Renting vs. Buying: How to Actually Run the Numbers
A framework for the rent-versus-buy decision — the 5% rule, break-even horizons, and the hidden costs on both sides that most comparisons miss.
"Renting is throwing money away" is the most repeated — and most misleading — line in real estate. Owning has its own thrown-away money: interest, taxes, insurance, and maintenance never build equity either. The honest comparison is unrecoverable costs on both sides.
The 5% rule of thumb
Take the home's value, multiply by 5% (roughly 1% property tax + 1% maintenance + 3% cost of capital), and divide by 12. If comparable rent is less than that number, renting is likely cheaper right now; if rent is more, buying starts to win. It's a starting point, not an answer — local taxes and rates shift it. One honest caveat: the 1%-for-maintenance piece understates costs on lower-priced homes, because repair bills don't scale with price — a $2,500 water heater is a $2,500 water heater whether the house cost $90K or $900K. On homes under roughly $150K, run the math again with 2–3% for maintenance before trusting the verdict.
The break-even horizon
Buying has heavy one-time costs — closing costs going in, commissions coming out. Spreading those over a short stay usually makes buying lose. In most markets you need roughly five or more years in the home for ownership to break even, which is why your time horizon matters more than the market's direction.
What the spreadsheets miss
- Owning: roof replacements, HOA special assessments, and the temptation to renovate.
- Renting: annual rent increases and forced moves at lease end.
- Owning: leverage — appreciation applies to the whole home value, not just your down payment.
- Both: the discipline question — would you actually invest the difference if you rented?
Buy when your life is ready — stable location, stable income, five-year horizon — not because someone told you renting is wasteful.
Frequently asked
Is buying always better long-term?
Usually, if you stay put long enough and maintain the home — but not always. A renter who consistently invests the monthly savings can come out ahead in expensive coastal markets.
What's the fastest sanity check?
The 5% rule: if annual rent is under 5% of the price of an equivalent home, renting is competitive. Then check your time horizon — under five years usually favors renting.
Keep reading
How to Buy Your First Home: A Step-by-Step Guide
Every step of buying your first home, in order — from setting a budget and getting pre-approved to making an offer and closing the deal.
Understanding Property Taxes: How They're Calculated and How to Lower Them
How assessed value, millage rates, and exemptions determine your property tax bill — plus how escrow accounts work and when it's worth appealing your assessment.
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