Where do you live that renting is significantly cheaper than a mortgage payment?
What would you recommend investing the extra money in?
I didn't say that renting is significantly cheaper than a mortgage payment.
I said that renting is significantly cheaper than the sum of all these: closing costs, mortgage payments, PMI, home insurance, HOA fees, maintenance and repair costs, etc...and I forgot to mention one of the costliest ones, property taxes.
What you invest the extra money in depends on many variables including age, retirement time horizon, personality, etc.
Investing in rental properties is owning and managing a business. It's tedious and a lot of work. Some people enjoy it and live for this kind of investment. Because of leverage (borrowing and therefore investing other people's money) and the tax deductions you get as an investor, real estate investing can get you to your financial goals a lot quicker than you would in other investments. If this is for you, than go for it.
Other people, especially professionals with a decent salary, prefer to invest the extra money passively in stock and bond index funds, and cash. It's easy, just set it and forget it. For this they use their employer retirement plan, Roth IRA, taxable brokerage accounts, CDs, etc., with the bulk of their portfolio invested in stock index funds for fastest growth.
Some people do a combination of mostly real estate and some stock index fund investing or vice versa.
What I tell young people is that as soon as they start earning they invest in an S&P 500 index fund in their employer retirement plan up to the employer match, then open a Roth IRA at Vanguard, invest in VTSAX and max it out every year.
