The Rent vs. Buy Debate: 3 Unexpected Ways Renting Can Make You Richer

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Passive Income Through Subletting

If your rental agreement allows it, subletting extra rooms in your apartment can generate a steady stream of passive income each month.

Better Investment Options

Viewing your home as an investment might not always yield the best returns. Instead, you could allocate your money into stocks or other entrepreneurial ventures that potentially offer higher returns.

Personal Experience

At 35, most of my friends are homeowners. They often criticize my choice to rent, insisting that homeownership is the path to financial stability. I, however, find significant financial benefits in renting. It allows me to find affordable living spaces and dodge many associated costs.

Although my friends argue that renting hinders my financial growth, I believe it offers distinct advantages. While owning a home comes with benefits like tax deductions and the possibility of a substantial return on investment in the future, renting provides its own set of financial perks.

Certified Financial Planner Christopher Manske outlines three key ways renting can boost your wealth more effectively than homeownership.

1. Sublet Out Your Rental for Passive Income

Maximize Rental Income

Depending on your rental agreement, you can generate passive income or cover your rent by subletting extra rooms. Renting a house or apartment with multiple bedrooms provides the opportunity to sublet unused rooms. You can charge higher rent than you pay, allowing you to not only cover rental costs but also make additional money.

Set Your Own Prices

By having roommates pay a portion of the rent at a price you set, you can offset your rental costs and earn extra income. For instance, renting a four-bedroom unit for $4,000 and charging $1,500 per room allows you to pay the rent and make an extra $2,000 monthly.

Cover Your Living Costs

If you live in one of the rooms, your cost of living could be completely covered by the rental income. Renting out the other rooms for a total of $4,500 means you pay nothing and make an additional $500 each month.

Lower Expenses Compared to Homeownership

Unlike homeowners, renters don’t have to worry about added expenses such as property taxes, homeowners insurance, or maintenance costs. This can significantly reduce your financial burden and increase your overall savings.

2. Be More Strategic with Your Investments

Flexibility in Investments

Homeownership can tie up a significant portion of your capital in the property, including the down payment, closing costs, insurance, and taxes. Monthly mortgage payments also add to this financial commitment. By renting, you can avoid these costs and invest your money more strategically.

Diverse Investment Options

Instead of owning a home that requires ongoing expenses, you can invest your capital in income-producing assets like stocks and bonds. These investments can generate interest and dividends, covering your rent payments and providing additional income.

Reduced Financial Risk

Real estate can appreciate over time, but it’s not guaranteed. Renting allows you to invest in diverse assets, reducing the risk of losing money. For some, this approach offers a more flexible and potentially lucrative financial strategy compared to homeownership.

3. Use the Money to Invest in Passive Income Streams

Entrepreneurial Opportunities

For those with an entrepreneurial spirit, renting provides the freedom to invest in various passive income streams or businesses. Instead of using your savings for a down payment, you can start ventures like laundromats, vending machines, or other businesses requiring minimal attention.

Generate Consistent Income

These passive income businesses allow you to collect steady income streams while maintaining a low level of involvement. This strategy can help you become a business owner and achieve financial independence without the high costs associated with homeownership.

Diversify Income Sources

Investing in multiple revenue streams diversifies your income sources, providing financial stability and growth potential. This approach can lead to greater financial security and wealth accumulation over time, making renting a smart choice for wealth building.

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