Renting vs. Owning? The Secret Third Option to Build Long-Term Wealth

In all 50 major U.S. metros, it’s cheaper to rent a home than it is to own one. But that doesn’t mean you should give up on equity, appreciation, and long-term wealth. If you’re debating renting versus owning, there are more options than you think. In this article, we’ll cover the pros and cons of renting and owning, as well as a third strategy that pairs the flexibility of renting with the wealth-building potential of ownership.

Summary:

• Renting a home is typically cheaper than owning one and gives you greater flexibility to relocate (and more money to invest).

• Owning is usually more expensive than renting, but it gives you control over the asset and helps you build equity.

• Renting a home and owning an investment property (like a turnkey rental) allows you to live where you want while also building long-term wealth.

Renting vs. Owning: The Core Financial Difference

One of the key differences between renting and owning is what happens to your monthly payment. When you rent, your payment goes directly to your landlord and helps them build wealth. When you own your home, a portion of the mortgage payment goes toward paying down your loan balance and building home equity.

Thankfully, there’s a third option. If you rent your home and buy an investment property, you can maintain a flexible living situation while building wealth with real estate!

The Wealth-Building Benefits People Assume Require Primary Homeownership

The owner-occupied home isn’t the only path to building wealth through real estate. You can continue renting and invest in a rental property!

Equity: Not Just From Your Own Front Door

Every mortgage payment increases the amount of equity in your property, but that mortgage payment doesn’t need to be paid by you. With an investment property, the tenant effectively pays down your loan!

Amortization Example:

Let’s say you own a primary residence with $450,000 left on a 30-year conventional loan at a 7.25% interest rate. Here’s the amount of principal you’d pay off over time:

Year 1: ≈ $4,355

Year 10: ≈ $61,600

Year 20: ≈ $188,500

Year 30: ≈ $450,000!

Appreciation Works the Same on an Investment Property

The same paydown effect occurs on an investment property, except it’s your tenants who pay down the mortgage—not you! What’s more, property values tend to increase over time, regardless of whether you or a tenant occupies the property. Turnkey rental markets are often selected for cash flow and appreciation!

Tax Advantages Are Strong on an Investment Property

The real estate tax strategies on an investment property are often even more favorable than on a primary residence. In addition to mortgage interest deductions, you can unlock depreciation, write off certain rental property expenses, and defer capital gains taxes with a 1031 exchange!

The Biggest Benefit: Rental Income Can Fund the Property Itself

Perhaps the biggest difference between a primary residence and investment property is that the mortgage is effectively paid by the tenant rather than by your personal income. Plus, if the rental income exceeds your mortgage payment and expenses, you can generate cash flow on top!

Did you know Rent to Retirement offers 5%-down financing options on select new-build turnkey rentals?

Pros and Cons of Renting

Like any housing situation, renting has its advantages and disadvantages:

Pros of Renting

Many people prefer to rent due to the following:

• Lower upfront costs. You may need to pay an application fee and security deposit upon move-in, but even these costs pale in comparison to what you typically need for a down payment and closing costs on a home.
• More flexibility to relocate. Most leases run for about 12 months, and in some cases, you can even arrange month-to-month or short-term leases.
• Less responsibility for maintenance or repairs. As long as you aren’t intentionally damaging the property, most maintenance and repairs are the responsibility of the landlord.
• More money to invest. You can use the delta between rent and a typical mortgage payment to invest in the stock market or even a rental property!

Cons of Renting

Renting has its benefits but also a few notable drawbacks:

• No equity growth. Your rent payment goes to your landlord, helping them build equity.
• Potential rent increases. At lease renewal, your landlord may raise the rent, increasing your housing costs.
• Limited control. As a tenant, you have very little control over renovations, property improvements, and amenities.

Pros and Cons of Owning Your Primary Residence

Homeownership can provide greater freedom, but it also comes with more responsibilities. Make sure you’re aware of the following before buying a primary residence:

Pros of Owning

Many people prefer to own the home they’re living in for these reasons:

• Equity growth. Your monthly mortgage payment helps pay down your loan balance.
• Potential appreciation. Home prices tend to increase over time, potentially allowing you to make money if/when you sell.
• Payment stability. Taxes and insurance aside, your principal and interest will stay the same for the life of your loan.
• Greater control. While you may need architectural approval if you’re living in a community with an HOA (homeowners association) or permits if you’re making significant changes to the property, you have more freedom to customize your home.
• Fewer pet restrictions. Many rentals restrict pets or charge extra fees, but if you own your home, there are far fewer restrictions (if any!).
• Tax advantages. You can potentially deduct your mortgage interest (if you itemize deductions on your return) and pay no capital gains taxes on up to $250,000 ($500,000 if married filing jointly) when you sell your home.
• Housing stability. Homeownership provides long-term housing security, as long as you keep up with your mortgage payments.

