Understanding Rent vs Buy
The rent vs buy decision is one of the biggest financial choices you'll make. It's not just about monthly payments—it's about building wealth over time and understanding the true cost of each option.
When you buy, you build equity as you pay down your mortgage and your home appreciates. When you rent, you have flexibility and can invest the money you would have spent on a down payment. This calculator compares both paths to show which builds more wealth over your chosen time horizon.
Buying Pros
Build equity, fixed payments, potential appreciation, tax benefits
Renting Pros
Flexibility, no maintenance costs, lower upfront costs, invest elsewhere
Inflation Impact
Rent increases with inflation; mortgage payments stay fixed
Break-Even Point
The year when buying starts to financially outperform renting
Key factors that influence the decision:
- Time horizon — The longer you stay, the more buying typically wins
- Home appreciation — Local market conditions matter significantly
- Investment returns — What you could earn investing the down payment
- Rent vs price ratio — In expensive cities, renting may be more economical
Should you rent or buy?
There's no single right answer — it depends on how long you'll stay, the price of a home versus the rent for an equivalent place, your mortgage rate, and what you could earn by investing the money instead. As a rule of thumb, the longer you stay in one place, the more buying tends to win, because upfront costs get spread over more years and you keep building equity.
Buying often makes sense when you plan to stay roughly five years or more, want predictable housing costs, and rents are high relative to purchase prices. Renting often makes sense when you value flexibility, home prices are very high relative to rents, or you expect to earn strong returns investing the down payment elsewhere.
Rather than guessing, this comparison looks at the total cost of each path and the point in time when buying overtakes renting — the break-even point covered below.
The figures used throughout this page are round, illustrative examples to show how the comparison works. They are for education only and are not financial advice.
How the break-even point works
The break-even point is the number of years you need to own before buying costs less, in total, than renting the same home. Buying starts out behind because of large one-off costs — closing costs of roughly 2–5% of the price when you buy, and agent and transfer fees of around 6% when you sell.
Over time, three things work in the buyer's favour and close that gap: each mortgage payment builds equity by paying down principal, the home may appreciate, and the monthly cost is eventually fixed while rent keeps rising. The year those gains overcome the upfront costs and the ongoing cost of owning is the break-even point.
Illustrative example
On a $400,000 home, closing costs of about $12,000 and eventual selling costs of about $24,000 mean a buyer is roughly $36,000 behind at the start. If owning saves around $6,000 a year versus renting once equity and appreciation are counted, break-even lands near year six. Most rent-vs-buy break-even points fall in the 3–7 year range, depending on prices, rates and appreciation.
The practical takeaway: if you expect to move before the break-even year, renting is usually the cheaper choice. If you'll stay longer, buying tends to come out ahead.
The true cost: renting vs buying compared
Comparing rent to a mortgage payment alone is misleading. Owning carries costs a renter never pays — mortgage interest, property tax, maintenance and the opportunity cost of the money locked into the down payment. Renting has its own hidden cost: the wealth you build only if you actually invest the money you didn't spend on a home.
| Cost | Renting | Buying | Builds equity? |
|---|---|---|---|
| Monthly housing payment | Rent | Mortgage (principal + interest) | Partly |
| Mortgage interest | — | Yes — largest early cost | No |
| Property tax | — | ≈ 1% of value / year | No |
| Maintenance & repairs | Landlord pays | ≈ 1% of value / year | No |
| Insurance | Renters (low) | Homeowners | No |
| Opportunity cost of down payment | Can invest it | Tied up in the home | No |
| Wealth built | Invest the difference | Principal + appreciation | Yes |
Illustrative example. On a $400,000 home bought with 20% down ($80,000) at a 6.5% mortgage rate, first-year mortgage interest is roughly $20,000, property tax around $4,000, and maintenance around $4,000. On top of that, the $80,000 down payment might otherwise earn about $4,000 a year if invested — an opportunity cost that's easy to overlook. Only the principal you repay and any appreciation add to your net worth; the rest, like rent, is money spent.
Figures are round, illustrative numbers to show the categories involved, not a quote for any specific home. Actual costs vary by location, rate and property.
The 5% rule (a quick rule of thumb)
The 5% rule is a shortcut for estimating the yearly "unrecoverable" cost of owning — the money spent that doesn't build equity. It approximates three ongoing costs at about 1% for property tax, 1% for maintenance, and 3% for the cost of the capital tied up in the home, totalling roughly 5% of the home's value per year.
Monthly unrecoverable cost ≈ (Home value × 5%) ÷ 12
Illustrative: a $400,000 home × 5% = $20,000 a year, or about $1,667 a month. If you can rent a comparable home for less than that, renting may be the cheaper option; if renting costs more, buying may come out ahead.
Treat it as a fast sanity check, not a verdict. It ignores mortgage specifics, local tax rates, appreciation and transaction costs, so a full comparison — like the one this calculator runs — will be more accurate for your situation.
Net worth over time
A fair comparison tracks net worth on both paths, not just monthly outgoings. The buyer's net worth grows as home equity — the principal repaid plus any appreciation, minus the costs of selling. The renter's net worth grows as an investment portfolio, funded by the down payment they never spent plus any monthly savings, compounding at their expected return.
Early on, the renter is usually ahead: the buyer's equity is thin because early mortgage payments are mostly interest, and closing costs weigh on the balance. As principal builds and the home appreciates, the buyer's line rises faster. Where the two lines cross is the break-even point — after it, buying tends to build more wealth.
Illustrative
A renter who invests an $80,000 down payment at 7% would have about $157,000 after 10 years from that lump alone, before adding any monthly savings. A buyer's net worth over the same period depends on how much principal is repaid and how much the home appreciates. Which path ends higher hinges on appreciation, investment returns and how long you stay.
These are round, illustrative figures. Outcomes depend on your rate, local market and time horizon, and neither investment returns nor home appreciation is guaranteed. For education only — not financial advice.
Frequently Asked Questions
References & methodology
Our comparison weighs the total cost of renting against owning — mortgage interest, property tax, maintenance, insurance and the opportunity cost of the down payment — and tracks net worth on each path to find the break-even year. The dollar figures on this page are round, illustrative examples. This page is for education only and is not financial advice; consult a qualified professional before a housing decision.