Renting vs buying: the answer depends on your horizon.
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Should You Rent or Buy? The Complete Financial Analysis
The rent vs. buy decision is the largest financial choice most people make — yet it's routinely oversimplified to "renting is throwing money away." That's wrong. Whether buying is financially superior to renting depends entirely on local market conditions, how long you plan to stay, your down payment, mortgage rate, and what you'd do with the capital tied up in a home if you rented instead.
This calculator runs the complete comparison: total cost of ownership (mortgage interest, property tax, insurance, maintenance, opportunity cost of down payment) vs. total cost of renting (rent payments, renters insurance, invested down payment returns). The break-even year is when buying finally beats renting in cumulative net worth terms.
The Costs Most People Forget When Buying
Opportunity cost of the down payment: A $100,000 down payment invested in a diversified index fund at 7% grows to $197,000 in 10 years. That's the real cost of tying up capital in a home — and it's rarely factored into the "build equity" argument.
Maintenance and repairs: The standard rule of thumb is 1–2% of home value per year. On a $500,000 home, that's $5,000–$10,000 annually — a cost renters never pay.
Transaction costs: Buying and selling a home costs approximately 8–10% of the home's value in realtor commissions, closing costs, and taxes. If you move within 5 years, these costs alone can wipe out all equity gains.
When Buying Clearly Wins
Buying is financially superior when: you plan to stay for 7+ years, your local price-to-rent ratio is below 20 (home price ÷ annual rent), mortgage rates are relatively low, and you have a substantial down payment that keeps your mortgage payment below the equivalent rent. In these conditions, forced savings through equity buildup and property appreciation can significantly outperform renting.
When Renting Clearly Wins
Renting is financially superior when: you might move within 5 years, local price-to-rent ratios exceed 25, you'd invest the down payment and monthly savings difference, or you're in a high-appreciation market where homes are priced for expected future gains rather than current fundamentals. In expensive cities like Toronto, Vancouver, San Francisco and New York, renting and investing the difference has historically outperformed buying in many scenarios.
Common Questions
Is it always better to buy than rent?
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No. Whether buying beats renting depends on local price-to-rent ratios, how long you stay, mortgage rates, and what you'd do with the down payment capital. In cities with price-to-rent ratios above 25, renting and investing the difference has historically competed with or beaten buying.
What is the break-even year for buying vs renting?
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The break-even year is when the net wealth of a homeowner (equity minus total ownership costs) equals the net wealth of a renter who invested the down payment and monthly savings difference. In most markets this is 5–10 years. If you move before break-even, renting was cheaper.
How much should I put down on a house?
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20% down avoids private mortgage insurance (PMI/CMHC), which costs 0.5–4% of the loan amount annually. If you can't put 20% down, factor insurance costs into your total ownership cost comparison. A larger down payment also reduces your mortgage payment and total interest paid.
What is a good price-to-rent ratio?
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Below 15: buying is likely financially superior. 15–20: buying is roughly neutral with renting. Above 20: renting may be financially superior, especially for shorter stays. Above 25: strong indication that renting and investing is the better financial strategy in that market.
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Disclaimer: For educational purposes only. Not financial advice. Projections use historical averages and are not guaranteed. Consult a qualified financial advisor.
What Is the Rent vs Buy Calculator?
This calculator computes the true total cost of renting versus buying a home over a specific time horizon — typically 5, 10, or 20 years. It's for anyone facing the most financially significant decision of their life and wanting an honest, numbers-first answer rather than the conventional wisdom that "buying is always better."
How the Calculation Works
The buying side tallies mortgage payments, property taxes (typically 1–1.5% of home value annually), insurance (~0.5%), maintenance (1% per year), closing costs (2–5% upfront), and the opportunity cost of the down payment — the returns you'd have earned investing that money instead. The renting side simply tracks rent payments plus the investment growth of the down payment you kept. The "breakeven year" is when cumulative buying costs equal cumulative renting costs plus foregone investment gains.
Why This Number Matters
In high-cost cities like San Francisco or New York, the breakeven point often exceeds 10 years — meaning renting and investing the difference is the financially superior move for anyone who might relocate. In lower-cost markets, breakeven can be as short as 4–5 years. The key insight: the answer depends entirely on your specific numbers, not a blanket rule.
Frequently Asked Questions
What's the price-to-rent ratio and how do I use it?
The price-to-rent ratio is home price divided by annual rent. A ratio below 15 generally favors buying; 15–20 is neutral; above 20 tilts toward renting. A $400,000 home with $2,000/month rent = ratio of 16.7 — borderline. San Francisco's ratio often exceeds 40, making renting far cheaper short-term.
Is home equity actually building wealth?
Home equity builds wealth, but home appreciation averages only 1–2% above inflation historically — far below stock market returns. The wealth-building power of homeownership comes primarily from forced savings (paying down principal) and leverage, not appreciation alone.
What costs do most people forget when buying?
The most overlooked costs are maintenance (a $400,000 home generates ~$4,000/year in average repairs), HOA fees, PMI if your down payment is under 20% (adds 0.5–1% annually), and realtor fees when selling (typically 5–6% of sale price, erasing 1–2 years of appreciation instantly).