Why Renting Is Actually Making People Richer Than Buying

And you know, one thing I've covered and touched on a little bit on the channel, but today I want to go in depth with what smart renters are doing these days. There's been a big contentious debate over the last few years, especially with how much rents and owning has gone up, of whether it makes more sense to be an owner or a renter. And basically it kind of comes down to just one variable, guys. Your decision to buy your rent should be based solely on your discipline and ability to invest the money that you are saving as a renter to get ahead financially. Because there are a lot of great stories out there of people who have been doing this and are crushing it and are seeing their net worth go up more and faster than if they would have chose to become a homeowner. So it is definitely possible. There's many real world examples of people actually doing this. Here's one example. A couple who are financial planners. So they already are kind of in that business and they ran their numbers and they decided they could afford to spend about $6,000 a month on their mortgage payments, which was about 20% of their income. So that put their potential purchase price at around $940,000. But the houses that they saw, even at that high price, didn't have a finished basement. Another one needed work on the HVAC system and they submitted offers and they were outbid. So after going through that experience, they kind of looked at each other and said, do we really want to be homeowners? This is kind of harder than it should be. So they decided to put off buying the house. And since having that savings, they've been able to make contributions to their daughter's college savings account, purchase new furniture, increase their cash savings. And also they're maxing out contributions to their retirement accounts and investing money in their brokerage portfolios. So it sounds like they have a lot of extra leftover cash that they are putting to good use instead of being a homeowner. And they say that their main goal, which is very, very smart guys, is to be financially sound, whether we are homeowners or not. This is what I want everybody who's renting right now to take away from that. That should be your goal as well. You want to be financially sound regardless of whether you own a place or you rent a place. It doesn't really matter anymore. And almost everywhere across the country, it is cheaper to rent than it is to own. So there's a sizable difference that you could be saving each month compared to owning. And that extra savings can be put to good use. And because renters have the opportunity to spend significantly less on a place to live than if they were to own the place, this gives people a huge advantage to put that money into the stock market, which has produced higher average returns than real estate. Whether you look back 10 years, 50 years, or even a hundred years, you know, it used to be that you want to own the house instead of rent, because in many cases it might've been the same or even cheaper, maybe 20 or 30 years ago, and you were building equity. So that equity could be used to retire one day, like a lot of people still use it for. It could be used to trade up to a larger, more expensive home when the time is right. It could be used to make other investments. There's a lot of good things you could do with that home equity that was built up. But nowadays, the entry point for buying a house is so high that there's really not much equity left to be built guys, even in the strongest markets across America right now, like the best markets that are still seeing prices going up or maybe going up like five to 6% year over year, which has slowed down from 10%, 13% year over year price gains. So it's going to be a matter of time before those gains slow down even further. And now it's 2% or 3% year over year gains. And then it's 1%. And next thing you know, you are losing out to inflation like many other homeowners across the country already are. Also, homeownership was always promoted as a forced savings account for people who were bad at saving and investing money. At least if you never did anything else, at least you would have that home equity built up over the years and you would have some sort of nest egg in the end, even if you never saved a dime for retirement. So once again, that argument is getting harder and harder to make because there's not a whole lot of room for equity to go back up. I mean, eventually, yeah, you're going to see it happen over the next 20 or 30 years. Once the housing market goes through its full crash or correction, whatever you want to call it, but that's going to take time. You could be building wealth right now. And that's what a lot of these renters are doing. Since the year 2000, the median sale price of homes in the U.S. has grown by about 3.7% annually. The stock market's benchmark index, the S&P 500, has grown at more than double that rate at 8.3% per year if you were to reinvest dividends during that time. So if you decided back in the year 2000 to put all the money that you would have been spending as a homeowner into the stock market, you would have built double or maybe even triple the amount of wealth than if you decided to become a homeowner, guys. And the same opportunity is available to people today. And I'm not all of a sudden some shill for the stock market and trying to sell you an investment course or sell you working with a