Finish school. Get a job. Buy a home. Get married. Have kids. Work for 40 years. Retire. And then you die.

This universal guide has been indoctrinated for generations, centred upon the largest purchase in most people’s lives – the home.

Home ownership represents stability and is considered the foundation of family. It is also the default vehicle for building equity, which will hopefully be enough to one day fund your retirement or gift as an inheritance.

But what happens when things don’t go according to plan – think a divorce, or devastating financial loss, or even the aftermath of a pandemic – and one is forced to reevaluate one’s priorities?

Indeed, a growing segment of the younger generation, remote workers, and digital nomads are facing the reality of renting their way to retirement. Here are key points that can be observed from their journey.

1. Growing renter’s market

Past generations were able to pay off their homes relatively quickly but, with decades of untempered inflation, the growing disparity between wages and home prices has created a marketplace where younger people are priced out of home ownership.

The resulting imbalance of wealth equality has created a population where the majority will be renters, often for life.

Overbuilding by property developers has also led to an overhang, compounded by lacklustre sales figures due to the pandemic. This, however, has left a silver lining: a growing renters’ market full of choices and competitive rental rates.

2. Generational shift in mindset

Younger generations have developed and embraced a paradigm shift that prioritises necessity, functionality, and minimalism – alienating satellite TV, taxis, and malls in favour of services like Netflix, Grab, and Shopee.

On-demand services capable of meeting the needs of flexible lives are slowly displacing their incumbents by offering ease of access, lower costs, and better experiences.

This includes pursuing passions for work, exploring global opportunities via remote working, and favouring a higher quality of life – all of which makes home ownership less appealing.

3. Financial and physical mobility

The minimum down payment for a house in Malaysia is typically 10% of the purchase price. Accessing home equity or selling a property is time consuming and highly dependent on market conditions; and, with capital tied up, homeowners have less capital for other ventures.

Home ownership also makes relocation for a new job or opportunity challenging. Risks include economic downturns, underperforming real estate markets, and the non-liquidity of homes.

In contrast, renting provides the freedom to live in a different location and move within cities or countries with fewer constraints. It also allows you to repurpose your down payment towards other investment opportunities.

The math

A renter’s preset housing expenses do not include property taxes, condo fees, or appliance maintenance or replacement. These incidental expenses alone add up to thousands of ringgit annually.

By having little to no surprises expenditure-wise, it allows for better and more consistent allocation towards savings and other investments.

Imagine this scenario: you want to buy a condo worth RM1 million. To do this, you would need to provide a down payment of RM520,000 (over 50%) to have a mortgage that could be covered by rental income of RM2,000 a month.

By renting instead, this hypothetical down payment becomes investable funds. Here are three alternative investment options to consider:

• Ultra-conservative: Fixed deposits at 2% annual percentage yield (APY)
  = RM10,400 a year
• Conservative: Index funds at 10% APY (S&P 500 historical yield)
  = RM52,000 a year
• Aggressive: Cryptocurrency at 12% APY (highest rates for stablecoins)
  = RM62,400 a year

At the conservative rate of 10% APY, your capital would grow – thanks to the power of compounding interest – within 10 years to RM1,348,746. After 20 years, it balloons to RM3,498,299.

Regardless of which strategy or combination is employed, one could theoretically achieve returns that aren’t tied to any geographical asset, and could easily pivot one’s investments at any time.

The bottom line

Renting frees up capital to diversify your investments, reducing your overall risks versus having the bulk of your equity tied to one property.

Investing in other assets that have higher liquidity also provides options for pivoting into different markets relatively quickly as needed.

And finally, the mobility of your investments allows for the freer pursuit of opportunities and a lifestyle with no geographic boundaries – priceless in this day and age for those with a millennial or Gen Z mindset.