Is it possible to rent my home forever and still build wealth in America — or am I just throwing money away?
To rent or to buy? It’s an age-old question that has garnered plenty of debate in recent decades. But one thing is for sure: there’s a certain societal pressure to purchase real estate. After all, many view homeownership as part of the American Dream.
In fact, according to a NerdWallet study, more than half of Americans (54%) feel there’s too much pressure to buy a home. However, nearly two-thirds (64%) of those surveyed also feel that buying a home is “not the measure of achievement” it once was for previous generations.
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One of the more persistent arguments against renting forever is that it’s considered “throwing money away.” Sure, when you rent, you pay a landlord in exchange for a roof over your head — and you don’t get to build equity via homeownership.
On the flip side, if you own a home, each mortgage payment gets you closer to full ownership of that property. Over time, the value of your home can rise — which sounds like the better deal.
But is investing in a piece of real estate the only way to build wealth? With the right strategy, you might find that life as a renter can still allow for your net worth to grow.
The cons of renting forever
At first glance, renting may seem like the more cost-effective solution for housing, especially once you factor in the property taxes, insurance, and overall maintenance that homeowners face. However, rent costs are rarely set in stone.
The average rent rates have increased 8.85% per year since 1980, according to iPropertyManagement.
Zillow lists the current average median rent in the U.S. as $2,150 per month.
According to the U.S. Department of the Treasury, between 2000 and 2020, housing costs have risen faster than incomes.
In fact, the report reveals that more than 90% of Americans live in areas of the country where median rents and house prices rapidly outpaces median incomes in the last two decades.
Fluctuating rent rates — pressured by ever-changing economic conditions — can eat up a large portion of your monthly income, making it harder to budget, save, and invest for your future.
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The cons of buying a home
During the first quarter of 1994, the median U.S. home sale price was $130,000, according to the Federal Reserve Banks of St. Louis. In the second quarter of 2024, it was $412,300.
As a homeowner, you're betting on your home increasing in value, which isn’t always a guarantee.
When you rent, you typically pay a security deposit and the first month’s rent prior to moving in. (Some landlords may also ask for the last month upfront, too).
By comparison, buying a home involves closing costs, down payment, home inspection, appraisal fees, homeowners insurance, and moving costs. In instances where an individual buys a condo, there’s the added monthly maintenance fees and a potentially frustrating condo board that may spend that money in ways you don’t agree with.
Don’t forget that property taxes go up. Insurance companies raise the cost of premiums. And, as homes age, they tend to require more maintenance and upkeep — such as a leaky roof or broken furnace — that become an out-of-pocket expense.
The money you sink into a home — outside of your monthly mortgage payments — is money you can’t really save or invest.
Is it possible to make a rental situation work for you?
Homeownership is a great way to build equity — especially as its value goes up over time. In theory, this would allow for owners to comfortably invest in other assets, such as stocks or retirement funds.
However, if you’re able to find a rental unit with a price comparable to what you’d spend on a mortgage in your area, then you can use the money you’re not spending on property taxes and maintenance and invest it instead.
Over the past 30 years — which is the average amount of time it takes homeowners to pay off a mortgage — the median home value rose by $296,800.
But let’s say that a rental property has, over the past 30 years, cost you $300 a month less than owning a home after factoring in taxes, insurance, maintenance, and repairs.
Had you invested $300 a month in the stock market over the last three decades at an average annual 8% return, which is a bit below the stock market’s average of 10%, you’d be sitting on roughly $411,000.
So here, you’re looking at a comparable gain. And a $411,000 portfolio is comparable to the median home value for 2024.
Let’s also consider the down payment factor: a 20% down payment on a $130,000 home 30 years ago would’ve been $26,000. Invested at an 8% return over the last three decades, that $26,000 could be worth about $262,000 today.
None of this is to say that owning a home isn’t a great way to build wealth. However, it’s possible to pay rent and achieve some of your financial goals if you take some of the money you aren’t spending on various homeownership costs and put it to work in the stock market or other assets whose value can grow over time.
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This article provides information only and should not be construed as advice. It is provided without warranty of any kind.