Renting an apartment doesn’t kill your ‘American dream’ — 5 ways to build wealth without a mortgage

Renting an apartment doesn’t kill your ‘American dream’ — 5 ways to build wealth without a mortgage

For many, homeownership is an essential part of the American dream. But that doesn’t mean it has to be your dream too.

Maybe you don’t need the extra bedroom or a backyard for a dog. Maybe you don’t think real estate is the best investment out there.

Or maybe you simply can’t figure out how to afford a mortgage.

Whatever motivates you to stay in an apartment or other leased property, people will probably tell you that renting is like burning your money — but in reality, being a renter can work to your financial benefit. Here are five ways to flourish.

1. Hold onto a pandemic rental deal

Real estate agent and customer in face mask looking at a new project / Shutterstock

At the onset of the pandemic, renters had an advantage as monthly lease payments for properties in expensive cities like New York and Seattle plummeted.

But prices in most areas have recovered, and rents shot up this year at a faster rate than before the pandemic, according to real estate data site Apartment List.

That growth has slowed in recent months with rents starting to come down in many cities. So you might want to consider staying put for a while if you’re happy with your place and your rent is reasonable, possibly because it was set before the COVID-19 crisis or because you snagged a deal during the pandemic.

If you’re looking to move, check whether rents are softening in the area you’re eyeing. For example, Apartment List notes a decline over several consecutive months in Minneapolis; Boston; Seattle; and Arlington, Virginia.

2. Find better investments than homeownership

Many people assume that owning a home is a good investment, but that’s not necessarily true.

A 2010 Federal Reserve report titled “American Dream or American Obsession?” showed that the actual rate of return on U.S. real estate between 1975 and 2009 was below 0%.

Meanwhile, the stock market’s average annual return between 1975 and 2009 was 3.375%, after taxes and inflation, according to the Fed study.

Today, it’s never been easier to put money into the market — all you need is a smartphone app.

3. Use the money you save to pay down debt

Female hand putting money into piggy bank and counting on calculator closeup

Africa Studio / Shutterstock

Owning a home involves a number of nonrecoupable costs like mortgage insurance, homeowners insurance, interest and property taxes. And when something breaks down, you’ve got to fix it yourself instead of simply calling the landlord.

When you save all of that money as a renter, you could take it and put it toward consolidating your debt.

If you’ve been using your credit cards more than you’d prefer throughout the pandemic, you’re probably piling up some expensive interest by now. By dropping all your balances into a single lower-interest debt consolidation loan, you can make your debt easier to manage and even pay it off sooner.

4. Invest in yourself

It could be a good idea to upgrade your marketable skills by going back to school.

If you don’t have all the funds upfront for a college program, taking out a student loan at a competitive rate can help make your dream come true without costing you all your savings.

But that assumes you’re not already drowning in student loan debt from earlier schooling. If that’s your situation, you might want to explore refinancing your student loans to take advantage of today’s rates that remain close to record lows.

5. Shop around for deals

Young couple use credit card for online shopping on laptop

Blue Planet Studio / Shutterstock

The premise that owning is better than renting also assumes that homeownership is your No. 1 priority, without taking into account other goals you may have for spending your money or what you’d like to do with your life.

As a renter who doesn’t have to worry about the costs of homeownership, you may have more money for the things you really care about. That could make your standard of living higher overall.

If, for example, you like to shop online, you can download a free browser extension that will instantly search for better deals and coupons.

‘But owning a home is my dream’

Couple With Keys Standing Outside New Home

Monkey Business Images / Shutterstock

If your heart is set on becoming a homeowner, you’re not necessarily destined to become house-poor.

Just make sure you follow these tips to put yourself in the best financial position:

  • Get the lowest possible rate on your loan. The best way to save on your mortgage is to comparison shop for the lowest mortgage rate. Multiple studies have found that borrowers who review at least five rate offers save thousands of dollars over time, versus those who grab the first loan they see.

  • Find the best price on homeowners insurance. Homeowners insurance is a must, but overpaying is not. By shopping around for your coverage, you can pay hundreds of dollars less on home insurance every year.

  • Save up a respectable down payment. Making a higher down payment can land you a lower mortgage. You can try to add to your income with a popular app that allows you to invest your “spare change” in the record-breaking stock market.

This article provides information only and should not be construed as advice. It is provided without warranty of any kind.

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