Do You Have to Buy a Home to Build Wealth?

By Sofia Figueroa

If it seems like everyone and their moms have become homeowners lately, you’re definitely not imagining things. The housing market has gotten wicked hot over the past couple years, thanks to lowered interest rates and mortgage allowances established at the onset of the pandemic. So many people are buying homes right now — to live in, to flip, or to rent out — that demand has driven prices to record highs.

Combine that with the fact that many of us grew up hearing, from parents or otherwise, that real estate was the best way to build wealth and that paying rent was basically “throwing money away,” and you’ve got a recipe for some serious homebuying FOMO.

Two people looking at a home in the distance, seen through a circular frame in front of them. Illustration.

But if you’re not in a place to afford a down payment, either right now or maybe ever, don’t despair. Because guess what? Owning your home isn’t actually the surefire road to wealth that it’s made out to be. In fact, it might not even be the best way to do it at all anymore. While you should be asking yourself plenty of questions about your own financial situation, here’s some additional mythbusting food for thought.

Homeownership costs more than just a mortgage

One of the biggest misconceptions about homeownership is that, after the down payment and closing costs, the monthly cost of owning a home is “basically the same” as paying rent. If you think about it, this myth is probably a big source of a lot of your FOMO, too — it makes owning your home seem easy, once you get over that big initial hurdle.

In reality, there are a lot more costs associated with owning a home than you might think. On top of the recommended 20% down payment, 3-5% closing costs, and base mortgage payment (which, btw, includes interest), homebuyers are also responsible for property taxes, homeowners insurance, and about 1% of the property’s value in regular maintenance. (All that stuff that, as a renter, you can bug your landlord to take care of? That’d be your problem now.)

What would that look like? Let’s break down an example. Say you buy a home in the great state of Ohio that costs $444,000.

  1. A 20% down payment would be $88,800.

  2. Let’s say you lucked out and your closing costs were just 3%. That would be $13,320 added to the price of the home. So already you’re either putting $102,000 down up front, or else taking out a mortgage that looks more like $457,000.

  3. Let’s say your 30-year mortgage has an interest rate of 3.1%.

  4. Annual property tax = about $9,100.

  5. Annual homeowners insurance = about $1,439.

  6. So your base mortgage payment might be $1,516, but add your monthly property tax amount (about $758) and monthly insurance (about $120)? Your monthly payments, at the very least, would actually be around $2,394.

And that’s before you factor in the cost of keeping up your home. You’d now be responsible for:

  • Repairs, big and small

  • Updates and renovations (no one keeps everything exactly as is!)

  • Ongoing maintenance

  • Seasonal maintenance

Even if these line items are one-time costs, they should be factored into the overall cost of owning a home. If you have to spend $20,000 re-tiling the roof on a $444,000 house, that house actually costs $464,000.

Maybe you could squeeze all that into your budget. But then how much wiggle room would that leave for you to invest toward your dream retirement or other long-term goals? That’s a big potential wealth-building tradeoff. Because while yes, real estate is an investment in itself …

Real estate isn’t as good an investment as you think

Not only is buying a home expensive; it might not even be worth the expense.

Historically, returns on real estate — aka the rate at which your home increases in value over time — haven’t significantly outpaced inflation. That means that whatever price at which you sell your home could be essentially the same price you bought it for a few years ago. You’d need to hold onto the property for an average of five to seven years just to break even, especially with all those extra costs.

All investments are a risk, but with homeownership, you’re continuously sinking more money into the investment with no way to guarantee it’ll pay off long-term. Even housing economists say you’d probably be better off putting your money into your investment portfolio.

Renting actually has its advantages

At the end of the day, you should pretty much only be buying a home if owning your own home is important to you. Homebuying isn’t the status symbol that people — be they realtors or influencers — want you to think it is.

On the other hand, renting, as annoying as it can be (ugh, landlords, amirite), offers a lot more freedom than it sometimes gets credit for. Your costs are limited, most maintenance is covered by the owner, and most importantly, if you decide you don’t like your place, it’s a lot cheaper to save up for a move than it is for a down payment.

Here’s a handy explainer to help you figure out whether buying or renting is actually right for you. But the fact remains that for some of us, renting might not just be reasonable — financially speaking, it could be our smartest move in the long term.

TL;DR, don’t let that homebuying FOMO sting the next time it wheedles its way in. Chances are, you’re doing great.


© 2021 Ellevest, Inc. All Rights Reserved.

The information provided does not take into account the specific objectives, financial situation, or particular needs of any specific person.

All opinions and views expressed by Ellevest are current as of the date of this writing, for informational purposes only, and do not constitute or imply an endorsement of any third party’s products or services.

Information was obtained from third-party sources, which we believe to be reliable but not guaranteed for accuracy or completeness.

The information provided should not be relied upon as investment advice or recommendations, does not constitute a solicitation to buy or sell securities and should not be considered specific legal, investment or tax advice. Investing entails risk, including the possible loss of principal, and there is no assurance that the investment will provide positive performance over any period of time.

Ellevest Membership fees are as follows: Ellevest Essential is $1 per month, Ellevest Plus is $5 per month, and Ellevest Executive is $9. Other fees as described in Ellevest’s Wrap Fee Program Brochure and the Ellevest Membership Terms and Conditions Agreement will continue to apply.

A newsletter you’ll love

Get all the news, advice, and must-know info on women, money, and career.

Sofia Figueroa

Sofia Figueroa is a CFP® Professional at Ellevest. She works with Ellevest clients to help them take financial control and make a plan to hit their money goals.