group of advisors or nothing like that. I just want people to make a smart decision and understand that there are more ways out there to build wealth, guys. I gain nothing from telling you this other than having the satisfaction from my viewers of getting ahead financially. But like I said in the beginning, the key to this working out for you is consistency across a long period of time. Being a renter and having a strategy to get wealthy requires some sacrifice. Like one couple they talked to deliberately rented a place that was cheaper than what and so they rented below their means, which gave them enough money to save and invest aggressively. That might require choosing a rental that's smaller or older or in a less desirable location. You have to actively choose to get ahead, guys. It's not just going to happen automatically. A lot of successful renters who do this also say that they negotiate with their landlords when the rent in the area is in decline. A lot like the Southwest Florida story we talked about earlier. They're also willing to move to a less expensive property if the landlord refuses to adjust the rent. Something that everybody should be doing. Also, how soon you start doing this makes all the difference as well, guys. Also, the earlier you can start doing this, the better. Like if you are a young renter, for example, you should already go into this with the mindset that you're not going to be able to buy. Not because buying shouldn't be a goal of yours or anything like that, but you're already using your income to invest for your future now early. And then if you're able to become a homeowner along the way, that's great. But it shouldn't be the main goal if your main goal is to just get ahead financially in this world. If you're only saving a couple hundred dollars a month as a renter and investing that, you're not going to get nearly as far ahead as if you're saving $500 a month or $1,000 a month or more. And in fact, to make this work, you really need to be saving a minimum of $500 a month and investing that consistently, guys, every single month. So that should be kind of the benchmark. If you can't save $500 a month being a renter, I'm not saying you shouldn't try this and still make the investment and get ahead anyways. I'm just saying that you might not be able to build the wealth as a renter versus being a potential homeowner. This strategy really works best with people who have decent incomes who begin investing at the youngest age possible. Starting early gives you a lot more compounding growth over the decades, and the higher income makes it easier to keep rent below what you could actually afford and invest that difference. And this isn't like some far off story of where this is possible, guys. In fact, according to realtor.com, renting is still cheaper than buying in 50 of the country's largest metro areas. The average monthly cost of renting a starter home is about $1,670 a month, which is 35% less than the average cost of $2,600 a month to buy a starter home. That is a huge, huge difference. Just with that difference alone, you are looking at saving $1,000 per month. So if you are in the position to be a buyer and actually spend that money, you are also in the position to take the other route and invest that money and become wealthy by investing as a renter. I've shared this before on the channel, but I'm not sure how many people watching know this, but my wife and I, we actually purchased two rental investment properties before we ever actually owned our primary residence, which is totally contradictory to what most people do. Most people, they own their primary residence, and then they make investments later on if they can even afford to, because a lot of people overspend on primary residences for all kinds of reasons. But we were able to buy those properties simply because we were able to save so much money and invest the difference. Instead of investing in the stock market back then, we invested it into rental properties. And because we did that, it allowed us to make some leaps forward financially and actually buy our primary residence later on down the road. Here's some real world math of how this can look, guys. A 35-year-old purchases a $340,000 starter home with a 10% down payment. That's a pretty typical scenario of what you could be looking at in this housing market right now. In fact, the brand new builds are offering homes even cheaper than that in some areas. So the buyer's monthly housing cost is approximately $2,600 a month. And with a 30-year mortgage at a 6% rate, which now they're 7%, by the way, which we'll talk about that in another video, but at a 6% rate, property taxes, homeowners insurance, and maintenance, you're paying $2,600 a month. Assuming the property appreciates 4% annually, which is generous in this market, because a lot of places are going negative and inflation is running so hot that even the appreciation many markets are seeing is not enough to beat inflation. But anyways, let's just roll with these numbers. 4% annual increase in home value. The buyer would own a paid off home worth about $1.1 million at age 65. They paid $340,000 for the house. And let's not forget all of the maintenance and ongoing repairs and upkeep expenses of living in that house over the years that are not counted here. I did a video a couple of years ago showing real world examples from you guys who wrote to me. I wish I could find it for you. But basically it showed that after owning a home for 30 years, a lot of people actually came out behind even after all the appreciation because of how much it costs to own and maintain a home. So that 35 year old reaches 65 years, 30 years later at $1.1 million in asset value. Now let's look at the renter. 