Rent vs Buy - The Real Math
The "rent is throwing money away" argument ignores maintenance, property tax, closing costs, and opportunity cost. This calculator compares the true cost of renting vs buying over your time horizon, showing the break-even year.
What This Calculator Does
Enter your rent, home price, down payment, mortgage rate, property tax, insurance, maintenance, and how long you plan to stay. The calculator shows the total cost of renting vs buying for that period, including:
- Monthly rent increases (assumed 3%/year)
- Home equity buildup
- Closing costs (both buying and selling)
- Maintenance (1% of home value/year)
- Investment return on the down payment (if rented)
Rule of Thumb: 5% Rule
A quick rule: multiply home price by 5% to get the annual cost of ownership. If annual rent is less than that, rent is cheaper.
On a $400,000 home: $400,000 ร 5% รท 12 = $1,667/month. If rent is under $1,667, renting wins.
Worked Example: $400,000 Home vs $2,000 Rent
- Down payment: $80,000 (20%)
- Monthly mortgage P&I: $2,021 (7% rate, 30 years)
- Property tax: $500/month
- Insurance: $150/month
- Maintenance (1%): $333/month
- Total monthly cost of ownership: $3,004
- Rent: $2,000/month
At 5 years: buying costs $15,000 more than renting. At 10 years: buying catches up as equity grows. Break-even: 7-8 years.
Hidden Costs of Buying
- Down payment (20% is $80k on a $400k home)
- Closing costs: 2-5% ($8,000-$20,000)
- Property tax: 0.5-2.5% annually
- Homeowners insurance: $1,200-$3,000/year
- Maintenance: 1-2% of home value/year
- Selling costs: 6-10% of sale price
- HOA fees: $100-$500/month in many neighborhoods
When Buying Makes Sense
- You plan to stay 7+ years
- Rent is higher than 5% of the home price
- You have stable income and a 20% down payment
- Local market is not overvalued
- You want tax deductions (mortgage interest, SALT)
When Renting Makes Sense
- You may move within 5 years
- You want flexibility for career or lifestyle
- You would rather invest the down payment
- Local market has high price-to-rent ratio
- You do not want maintenance responsibilities
Frequently Asked Questions
Is renting throwing money away?
No - renting buys flexibility and avoids maintenance, tax, and transaction costs. Buying builds equity but locks in costs.
What is the 5% rule?
Multiply home price by 5% for annual cost of ownership. Compare that to annual rent.
How long do I need to stay to break even on buying?
Typically 5-7 years, but it depends on your market, tax rate, and maintenance costs.
Is it better to rent or buy in 2026?
In high-price coastal markets, renting often wins. In moderate markets with low rates and high rents, buying wins.
What if I plan to move in 3 years?
Renting is usually cheaper for under 5 years due to closing costs and low equity buildup.
Should I count equity as savings?
Yes, but remember you cannot spend it until you sell or take out a HELOC.