The Near Impossibility Of 'Building Wealth' When You Can’t Escape Renting

Early on in my divorce process, I wasn’t sure whether or not I would be able to afford to buy a home, or if it would even make financial sense to do so. I looked into both renting and buying to get an idea of what my monthly expenses would look like with either option and what my overall financial picture would look like several years down the road.

Since I had a teenage boy and a preteen girl, I would need at least three bedrooms. That narrowed my search results significantly, especially if I were to rent. In terms of up-front cost, purchasing a home was more expensive than renting. If I purchased something for around $180,000, I would need $36,000 up front cash for a downpayment, plus a few thousand extra for closing expenses. For a rental, I would need first, last, and security — given that three-bedroom rentals started at $1,500 per month, that came out to $4,500 in cash up front.

Renting doesn’t build wealth.

However, on a monthly basis, it would be far more expensive for me to rent. As in, 50% more expensive. That $180,000 with 20% down would leave me with a mortgage payment, property taxes and homeowners insurance included, of only $1040 per month. Remember, the cheapest available rental was $1,500.

Granted, there are monthly expenses that come up as part of owning a home. Some analyses of those expenses will even tell you it’s “cheaper” to rent. I call bullshit on that though, for two reasons. First, a portion of my mortgage payment goes into the principal of my home. It becomes equity — money I will get back should I choose to sell. The longer I remain in my home and make payments, thanks to amortization, the greater the equity portion of my mortgage payment.

With renting, the entire payment, every last dime of it, from my first payment to my last, goes to enriching someone else. I never see a single penny of it back.

And second, the analyses of renting versus buying I see, nearly every time, fail to acknowledge the backend return after five or more years of owning a home, and the amount gained upon selling it.

The fact is, owning a home is one of the most reliable ways to accumulate wealth. It’s like a savings account with interest. Renting has always presented a massive opportunity cost because of that whole bit about not ever getting any of your money back. It’s even worse these days because renting has become so damn expensive.

If you can’t afford to buy, you end up trapped in a cycle of renting.

It’s becoming expensive AF in general for people to keep any kind of roof over their head — rented or owned. The thing I realized when I analyzed the rent-versus-own scenario for myself was that had I not had the ability to make that downpayment, I would have gotten stuck renting indefinitely. With the high cost of rent, I would have no cash left over at the end of the month to save. Many, many Americans are in precisely this position — trapped in a cycle of renting, barred from the upward mobility that generally comes with home ownership.

The fantasy we’re sold is that a young person saving up to eventually buy a house can rent an inexpensive place and stash extra income in a savings account to one day make that 20% down payment. If they simply pull themselves up by their bootstraps, they too can one day participate in the American dream.

But how is this possible if all the money a person could potentially save each month is funneled into an overpriced rental? Throw a kid or two into the mix so that you need more bedrooms, and good luck with that savings account!

With the income I bring in, if I had been forced to rent, I would have had very little money to spare every month. Perhaps a couple hundred dollars per month if I really yanked in those purse strings. At that rate, I’d have enough money to put down on a home in 15 years. Of course, by that time, home prices would have risen and I’d need far more than what I needed two years ago. In fact, home prices have inflated so much in the last two years, if I were to buy my current home now, I would need nearly $6,000 more to put down. That doesn’t even get into the additional $175 or so on the monthly mortgage.

So I would love to know how one is supposed to save the requisite 20% down payment if in most places, it’s 50% more per month to rent than to buy. Go cruise Zillow for a bit if that figure sounds wrong to you. Just about anywhere you look, the premium on renting is such that it effectively negates a person’s ability to save.

Not only that, but because of that rental premium, and because of the ability for many owners to make more money renting their place out in short durations via sites like Airbnb or Vrbo, investors are outbidding first-time or lower-income buyers and snapping up affordable properties. Or investors buy up what for many potential buyers would be a great first home, and they flip it and sell it at a much higher price. This practice takes affordable homes off the market and drives up overall prices, making it even more impossible for first-time or lower-income house hunters to buy in.

This is a massive problem that plays a significant role in widening the wealth gap. Rising home and rent prices mean that unless a person has financial support from their family, they’ll be trapped in a never-ending cycle of barely being able to afford their rent, much less save up to purchase a home.

The only reason my ex-husband and I were able to purchase our first home in 2008 was because we lived with my very generous cousin for a year completely rent-free and were able to save up $25,000. That year living with my cousin planted the seeds for us to grow our net worth. We later sold that house for a significant gain, and the house we bought with that gain now sits on some nice equity. Literally, that year of living rent-free with my cousin is the reason I have my own home today.

I had help. Millions of Americans don’t. I’m not sure what the answer is here, but this is something we don’t talk about enough. Shelter is one of our most basic human needs. While we’re mad about the rising cost of healthcare and the ever growing inequities in our education system, millions of Americans are slowly being priced out of even having a roof over their heads.