35 year old renter rents the starter home for $1,670 a month and the rent increases by 3% annually. And instead of purchasing a home, the renter invests that monthly difference during the first year. The difference is approximately $1,000 a month. And if the renter continues investing the difference for 30 years and earns an average annual return of 8%, the renter could have an investment portfolio worth $1.13 million at age 65. And that would also be in addition to any other retirement savings as well. Now that you could say the renter reaches the retirement with the same net worth, but they don't have a house that can be lived in that's paid off. That's true. However, a paid off house is not what it used to be guys. The property taxes are very high. Homeowner's insurance never goes away. Unless you want to risk going without it. And the expenses to maintain a home have never been higher than they are today due to inflation. So living in a paid off house is not free. And also that 8% return was very modest. You know, the, the real world returns that we've been seeing over the past couple of decades have been closer to the 10 to 12% range. And so the renter's portfolio could potentially be considerably larger than that in 30 years. Now the renter does need to be disciplined enough to stick with it over 30 years. They must not take money out even when the market is not doing well. And that that's a big ask of people. And that's why the traditional advice is to just buy the house instead, because you're going to get to a similar place for most people. You're going to have the house to live in and you can't live in your stock market portfolio and you're forced to pay each month. You have to make that investment. Otherwise you go into foreclosure. And also the longer you wait to do this, then the smaller your advantage becomes as a renter. Ideally, if you can afford it, guys do both. You know, if you're a young person out there, 25 years old, and you can afford to buy a house and still have a decent amount of money left over each month, and you can use that money to invest in the stock market, you can do both of these strategies and be wealthy in retirement. But also there's a downside to the homeowner side of this as well, right? You might have $1 million in home equity, but that wealth is trapped inside the property. In order to access it, you're going to have to sell or probably do a reverse mortgage or something like that. You're not going to be able to get a traditional home equity loan or refinance when you're 65 and retired and you don't have the income. So you're basically left with those two options of selling or reverse mortgage. And so having the stock market portfolio provides a lot more liquidity and flexibility in retirement than having all of your money wrapped up into the house. And also consider this. Look how long the housing market has been negative right now. And so many markets are turning negative year after year since 2022. This has been the longest housing downturn that we've ever seen. And it seems like it's still just getting started. It's already been four years, guys. Stock market crashes even when things drop 50%. It might only take a few years to recover. Not always, but that's what happened during the 2008 big stock market crash that we saw. So something else to consider is that recovering your net worth could potentially be a much faster process if all of it's wrapped up into the stock market versus home equity, which could take over a decade to recover. Sometimes many decades, depending on the market you're in. Everyone's in the same stock market, for example, but not everyone's in the same housing market can perform drastically differently. But basically what it comes down to is as a homeowner, you face a lot of extra expenses that tenants don't face. But as a renter, you have extra flexibility, but you are more prone to an increase in your housing expenses year after year. But as a homeowner, guys, I would say it is the same thing. When I owned investment properties, the cost to own them went up every year. It didn't go down. Same thing with owning a primary residence. It's the same. It goes up every year. So for anybody who tells you that it's just more stable being a homeowner, that old advice just doesn't apply anymore. But regardless of which path you choose, and if you're lucky enough to choose both, I want you to win. I want you to succeed. I want you to end up in your retirement age with a decent amount of wealth that you can be proud of and that you can live comfortably off of without ever having to worry about money in your senior years. That's really the goal of all of these things. And it doesn't matter how you get there. It just matters that you do get there and you have to be diligent. You have to be disciplined for it to happen. So let me know which path you guys are going to take, or maybe you've been forced to take a certain path for one reason or another. Let me know in the comments. And if you enjoyed this video, make sure you subscribe to the channel. And if you don't want to wait for my next video to come out, check out this one on the screen right over here, and I'll see you in the next one.