Home › Guides › Rent vs Buy: The Honest Math
Housing"Renting is throwing money away" is one of finance's most persistent slogans — and one of its most wrong. A mortgage payment also throws money away: interest, taxes, insurance, maintenance. The honest question isn't which side has costs, but which side's unrecoverable costs are lower.
Try it yourself: Compare monthly payments and total ownership cost for any home. Mortgage Calculator →
The 5% rule: a 30-second test
Annual unrecoverable cost ≈ 5% of home price
— ~3% interest + ~1% property tax + ~1% maintenance —
— ~3% interest + ~1% property tax + ~1% maintenance —
On a $400,000 home, that's about $20,000/year or $1,667/month of money you never get back — even while "building equity." If a comparable rental costs $1,200/month, renting wins by ~$467/month. If rent is $2,200, buying deserves a serious look. Adjust the percentages for your local rates and taxes.
Unrecoverable costs, both sides
| Buying (unrecoverable) | Renting (unrecoverable) |
|---|---|
| Mortgage interest | Entire rent payment |
| Property taxes & insurance | Renter's insurance |
| Maintenance (~1%/yr) | — |
| Closing costs (2–5%) & selling costs | Moving costs (usually smaller) |
| Opportunity cost of down payment | — |
Notice what isn't unrecoverable when buying: the principal portion of the mortgage — that's forced savings. Early in a 30-year loan it's a small slice, which is why short stays favor renting.
The real break-even example
$400,000 home, 20% down ($80,000), 6.5% rate, 30 years: monthly payment ~$2,024 plus taxes/insurance/maintenance of ~$650 = ~$2,674/month all-in, vs $1,800 rent. Buying costs ~$874/month more at first. The crossover comes from two forces: principal repayment growing over time, and home appreciation compounding — against which you must weigh what the $80,000 down payment would have earned invested.
In most markets, break-even lands at 5–10 years. Sell sooner and transaction costs (buying fees ~3%, selling agent commissions ~5–6% in many markets) eat any equity. Stay decades and buying usually dominates — if you would actually have invested the difference, which most renters don't. That forced-savings effect is buying's secret weapon.
When renting wins, no contest
- Short horizon: under ~5 years, transaction costs almost always make buying a loss.
- High price-to-rent markets: expensive coastal cities where the 5% rule screams rent.
- Uncertainty: career, relationship, or location likely to change soon.
- You'd invest the difference: the disciplined renter who actually invests beats the buyer who spends the surplus.
Frequently asked questions
No. Buying wins when you stay long enough for principal repayment and appreciation to outweigh the unrecoverable costs (interest, taxes, insurance, maintenance) plus the opportunity cost of your down payment. Renting wins for short stays, high-price markets, and when you'd invest the difference. The break-even is usually 5–10 years, but it varies enormously by market.
Multiply the home's price by 5% to estimate the annual unrecoverable cost of owning: roughly 3% mortgage interest, 1% property tax, and 1% maintenance (adjust for your area and rate). On a $400,000 home that's $20,000/year, or $1,667/month. If comparable rent is well below that, renting is likely the better financial move; if rent is above it, buying deserves a serious look.
There's no universal number, but 5–10 years is a common break-even range because buying costs (closing fees, agent commissions when selling) amortize over time while mortgage principal builds equity. Below about 5 years, transaction costs usually make buying a loser. Run your own numbers rather than trusting rules of thumb for your market.
Buyers forget maintenance (budget ~1% of home value yearly), closing costs (2–5% of price), selling costs (agent commissions ~5–6% in many markets), and the opportunity cost of the down payment. Renters forget rent inflation and the forced-savings effect of a mortgage. Compare unrecoverable costs on both sides — that's the honest comparison.
Disclaimer: Calculator content is for education and planning only — not financial advice. Loan terms, rates, fees and tax rules vary by lender and country; confirm important figures with your lender or a licensed financial adviser before deciding.