3 ways renting can make you wealthier than owning a home

3 ways renting can make you wealthier than owning a home

Renting vs. Owning a Home: How Renting Can Make You Wealthier

At the age of 35, I find myself in conversations with friends who own homes and are quick to judge my decision to be a renter instead of a homeowner. However, I try to explain to them that renting has significant financial benefits for me. Not only am I able to hunt for inexpensive places to rent, but I also avoid many living costs associated with homeownership.

While there are undeniable financial perks that come with owning a home, such as yearly tax deductions and a potential return on investment in the long run, renting can also offer financial incentives that make it a viable wealth-building opportunity.

Certified financial planner Christopher Manske highlights three ways that renting can make you wealthier than owning a home:

1. Sublet out your rental for passive income

Depending on your rental agreement, subletting out your rental can allow you to make passive income or at least cover your rent payment. By renting a house or apartment with multiple bedrooms, you can sublet the rooms you don’t use. This opens up the opportunity to charge a higher fee than you paid for rent, enabling you not only to cover your rental costs but also make additional money.

For example, if you rented a 4-bedroom unit for $4,000, you could charge $1,500 per room. This way, you would be able to pay the rent and earn an additional $2,000 per month in passive income. In fact, you could even live in one of those rooms and have your cost of living covered by renting out the remaining rooms for more money. “The three rooms add up to $4,500, so you pay nothing, and you’re making $500 a month,” explains Manske.

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Compared to homeownership, renting provides an advantage in terms of avoiding added expenses like taxes, homeowners insurance, and maintenance costs.

2. Be more strategic with your investments

While homeownership offers the potential for property appreciation over time, it also ties up a significant portion of your capital. From the down payment to closing costs, insurance, and taxes, owning a home requires ongoing financial commitments. Manske suggests that instead of investing all your money into a house, it may be more beneficial to diversify your investments.

By redirecting your capital from a home purchase to income-producing investments such as stocks and bonds, you can cover rent payments and potentially generate additional income. With careful planning and the right investment mix, you can achieve financial returns that outweigh the advantages of homeownership.

3. Use the money to invest in passive income streams

For those with an entrepreneurial spirit, Manske recommends exploring alternative options for the money that would have been used for a down payment. Instead of being tied down to a mortgage, consider investing in different passive income streams or even starting your own business.

By investing in businesses like laundromats or vending machines that require minimal attention, you can create a consistent income stream and become a business owner. This approach allows you to capitalize on your financial resources and potentially generate greater wealth compared to the limitations of homeownership.

While owning a home can be a sound investment strategy for some, it’s essential to consider the broader financial landscape and evaluate the alternative opportunities renting can offer. Renting, when done strategically, has the potential to generate additional income, free up capital for other investments, and open doors to entrepreneurial ventures.

So, the next time someone questions your decision to rent instead of owning a home, confidently explain the financial benefits and how renting can contribute to your overall wealth-building strategies. Remember, in the realm of personal finance, it’s not always about following the conventional path but finding the approach that aligns with your unique circumstances and goals.

• Personal Finance Insider
• PFI Freelance
• Renting versus Buying