And people will get on these social media boards and be like, I can't save 10% of my income. They'll tell, I can't live off 90% of my income. Like, it's not possible. I have to spend all of it. Right? Well, then that person who's renting and not buying a house, which is four savings, is clearly never going to save. So the other thing about buying a house is it does require four savings. Because when you use, have a mortgage payment, part of that mortgage payment is paying down your debt. And I teach you how to use a bi-weekly mortgage payment plan. So you take a 30-year mortgage and you pay it off five years earlier. And doing that can save you, depends on the size of the home, can save you $50,000 to $100,000 just in interest payments.

• 18:34Steven Bartlett?

  What you just listened to was a most replayed moment from a previous episode. If you want to listen to that full episode, I've linked it down below. Check the description. Thank you.