Cons of Owning

Homeownership isn’t for everyone. Here are a few potential cons to keep in mind:

• High upfront costs. You’ll need to have enough money saved to cover a down payment and closing costs.
• Ongoing maintenance. The average homeowner pays around $6,413 each year to maintain their home.
• Less flexibility to relocate. Moving to another neighborhood or state usually requires you to sell your current home, which can take time (and money!). Alternatively, if you move, you could turn your home into a rental!
• Market risk. If home values decline, you could lose equity in your home, which can be problematic if you need to sell.

Renovations, Pets, and Lifestyle Differences

The responsibilities and lifestyles of renters and owners differ, too:

Renovations

Renters are limited to landlord-approved changes, which are often very minimal. Homeowners can renovate and build equity through property improvements, assuming they have approval from the HOA or city for major changes.

Freedom to Have Pets

If you’re renting, your landlord may restrict pets or certain breeds, or they may charge non-refundable deposits for keeping a pet on the property. Homeowners have more freedom over the pets they bring into the home but are responsible for any pet-related damage.

Inflation, Taxes, Insurance, and Recurring Costs

If you’re a renter, your landlord could decide to increase rent at your next lease renewal to help them keep up with inflation and rising expenses. As a homeowner, you get to lock in the amount of principal and interest you pay over the life of the loan, though property taxes and insurance typically rise over time.

Why Renting and Investing Beats Waiting to Buy

Many people rent for a long time before finally pulling the trigger on a home purchase, causing them to miss out on years of appreciation. But there’s a third path that can give you the flexibility of renting with the immediate wealth-building potential of ownership: renting while investing.

You Don't Have to Choose One Market

Renting frees you up to live anywhere, whether it’s a high-cost city for work, an area that suits your lifestyle, or somewhere closer to family. Meanwhile, you can invest in a totally different market built for cash flow and/or appreciation.

Live where you want while investing in headache-free turnkey rental properties!

Keep the Flexibility of Renting Without Giving Up Equity

By continuing to rent, you can live where you choose without having a mortgage tied to your primary residence. Meanwhile, you can build equity and appreciation in the background through your investment property, giving you the best of both worlds.

Turnkey Makes This Achievable Without Local Expertise

Turnkey rentals are typically located in landlord-friendly, high-growth markets selected for long-term performance. Since these properties are newly built or fully renovated—often requiring less maintenance than older properties—and come with property management in place, you don’t need to live near the property!

Investing While You Rent Is Easier Than Ever

Don’t want to own a primary residence yet? Whether you’re not quite ready to put down roots or simply prefer the flexibility of renting, you can still build long-term wealth through real estate by buying an investment property, like a turnkey rental. This allows you to build equity, take advantage of appreciation, and benefit from various rental property tax deductions while continuing to rent at a potentially lower cost.

Rent to Retirement has professionally managed turnkey properties in some of the best places to buy a rental property, allowing you to invest in real estate remotely while living wherever you choose.

Renting vs. Owning FAQs

Is Renting Ever Better Than Owning?

Renting is often cheaper than owning. In major U.S. cities, it costs less to rent a home than to own one, especially when you factor in mortgage rates, property taxes, insurance, and maintenance. Homeownership is even more expensive if you plan to move within a few years, as there are closing costs each time you buy and sell.

However, there are trade-offs with both options, so whether renting is “better” depends on your financial situation and lifestyle preferences.

How Much Salary Do I Need to Afford $1,500 Rent?

Using the standard guideline that your rent shouldn’t exceed 30% of your gross monthly income, you would need to earn roughly $5,000 a month ($60,000/year) to afford $1,500 in rent. However, landlords may require you to earn anywhere from two to four times the monthly rent for approval.

Can I Build Wealth Through Real Estate Without Owning My Home?

Yes! Equity, appreciation, and tax advantages aren’t exclusive to a primary residence. You can get many of the same benefits (plus others) with investment properties, including turnkey rentals, while you continue to rent wherever you desire.

Is It Better to Rent-to-Own or Just Rent?

The rent-to-own model can suit buyers who need time to save money or improve their credit before qualifying for a mortgage, but it typically comes with higher upfront costs, higher rent payments (since a portion may go toward the purchase), and less flexibility than a standard lease. Unless the tenant truly intends to buy the rent-to-own home, a standard lease paired with real estate investing tends to be the more flexible and financially efficient path.

What Is the 50% Rule in Rental Property?

The 50% rule is a loose guideline some real estate investors use when analyzing rental properties. It states that roughly 50% of your property’s gross rental income will go toward operating expenses (excluding the mortgage), like taxes, landlord insurance, maintenance, and property management.