Owning a home is often cited as one of the best ways to accumulate wealth over time. But home prices, mortgage rates, taxes and other costs associated with owning a home have put homeownership out of reach for many Americans. In fact, 78 percent of U.S. adults who don’t own a home, but would like to, cited affordability-related reasons as a key factor, according to a recent Bankrate survey.

Just because you can’t afford to own a home or choose not to doesn’t mean you can’t still build wealth. Renting can even make it easier to save money and accumulate wealth through other means.

Benefits of renting instead of owning a home

Many people consider owning a home part of the American dream, but there are some real advantages to renting compared to home ownership.

  • Flexibility: Renting gives you a lot of flexibility compared to owning a home. You’re able to move freely whenever your lease is up and may even be in a position to get out of your lease early depending on the agreement that was signed. If you want to move when you own a home, you’ll have to find another place to live and sell your existing home, which can come with significant costs and may take months.
  • Cost savings: When you rent, you typically only have to pay the monthly rent plus a small amount for renter’s insurance and utilities. If you own a home, you’ll pay the mortgage plus home insurance, property taxes, utilities and maintenance costs that can be significant. Any unexpected costs such as needing a new refrigerator or roof are all the responsibility of the homeowner, whereas the landlord typically takes care of that when you rent.
  • Boost your savings elsewhere: If you’re able to save money while renting, you can use that increased savings to invest more for retirement or other financial goals. That increased savings is one of the major advantages of renting compared to owning a home.

4 ways to build wealth while renting

1. Boost contributions to retirement accounts

One of the best ways to build wealth over the long term is by contributing to tax-advantaged retirement accounts such as a 401(k) or a traditional or Roth IRA. If you’re able to save money while renting, be sure that you’re contributing as much as you can to retirement accounts. You’ll at least want to contribute enough to receive any employer match, which experts consider “free money.”

In 2024, you can contribute up to $23,000 in a 401(k) plan if you’re under age 50, and you can also contribute $7,000 to an IRA. Those who are 50 and older can contribute additional amounts through catch-up contributions.

The money in these accounts can be invested and grow for decades, compounding tax-deferred until you reach retirement age. Maxing out retirement contributions is a great way to build wealth, whether you own your own home or not.

2. Invest savings using a brokerage account

If you think you might want access to the money before retirement or have already maxed out your retirement contributions, you can also invest your savings from renting using a brokerage account.

Brokerage accounts allow you to buy securities such as stocks, bonds and ETFs. However you are subject to taxes on any capital gains or investment income you receive. You’ll have easier access to the money when you need it compared to retirement accounts where you’ll typically pay a penalty for making early withdrawals before retirement.

3. Invest in stocks using low-cost index funds

Once you’ve decided whether to invest your increased savings in retirement accounts or a brokerage account, you’ll want to decide what to invest in. If you’re confident you won’t need the money for at least five years, stocks are one of the best long-term investments you can make.

Index funds allow you to purchase a basket of stocks that cover all sectors of the economy, giving you diversification benefits at a low cost. Index funds that track the S&P 500 index have returned around 10 percent annually over the long term. Generating investment returns like that will allow you to grow your net worth without owning a home.

4. Invest in real estate through REITs

If you’re interested in investing in real estate, but can’t afford to buy your own home or property, there’s good news. You can invest in real estate investment trusts, or REITs, through your brokerage account, which can provide many of the benefits of a real estate investment without the hassle of maintaining a home or investment property.

REITs are involved in the ownership, financing or management of properties and payout a substantial portion of their income as dividends to shareholders to avoid taxes at the corporate level.

Bottom line

Renters may feel like they’re throwing away their money on rent each month because they aren’t building equity in the way they would if they were paying off a home mortgage. But just because you’re renting doesn’t mean you can build substantial wealth at the same time. There are some major cost advantages to renting, but you’ll need to invest the savings in order to grow your wealth.

Editorial Disclaimer: All investors are advised to conduct their own independent research into investment strategies before making an investment decision. In addition, investors are advised that past investment product performance is no guarantee of future price appreciation.