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:
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 owner-occupied home isn’t the only path to building wealth through real estate. You can continue renting and invest in a rental property!
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!
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!
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!
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?
Like any housing situation, renting has its advantages and disadvantages:
Many people prefer to rent due to the following:
Renting has its benefits but also a few notable drawbacks:
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:
Many people prefer to own the home they’re living in for these reasons:
Homeownership isn’t for everyone. Here are a few potential cons to keep in mind:
The responsibilities and lifestyles of renters and owners differ, too:
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.
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.
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.
|
Cost Type |
Renting |
Owning |
|
Monthly base payment |
Rent |
Mortgage (principal + interest) |
|
Property tax |
Indirect (built into rent) |
Direct, typically paid monthly via escrow |
|
Insurance |
Renters insurance (often required and recommended) |
Homeowners insurance (required by lender) |
|
Maintenance/repairs |
Typically the landlord's responsibility |
Owner's responsibility (~$6,413/year on average) |
|
HOA fees |
Rare |
Possible, depending on neighborhood |
|
Rate of increase |
Often rises with each lease renewal |
Mortgage payment fixed; tax/insurance may rise |
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.
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!
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 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!
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 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.
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.
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.
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.
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.