Rent vs Buy: How to Decide
“Rent is throwing money away” is only half the story. Owners also pay money they never get back. The question is which unrecoverable costs are lower for you.
Compare unrecoverable costs, not payments
A rent payment is gone once paid. But so is most of a new owner’s mortgage payment, because early payments are mostly interest. A fair comparison looks at the money neither household gets back:
- Renter: rent (and renters insurance).
- Owner: mortgage interest, property tax, insurance, maintenance, HOA dues, PMI, the opportunity cost of the cash tied up in the home, plus buying and selling costs spread over the years you own.
The principal part of the mortgage payment is not a cost — it becomes equity. That is the owner’s main advantage, together with any rise in the home’s value.
The opportunity cost of the down payment
A buyer who puts $40,000 down, plus about $12,000 in closing costs, no longer has that money invested elsewhere. A renter who keeps it invested earns a return on it every year. Ignoring this is the most common mistake in rent-vs-buy math — it makes buying look better than it is.
Transaction costs make short stays expensive
Closing costs on the purchase (Freddie Mac: typically 2%–5% of the price) and selling costs such as agent commissions and transfer taxes are large one-time expenses. Over a short stay they overwhelm the equity you build. The longer you stay, the more years they are spread across.
How the numbers play out
Our rent vs buy calculator follows a buyer and a renter month by month with the same money. The renter invests the down payment and closing costs; whoever spends less each month invests the difference. After 10 years, for a $400,000 home with 10% down at 6.5% versus $2,200 rent rising 3% a year (1% maintenance, 3% buying and 6% selling costs):
| Scenario | Buyer | Renter | Buying breaks even |
|---|---|---|---|
| Base case (3% growth, 5% return) | $200,118 | $207,362 | not within 10 years |
| Home prices grow 1% a year | $110,144 | $197,497 | not within 10 years |
| Home prices grow 5% a year | $307,270 | $218,344 | year 4 |
| Rent $2,600 | $201,761 | $139,055 | year 6 |
| Investments return 7% | $200,118 | $239,764 | not within 10 years |
| Mortgage rate 5.5% | $208,165 | $169,873 | year 7 |
Notice how much the answer depends on assumptions nobody can know in advance — especially home price growth and investment returns. That is the honest answer to rent vs buy: it depends, and the calculator shows you on what.
Beyond the math
- Stability: owning protects you from rent increases and non-renewal; a fixed-rate mortgage locks in the principal-and-interest payment.
- Flexibility: renting makes it cheap to move for a job or a change in family.
- Forced savings: for many people, the mortgage is a savings plan they actually stick to. A renter only comes out ahead if the difference really is invested.
- Risk: an owner carries repair risk and concentrated exposure to one local housing market.
Taxes
The comparison above excludes taxes. The mortgage interest deduction only helps if you itemize, and IRS Publication 936 sets the limits. Gains on the sale of a main home may be partly excluded from tax, while investment gains may be taxed. A tax professional can tell you how these apply to you.
Sources
- Freddie Mac, “Understanding homebuying costs,” My Home by Freddie Mac (accessed September 2026)
- Internal Revenue Service, Publication 936, Home Mortgage Interest Deduction