Owning a home is unaffordable for many people today, but there is some good news. According to Toronto-based financial planner Ed Rempel, if you rent, you can grow your wealth as fast, or even faster, than homeowners by using the same two principles that benefit them: savings discipline and leverage. Many Canadians feel they are missing out because they cannot afford a home or assume that homeownership is the answer to building wealth. Rempel argues that renting can be a deliberate and effective strategy for long-term financial growth.
Many homeowners believe their home is their best investment, but that is often not the case, Rempel notes. The average home in Toronto has appreciated by 6.3% per year over the last fifty years, which may sound impressive, but it barely outpaces the returns from 5-year GICs. By contrast, Canadian stocks, U.S equities, and global indices have delivered dramatically higher returns over the same period. “The Toronto stock market has grown nearly seven times more than Toronto real estate in the last 50 years,” Rempel says, adding that U.S and global stock markets have performed even better. While homes hold emotional and practical value, as pure growth investments, they are relatively low-yielding.
Despite this, homeowners tend to be wealthier than renters for two non-investment reasons, Rempel explains. The first is forced savings: making monthly mortgage payments gradually builds equity over time, instilling a level of discipline many renters may not have. The second is leverage. By putting down only 20% and borrowing the remaining 80%, a homeowner controlling a one-million-dollar property effectively starts with growth of $1 million while having invested only $200,000. This leverage can produce extremely high early returns, sometimes as much as 30% per year on the down payment alone. Yet, as Rempel points out, this advantage diminishes over time. “Once the mortgage is fully repaid, the home grows at a moderate 6% per year. Homeownership starts as a great investment, but over decades, the returns become modest,” he says, which is why he refers to home equity as “dead equity”, an asset that contributes to net worth but typically does not produce cash flow in retirement.
Tenants, on the other hand, avoid much of this limitation. Without a large portion of their wealth tied up in real estate, renters can invest in higher-yield assets and maintain geographic mobility, allowing them to pursue better job opportunities or lower-cost living arrangements. Most importantly, tenants can apply the same principles of savings discipline and leverage as homeowners, but often with better outcomes. By saving and investing what would have gone into a down payment or higher monthly costs, tenants can grow wealth faster than homeowners over the long term.
For example, Rempel points to a hypothetical Toronto home purchased fifty years ago for $52,806, which was the average price of a home in 1975. A 20% down payment would have been $10,561. If a tenant had invested that amount in Canadian stocks instead of using it to buy a home, the portfolio would now be worth more than the equity in the paid-off home. Investing in U.S or global stocks would have generated roughly three times the value of the home.
Additionally, renters often pay significantly lower monthly costs than homeowners, leaving extra funds to invest each month. Even investing $1,000 to $2,000 monthly, drawn from the savings of lower housing costs, could result in net worth surpassing that of homeowners within thirty years.
Tenants can also mimic the leverage strategy of homeowners. By combining a saved down payment with a reasonable investment loan, renters can achieve returns higher than homeowners experience through mortgage leverage, with the added advantage of a tax-deductible investment loan interest. Historical data show that this approach, when applied over decades, produces significantly higher wealth accumulation than homeownership alone. “If tenants save up some money and apply a leverage strategy like homeowners do, they can achieve significantly higher returns,” Rempel says.
In the end, a home may provide emotional satisfaction, stability, and personal comfort, but it is not necessarily the most effective path to financial independence. For Canadians who cannot or choose not to buy, renting is not a limitation; it can be a strategic choice. By understanding how to apply the same principles that benefit homeowners and redirecting resources to higher-return investments, tenants can build substantial wealth over time. Renting, when approached deliberately, could be the secret to smarter financial growth.
