Rent vs Buy: The Real Math
"Rent is throwing money away" is the most expensive slogan in personal finance. Sometimes buying wins by a lot. Sometimes renting wins by a lot. The difference is almost never the monthly payment you see advertised — it is the costs hiding behind it, the years you stay, and what your down payment could have earned elsewhere. This guide puts all of it on the table.
Beyond the Monthly Payment
A mortgage payment quote usually shows principal and interest only. Ownership costs more than that:
- Property taxes: Typically 0.5-2% of the home's value per year depending on location — hundreds per month on an average home.
- Homeowners insurance: Required by lenders, rising fast in many states.
- Maintenance: Budget about 1% of the home's value per year. Roofs, HVAC systems, and appliances do not care about your budget.
- HOA dues: Common in condos and many suburbs, and they rise over time.
- Transaction costs: Buying costs 2-5% of the price; selling costs roughly 6-8% in agent commissions and fees. On a $450,000 home, the round trip is roughly $36,000-$58,000 before you count a dollar of interest.
The Opportunity Cost of the Down Payment
A $90,000 down payment is not just $90,000 you spent — it is $90,000 that stops earning returns. Invested at a long-run 7%, that is about $525 a month in forgone growth. Honest rent-vs-buy math counts it. So does the equity side of the ledger: early mortgage payments are mostly interest (on a $360,000 loan at 6.5%, the first payment puts only about $325 toward principal), so equity builds slowly at first and faster later.
The 5-Year Horizon Rule
Because transaction costs are so large, buying usually needs time to win. Five years is the common rule of thumb for break-even, but the real answer depends on your city: where prices are high relative to rents, break-even can stretch to 7-10 years; where prices are low relative to rents, it can be 2-3 years. If you might move for work, family, or any reason within a few years, renting is usually the better financial move even if the monthly rent looks "wasted."
Worked Example: $2,200 Rent vs a $450,000 Home
Take a renter paying $2,200 a month, considering a $450,000 home with 20% down ($90,000) and a $360,000 loan at 6.5% for 30 years. Plug it into the Rent vs Buy Calculator and compare the monthly picture:
- Rent: $2,200 per month, all-in. No maintenance, no taxes, no transaction costs.
- Buy — principal and interest: about $2,275 per month (check it in the Mortgage Calculator).
- Buy — taxes and insurance: about $413 per month in property taxes (1.1% of price) plus $175 in insurance.
- Buy — maintenance: about $375 per month at 1% of value per year.
- Buy — total cash out: roughly $3,238 per month, about $1,038 more than rent.
But the gap is not the whole story. About $325 of the first payments goes to principal — equity you keep — and the $90,000 down payment has an opportunity cost of roughly $525 a month at 7% returns. Net it out and buying costs roughly $500-$700 a month more than renting in the early years, before any appreciation — and that is before the roughly $36,000-$58,000 round-trip transaction costs. Buying only pulls ahead if you stay long enough for equity growth and appreciation to cover those costs, which is why the horizon question comes first and the payment comparison second.
Before deciding, run your own city and numbers through the Rent vs Buy Calculator and the Home Affordability Calculator — a national rule of thumb is no substitute for your local prices.