3 ways renting could make you wealthier than owning a home (2024)

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• If you can sublet rooms in your apartment, you can make passive income each month.
• If you view your home as an investment, remember that it might not be the best investment.
• You could instead invest that money in stocks or an entrepreneurial passive income stream.

At the age of 35, more than half of my friends own homes. Whenever I find myself in conversation with those people, they are quick to judge my decision to be a renter instead of a homeowner. I try to explain to them that renting has big financial benefits for me. I'm able to hunt for inexpensive places to rent, and I avoid many living costs.

Even though I have no intention of buying a property anytime soon, these friends like to tell me that renting will set me back financially and it will always hold me back from increasing my net worth.

While there are financial perks that come with owning a home, like yearly tax deductions and an opportunity to receive a big return on your investment years down the road, there are also financial incentives that come with renting.

Certified financial planner Christopher Manske has three ways that renting can make you wealthier than owning a home does.

1. Sublet out your rental for passive income

Depending on your rental agreement, Manske says that you could make passive income or just cover your rent payment by subletting out your rental.

By renting a house or apartment with multiple bedrooms, you can sublet the rooms you don't use. Manske says you could charge a higher fee than you paid so that you can not only cover your rental costs but make money on top of that.

"That way, you have roommates coming in and paying you their portion of rent, at a price that you set, which can offset your rental costs and make you money on top of that," Manske says.

For example, he says if you rented a 4-bedroom unit for $4,000, you could charge $1,500 per room. You would then be able to pay the rent and earn an additional $2,000 a month in passive income.

If you want to live in one of those rooms, your cost of living could be covered by renting out the rooms for more money. "The three rooms add up to $4,500, so you pay nothing, and you're making $500 a month," Manske says.

While you could do something similar as a homeowner, Manske says the main difference is you don't have all the added expenses as a renter, like taxes, homeowners insurance, or the costs associated with maintenance.

2. Be more strategic with your investments

When you're a homeowner, it's possible your property will appreciate over time, which means you're able to sell it for a profit. Many experts recommend living in a home for at least five years before selling it, so you're at less of a risk of losing money on the investment.

Manske says that game plan might not work best for everyone. He says that when someone owns a home, they are tying up a portion of their capital in that home, from the down payment to closing costs, insurance and taxes, and so much more. If you take out a mortgage, you have to put money toward that loan every month.

"Instead of just owning something that costs you money, you can take that cash and put it into another income producing investment that doesn't require ongoing maintenance and recurring costs," he said.

For some people, putting money into a house might make less sense than putting it in a mixture of stocks and bonds that pay enough interest and dividends to cover rent payments and provide extra income.

3. Use the money to invest in passive income streams

If you're someone with more of an entrepreneurial spirit, Manske suggested looking into ways you could take the money you'd use for a down payment and invest it in different revenue streams or businesses.

"Starting passive income businesses — like laundromats, vending machines, or anything that requires just a little bit of attention from you — allows you to collect an income stream," says Manske. "That way, you can collect an income stream and become a business owner."