Self-made millionaire homeowner: You don’t need to buy a home—’renting is totally reasonable for your entire life’

Most Americans who bought homes since the start of last year are having second thoughts.

About 31% of those who bought homes in 2021 and 2022 say they had to pay over the asking price to land their home, according to a recent survey from real estate data firm Clever. And due to monetary and other factors, 72% of recent homebuyers say they have regrets about the home they purchased.

But even if you may have regrets or feel you overpaid for your home, many financial pros would say you’re better off owning a property than renting one. However, depending on your financial habits, that may not be the case, says Chris Hutchins, founder of financial planning firm Grove, which was acquired by Wealthfront in 2016.

A self-titled “life hacker,” 38-year-old Hutchins is a self-made millionaire who has been effectively work-optional since age 30, but currently still holds a full-time gig in addition to hosting the life-hacking podcast “All the Hacks.”

He’s a homeowner, but doesn’t think you have to be to get ahead financially. “So many people think buying is the great financial decision of your lifetime, but you don’t need to own a home,” he says. “I think renting is totally reasonable for your entire life.”

Here’s why he says, depending on your finances, you may regret buying a home rather than continuing to rent.

Owning a home is more expensive

It’s not hard to see the advantages of homeownership. Over the long run, if you diligently pay down your mortgage, you build equity in your home and end up owning it outright. And if property values go up over that time, you can end up earning an excellent return on your money.

Rental payments, meanwhile, don’t build anything.

All things being equal, a mortgage payment will go further toward building wealth than that rental check. But all things aren’t equal, points out Hutchins.

For one thing, homeowners must have homeowner’s insurance, which on average costs $1,272 per year, according to the most recent data from the Insurance Information Institute. The average annual cost for a renters policy: $174.

Homeowners also have to pay property tax. State average annual property taxes range from $606 in Hawaii all the way up to $5,419 in New Jersey, according to an analysis from Rocket Mortgage.

And if you own a home, anything that breaks or needs updating is on you. “Even in a new home, the water heater has gone out. We’ve had to pay for washer/dryers, plumbing, repainting, resanding, refinishing,” says Hutchins. “This is stuff as a homeowner you have to take care of. As a renter you don’t.”

That’s all after you hand over a down payment. The standard outlay: 20% of the home’s value. Come in under that, and you’ll have to pay extra cash for private mortgage insurance each month until you’ve built up 20% equity in your home.

Investing your savings: ‘You could still build equity’ with more flexibility

Even if renters are paying less, they’re still failing to build wealth, right?

Not if they’re strategic about using their savings, says Hutchins.

“If you took the money for a down payment and property tax and repairs and closing costs, and put it in  brokerage account, that will also grow over time,” he says. “You could be investing in equities and other investments, including real estate. You could build equity that way.”

Meanwhile, by renting, you give yourself flexibility that’s harder to come by to those committed to a 30-year mortgage.

“The typical rule of thumb is that you have to wait five years before you’re likely to break even on a house,” Hutchins says. “I wouldn’t consider buying a home if the location and size of the home now isn’t what you’re going to need for the next five years”

A lot can change in five years. Say you get offered a new job in a new city. Or you have a child unexpectedly and realize you live in a bad school district. If you have to move, says Hutchins, “it’s way easier to end your lease than to sell your home.”

Of course, the math behind renting only works out if the renter is diligent about investing the money they’re saving by not owning.

“You’ll build more wealth through real estate if you’re someone who wouldn’t otherwise save,” Hutchins says. “But if you’re someone who doesn’t know you want to be somewhere for five years, you can come out ahead renting in most scenarios.”