Verdict
Buying wins by $48,200
Break-even: year 4
Net cost — buying$240,000
Net cost — renting$288,200
Equity at sale$182,000
Investment value (rent path)$144,000
Buying isn't always smarter. Compare total cost over your actual time horizon, including opportunity cost on the down payment.
The right framing isn't "monthly mortgage vs monthly rent" — that comparison is rigged toward buying because it ignores the down payment, closing costs, maintenance, property tax, and the opportunity cost of capital tied up in equity. The right framing is: after N years, what's my net wealth in each scenario?
Equity at sale = home value × (1 + appreciation)yrs − loan balance − selling costs.Investment growth = the alternative use of the down payment + buyer closing costs invested at the assumed return.Closing costs (~3–5% to buy, ~6–8% to sell) eat the equity gain on short horizons. Don't buy if you might move within 5 years unless local appreciation is unusually high and reliable. After 7–10 years buying usually wins; before 5 years renting usually wins.
| Rule | The math | When it tells the truth |
|---|---|---|
| 5% rule | Annual unrecoverable cost ≈ 5% of home value | Best general-purpose check; built on real ownership economics |
| Price-to-Rent ratio | Home price ÷ annual rent. <15 buy, >20 rent, 15–20 toss-up | Useful for relative comparison across cities |
| 5-year rule | Don't buy if you might move within 5 years | Always. Closing costs make it nearly impossible to win on short horizons |
All three favor renting more often than the typical buy-side calculator suggests, because they take ownership's hidden costs at face value.
1–2% of home value per year is realistic over a long enough horizon (Joint Center for Housing Studies / Harvard). Calculators that use 0.5% or zero are biased toward buying.
The mortgage payment is the start, not the total. Add property tax, insurance, HOA, and maintenance and you're typically 30–50% above the headline payment. That's the right number to compare to rent.
The down payment isn't free. Invested at 7% over 10 years, $80k becomes $157k. Buying-side calculators that don't credit the rent path with equivalent investment growth quietly tilt the comparison.
Sources: Joint Center for Housing Studies (Harvard) "State of the Nation's Housing"; Robert Shiller historical home-price index; NYT "Is it better to rent or buy?" (Bary/Manjoo/Quealy framework); CFPB Loan Estimate disclosures; Federal Reserve Survey of Consumer Finances.
The Price-to-Rent ratio: home price ÷ annual rent. Below 15 strongly favors buying. Above 20 strongly favors renting. 15–20 is the gray zone where personal factors decide. As of late 2025, the national US median P/R sits around 19 — clustered near the buy/rent boundary, with wide regional variation (San Jose & Honolulu near 30; Cleveland & Pittsburgh near 12).
Popularized by Ben Felix and Ramit Sethi: estimate annual unrecoverable cost of ownership at ~5% of home value (about 1% property tax + 1% maintenance + 3% mortgage-interest cost net of equity build). If your annual rent is below 5% of the equivalent home's price, renting is the economically rational default. Above 5%, buying tends to win on long horizons. The advantage of the 5% framing: it makes ownership's hidden costs visible at a glance.
Yes — and most rent-vs-buy calculators understate it. Realistic long-term average is 1–2% of home value per year. Per the Joint Center for Housing Studies (Harvard), median annual maintenance for owner-occupied US homes is ~1.5% of home value. Skipping or low-balling this line is the #1 way buy-vs-rent calculators bias the answer toward buying.
Renting has real, quantifiable option value. If a career change, family change, or city change might happen in 3–5 years, that optionality is worth roughly $20,000–$40,000 — closing costs (5–10% combined to buy + sell) eat the equity gain on short horizons. Conversely, owners gain stability — locked-in payment for 30 years vs annual rent increases — which is its own option value.
It's the dominant variable. Closing costs to buy run ~3–5% of the home; selling costs (agent commissions + transfer tax + concessions) run ~6–8%. Combined, you need 9–13% of home appreciation just to break even on transaction costs. At 3% annual appreciation, that takes ~3–4 years; at flat prices, it never breaks even. Honest threshold: don't buy if you might move in under 5 years, period.
For most households, no — and the calculator above ignores it for that reason. Post-TCJA standard deductions ($15k single, $30k MFJ in 2026) mean only ~10% of US filers itemize. The Joint Committee on Taxation found the median MID benefit accrues to households earning $200k+. For everyone else, treat MID as zero.
Long-term US home prices have averaged roughly inflation + 1% real (Robert Shiller, 1890–2024). The 2010s and early 2020s ran well above that on cheap money and supply constraints. Honest planning assumption: 3–4% nominal annual appreciation. Using 6%+ extrapolates an unusual decade and biases the calculator toward buying. Local markets vary materially.
This is the silent factor that flips many buy-vs-rent decisions. A $80,000 down payment invested in broad equities at 7% nominal grows to ~$157,000 in 10 years. The calculator credits that opportunity cost on the rent side — without it, the buy side looks artificially better. Choose your assumed return carefully: 7% is the long-run S&P average; 4% is conservative; 10% is optimistic.
In rough order of forgotten size: (1) closing costs to buy (~3–5% of price), (2) closing costs to sell (~6–8%), (3) ongoing maintenance (1–2%/yr), (4) property tax (0.5% in HI to 2.5% in NJ), (5) homeowner's insurance ($1,000–$3,000/yr), (6) HOA dues (often $300–$800/mo on condos), (7) PMI under 20% down, (8) higher utility bills.
No — and this is important. The calculator is the right starting point, not the final word. It can't model: how much you actually like the home, neighborhood, schools; whether you'll do DIY maintenance or hire it out; whether being house-rich and cash-poor would stress your marriage; whether the locked-in payment vs annual rent increases is worth a premium for your peace of mind. Use the calculator to bound the financial dimension. Make the decision on the full picture.