Rent and Invest the Difference
Buying a home isn't the best way to build wealth — renting and investing the gap often wins.
- Difficulty
- Moderate
- Time to result
- ~ongoing to results
- Steps
- 3
- Confidence
- 80%
Larsgaard pushes back on the 'cult of homeownership,' arguing that buying a home is not the best way to grow wealth — you buy for lifestyle reasons, and you rent for lifestyle reasons. Because of high home prices and interest rates, the numbers currently favor renters more than they have in a long time. The winning move for a renter is to invest the difference between what they pay in rent and what the equivalent mortgage would cost. The apparent wealth of homeowners is correlation, not causation: they build equity because the bank forces the payment, whereas nobody forces you to invest. If you'll move within 5 years, transaction costs make buying a poor choice.
Origin
As small-time landlords and real-estate investors themselves, the hosts developed a clear-eyed view that homeownership is oversold as a wealth-builder, and that the forced-savings dynamic — not superior returns — explains why homeowners tend to be wealthier.
Core principles
- 01Home ownership correlates with wealth but doesn't cause it.
- 02Buy a home for lifestyle reasons, not as your best investment.
- 03Transaction costs demand a 5-plus-year horizon.
- 04Renters win by investing the difference between rent and a mortgage.
How to run it
- 1
Check your time horizon
Only consider buying if you're confident you'll stay in the same place for at least 3, ideally 5-plus years.
Pro tip If you might be in San Francisco or Berlin in two years, rent — transaction costs will eat you.
- 2
Run the real numbers
Compare the true monthly cost of a mortgage (with today's higher prices and rates) against the going rent, which is softening in much of the country.
Watch out Don't assume recent real-estate price spikes will continue; predictions point to flattening.
- 3
Invest the difference
If renting costs less, invest the monthly gap you'd otherwise have paid on a mortgage — that's how a renter builds wealth.
Pro tip Automate the investment so the forced-savings advantage of a mortgage is replicated for renters.
In the wild
The hosts note most Americans hold their wealth in their home only because the bank will foreclose if they don't pay, while nobody forces retirement-account contributions.
→ A disciplined renter who invests the difference can build equivalent or greater wealth with more flexibility.
Common mistakes
Confusing correlation with causation
Assuming homeowners are wealthy because a house is a great investment ignores that the mortgage simply forces savings the owner wouldn't otherwise do.
Is it for you?
Best for
Mobile people unsure where they'll live in a few years.
Not ideal for
People rooted in one place who value ownership stability.
From the transcript
“the truth is buying a home is not the best way to grow wealth buying a home you do it for other reasons”
“the way renters can come out ahead is if you're renting and paying a lot less than you would have been for that mortgage investing…”
From the episode
Joel Larsgaard & Matt Altmix: Our Top Personal Finance Hacks for Millennials
Joel Larsgaard & Matt Altmix