Rent vs. Buy Calculator Guide: When Renting Actually Beats Buying a Home

The American Dream says you should buy a house. Your parents say you should buy a house. Your coworker who just closed on a three-bedroom in the suburbs definitely says you should buy a house.

But the math doesn't always agree.

In plenty of markets and life situations, renting is the smarter financial move — sometimes by a wide margin. This guide walks through the real numbers behind the rent vs. buy decision, shows you when renting wins, and gives you a framework to figure out what makes sense for your specific situation.

The Standard Advice Is Incomplete

You've probably heard the classic argument: "When you rent, you're throwing money away. When you buy, you're building equity."

That framing ignores roughly half the equation. Here's what it leaves out:

• Opportunity cost of your down payment. A $60,000 down payment invested in an S&P 500 index fund has historically returned about 10% annually before inflation. That's $6,000 in year one alone.
• Transaction costs. Buying a home costs 2-5% in closing costs. Selling costs another 5-6% in agent commissions and fees. On a $400,000 home, that's $28,000-$44,000 in round-trip transaction costs.
• Maintenance and repairs. The general rule is 1-2% of your home's value per year. On a $400,000 home, that's $4,000-$8,000 annually — money renters never spend.
• Property taxes. The national average effective property tax rate is about 1.1%, or $4,400 per year on a $400,000 home. In New Jersey, it's closer to 2.2%. In Texas, 1.6%.
• Homeowner's insurance. Average cost nationally is about $2,200 per year, but it varies wildly. In Florida, it can exceed $4,000.

When you add these up, the "throwing money away" argument starts to look different.

The Real Cost of Owning a Home

Let's run the numbers on a $400,000 home purchase with a 15% down payment ($60,000) and a 6.5% mortgage rate on a 30-year fixed loan.

Monthly ownership costs:

Of that $2,149 mortgage payment, only about $308 goes to principal in the first month. The rest — $1,841 — is interest. That's money you don't get back, just like rent.

So in month one, your non-recoverable housing costs are roughly $3,033 ($3,341 minus $308 principal). That's the real number to compare against rent.

What about [equity building](/blog/equity-vs-appreciation)?

It's real, but it's slow at first. In year one with a 6.5% rate, you'll pay about $21,900 in interest and only $3,900 toward principal. The equity build accelerates over time, but most people don't stay in a home for 30 years. The median tenure for homeowners is about 13 years, and for first-time buyers it's often less.

The Breakeven Timeline

The breakeven point is when buying becomes cheaper than renting after accounting for all costs — including the opportunity cost of your down payment and closing costs.

Here's the general framework:

Years 1-3: Buying almost always loses. Transaction costs alone eat up any equity you've built. If you bought for $400,000 and sold three years later, you'd need the home to appreciate roughly 8-10% just to break even after selling costs.

Years 4-7: It depends heavily on your market. In markets with strong appreciation (3-5% annually), buying starts to pull ahead. In flat or slow-growth markets, renting may still win.

Years 7+: Buying usually wins in most markets, assuming normal appreciation and stable carrying costs.

The New York Times rent vs. buy calculator — one of the best free tools available — typically shows breakeven timelines of 5-7 years in moderate markets and 10+ years in expensive coastal cities.

Key variables that shift the breakeven:

1. Mortgage rate. At 4%, the breakeven comes faster. At 7%, it takes much longer.
2. [Home price appreciation](/blog/best-cities-for-appreciation-2026). 3% annual appreciation is the long-term national average, but your market may differ significantly.
3. Rent growth. If rents are climbing 5% per year, buying locks in your costs and looks better over time.
4. [Investment returns](/blog/cash-on-cash-return-explained). If you'd invest the down payment difference, higher returns favor renting.
5. Tax benefits. The mortgage interest deduction only helps if you itemize, and the 2017 tax law changes made itemizing less common. About 90% of filers now take the standard deduction.

