Make Your Own Informed Decisions
By: Atul Sethi
A Brief Summary:
- Conventional wisdom preaches home ownership as an important financial milestone to reach. Do not fall for the advertising and make your own decision.
- There is merit in renting and/or owning. Everyone’s circumstances are different, and you should figure out what’s best for you.
- Avoiding a situation where the lion’s share of your income is servicing mortgage payments will be better for the health of your household balance sheet.
- Go to Netflix for a discussion of this topic with personal finance expert Ramit Sethi on his show How to Get Rich (2023)
Ditch the Bias to Own, and Figure Out What is Best for You
Instead of accepting the conventional bias to be a homeowner, figure out if that is really what is best for you. Often, people are biased towards wanting to be a homeowner. This is the celebrated route, and the one that has been championed by the ‘American Dream.’
Sure, there are many excellent reasons to own a home. But because social advertising has told you to do so is not one of them. Everyone’s circumstances are different, and nobody knows your situation better than you. Consider the merits on both sides before assuming one route is better than the other.
Do Not Own a Home and Nothing Else
Avoid a situation where home ownership prevents you from being able to save any money otherwise. It is common that families direct thelion’s share of their income to mortgage payments. If this happens for an extended period, it will impair the family’s ability to save money for investment assets.
To prevent this, if you take a mortgage to buy a home, keep some buffer between how much you can pay and how much you actually pay.Banks are incentivised to lend to you as much as your income can service, so you need to be mindful of this. Owning a
home and preventing the build-up of other forms of savings is not a recipe for prosperity.
Bangkok is a Renter’s Market
The Bangkok property market is one that is more favourable to renters than buyers. Many of the examples of wealth creation from buying a home come from property markets where there has been more meaningful price appreciation.
An experiment you can conduct to evaluate this is: look at Bangkok condo listings and compare the rental and purchase prices of units in the same building. Would you buy a unit at the average listed price and then rent it out to someone else for the average rental price? In many cases, your return will be lower than 4 percent.
For More Info, Go to Netflix
Personal finance expert Ramit Sethi discusses this question and other related topics on his Netflix show called How to Get Rich (2023). He is a renter and shares why not being a homeowner is a much more sensible option for him. The show is based on his book which is also useful for personal finance topics, albeit very U.S.-centric.
Atul Sethi is the founder and CEO of Farnam Tree, a licensed boutique investment firm based in Bangkok. Atul has over twelve years’ experience working in investment banking and as a research analyst, prior to starting Farnam Tree.