Five Scenarios Where Renting Clearly Wins

1. You'll move within 3-5 years

If there's a reasonable chance you'll relocate for work, relationships, or lifestyle — renting is almost certainly the better call. The transaction costs of buying and selling in a short window are brutal.

Example: You buy a $350,000 condo, put 10% down, and sell after three years. Even with 3% annual appreciation, your home is worth $382,000. After 5-6% selling costs ($21,000), you net $361,000. Subtract your remaining mortgage balance of about $308,000 and you walk away with $53,000 — just $18,000 more than your $35,000 down payment. Factor in closing costs, maintenance, and the opportunity cost of your down payment, and you likely lost money compared to renting and investing the difference.

2. You're in a high price-to-rent ratio market

The price-to-rent ratio compares the cost of buying to the cost of renting the same property. You calculate it by dividing the home price by annual rent.

• Below 15: Buying is generally favorable
• 15-20: Toss-up, depends on your situation
• Above 20: Renting is usually the better deal

As of 2025, some price-to-rent ratios:

• San Francisco: ~30
• New York City: ~28
• Los Angeles: ~25
• Dallas: ~16
• Cleveland: ~11

In San Francisco, you might rent a $1.2 million condo for $3,500/month ($42,000/year), giving a ratio of about 29. The ownership costs on that same condo would far exceed $3,500/month.

3. You have high-interest debt

If you're carrying [credit card debt](/blog/heloc-vs-credit-card) at 20% or student loans at 7%, every dollar of down payment money redirected to debt payoff earns you a guaranteed return at that interest rate. That beats the uncertain and leveraged return of homeownership.

4. You have an unstable income

Freelancers, entrepreneurs, commission-based workers, and anyone with income variability faces extra risk with a mortgage. A $2,500 mortgage payment doesn't care if you had a bad month. Rent gives you more flexibility — shorter lease terms, the ability to downsize quickly, and no maintenance surprises.

5. Your local market is overheated

When home prices have surged 30-40% in a few years without corresponding rent increases or income growth, the risk of a correction is real. Buyers in Boise, Austin, and Phoenix who purchased at 2022 peaks saw values drop 10-15% in the following year. Renting lets you wait for a more favorable entry point.

When Buying Makes Sense

To be fair, buying is the better financial move in many situations:

• You'll stay 7+ years in a market with normal appreciation
• Mortgage rates are favorable (below 5% on a 30-year fixed)
• The price-to-rent ratio is below 15 in your target area
• You value stability and are willing to pay a premium for it
• You'll use the space in ways renters can't (renovations, ADUs, home business)
• You're in a high-rent-growth market where locking in a fixed mortgage payment provides real savings over time

Buying also forces savings through [mortgage amortization](/blog/amortization-schedule-guide). If you're the type who wouldn't invest the difference between rent and ownership costs, the forced equity building of a mortgage has real value.

How to Use a Rent vs. Buy Calculator

The best rent vs. buy calculators account for all the variables discussed above. Here's how to use them effectively:

Step 1: Gather your actual numbers

Don't use defaults. Look up:

• Current rent for comparable homes in your target area
• Actual mortgage rates (check Bankrate or Freddie Mac's weekly survey)
• Property tax rates for your specific county
• Insurance quotes for the type of home you'd buy
• HOA fees if applicable

Step 2: Be honest about your timeline

The single biggest variable is how long you'll stay. If you say "at least 10 years" but there's a 40% chance you'll move in 5, use 5.

Step 3: Use realistic appreciation rates

The national average is about 3-4% per year, but it's lumpy. Some decades it's 1%. Some years it's 15%. For a conservative analysis, use 2-3%.

Step 4: Account for investment returns

If you rent and invest the difference (down payment + monthly savings), use 7% for a stock market return. That's the inflation-adjusted long-term average.

Step 5: Run multiple scenarios

Try best case, worst case, and most likely. What if rates drop and you refinance? What if your home only appreciates 1% per year? What if rent increases 6% annually?

Recommended calculators:

• New York Times Rent vs. Buy Calculator — The most comprehensive free option
• Zillow's calculator — Good for quick estimates with local data
• Karl's Mortgage Calculator — Detailed amortization schedules
• Nerdwallet — Solid all-around tool with clear explanations

The "Invest the Difference" Strategy

The most powerful argument for renting comes from investing what you'd otherwise spend on a down payment, closing costs, and the monthly premium of owning over renting.

Example over 10 years:

• Down payment not spent: $60,000
• Closing costs saved: $12,000
• Monthly savings (own costs minus rent): $400/month
• Total invested: $72,000 lump sum + $400/month
• At 7% annual return: approximately $190,000 after 10 years

Meanwhile, a $400,000 home appreciating at 3% annually is worth $537,000 after 10 years. Subtract the remaining mortgage balance (~$300,000) and total interest and costs paid, and you might have $180,000-$200,000 in equity.

The numbers are often closer than people expect. The psychological benefit of ownership is real, but the financial advantage isn't automatic.

Common Myths About Renting

"Rent is just throwing money away"

So is mortgage interest, property taxes, insurance, maintenance, and transaction costs. In year one of a typical mortgage, about 85% of your payment is non-equity.

"Home prices always go up"

They usually do over long periods, but not always. Ask anyone who bought in Las Vegas in 2006. Nationally, real (inflation-adjusted) home prices have averaged about 1% annual growth over the past century. Most of the "wealth building" from homeownership comes from leverage and forced savings, not spectacular returns.

"You need a house to build wealth"

The median net worth of homeowners is dramatically higher than renters, but that's largely a correlation-not-causation issue. Homeowners tend to have higher incomes, are older, and are forced to save through their mortgage. A disciplined renter who invests consistently can build comparable or greater wealth.

"Your landlord can raise rent or kick you out anytime"

Leases provide stability for their term, and many markets have rent stabilization laws. Yes, there's less certainty than a mortgage, but the flexibility cuts both ways — you can leave when it suits you.

FAQs

What's the 5-year rule for buying a house?

The 5-year rule suggests you should only buy if you plan to stay at least 5 years. This gives you enough time to build equity and offset transaction costs. In expensive markets, the threshold may be 7-10 years.

Is it better to rent or buy in 2026?

It depends entirely on your local market, financial situation, and timeline. With mortgage rates around 6-6.5%, the breakeven timeline is longer than it was during the 3% rate era. Run the numbers for your specific situation using a rent vs. buy calculator.

How much should I spend on rent vs. a mortgage?

The standard guideline is no more than 28-30% of gross income on housing. This applies to both rent and total mortgage payments (including taxes, insurance, and PMI).

Does renting make you poorer than buying?

Not inherently. Renting is financially inferior only if you wouldn't invest the savings elsewhere. If you rent and invest the difference between renting and owning costs, you can build wealth at a comparable or faster rate.

What is the breakeven point for buying a home?

It varies by market and mortgage rate, but typically falls between 5-7 years in average markets. In expensive coastal cities, it can be 10+ years. In affordable markets with low price-to-rent ratios, it can be as short as 2-3 years.

Should I buy a house just for the tax deduction?

No. The mortgage interest deduction only helps if you itemize deductions, which about 90% of filers don't do. Even if you do itemize, you're paying $1 in interest to save $0.22-$0.37 in taxes. It's a perk, not a reason to buy.

The Bottom Line

Buying a home is a good financial decision for many people in many situations. But it's not universally superior to renting, and the gap is narrower than most people assume — especially in expensive markets, during high-rate environments, or for people with shorter time horizons.

Run the actual numbers. Use a good calculator. Be honest about your timeline and [alternatives](/blog/heloc-alternatives). The best housing decision isn't the one that sounds right — it's the one that matches your specific financial picture and life plans.

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• How to Challenge Your Property Tax Assessment (And Win)
• [[Down Payment Assistance](/blog/down-payment-assistance-programs) Programs in 2026: Complete Guide](/blog/down-payment-assistance-programs)