Key takeaways
- The honest comparison is net worth: the buyer’s home equity after selling costs versus the renter’s invested savings.
- Buying front-loads costs. Closing and selling costs mean it usually takes years to come out ahead, if you ever do.
- Rent level, home appreciation, and what a renter would earn on the down payment decide the winner. Small changes flip it.
- In our example, renting stays ahead for 15 years at $2,200 rent, but buying wins by year 6 if rent is $2,600.
“Why pay your landlord’s mortgage?” is a slogan, not math. Owning and renting both cost money you never get back. The question is which leaves you wealthier after the years you plan to stay.
Compare unrecoverable costs, not payments
Comparing rent to a mortgage payment is misleading in both directions. Part of the mortgage payment is principal, which you keep as equity. But owners also pay costs renters don’t:
- Mortgage interest. Early in a loan, most of the payment.
- Property taxes and homeowners insurance.
- Maintenance and repairs. Often estimated at about 1% of the home’s value a year, more for older homes.
- Buying and selling costs. Around 2% to 5% at closing, and roughly 6% when you sell.
- Opportunity cost. The down payment and closing costs could have been invested instead.
Renters pay rent and renters insurance. If the renter invests the down payment and any monthly difference, that portfolio grows too. That’s the fair fight.
A worked example
A $400,000 home with 20% down at 6.5%, 1.2% property tax, 1% maintenance, and 3% appreciation. The alternative is renting a similar place for $2,200 a month (rising 3% a year) and investing the down payment and closing costs at 7%.
| Buyer | Renter | |
|---|---|---|
| First-month housing cost | $2,906 | $2,225 |
| Net worth after 5 years | $136,332 | $170,197 |
| Net worth after 10 years | $234,029 | $262,824 |
| Net worth after 15 years | $353,607 | $372,973 |
The buyer’s net worth is the home’s value minus the loan balance and the cost of selling. The renter’s is the investment portfolio, which is also fed each month by the difference between owning and renting costs. At these inputs, renting comes out ahead by $19,367 after 15 years.
What flips the answer
Change one input at a time and the winner moves:
| Scenario | Buying pulls ahead | Ahead after 15 years |
|---|---|---|
| Base case | Never, within 15 years | Renting, by $19,367 |
| Rent is $2,600 instead of $2,200 | Year 6 | Buying, by $124,761 |
| Homes appreciate 4% a year, not 3% | Year 8 | Buying, by $55,187 |
| Renter’s investments earn 5%, not 7% | Year 9 | Buying, by $64,681 |
Three things drive most of the result:
- Rent relative to price. Where rent is high compared with home prices, buying wins quickly. Where homes are expensive relative to rent, as in many coastal metros, renting often wins for a long time.
- Appreciation. Home price growth is leveraged: with 20% down, a 1% change in the home’s value is a 5% change in your equity. That cuts both ways.
- The renter’s discipline and returns. Renting only wins if the renter actually invests the difference. If the savings get spent, buying’s forced savings through principal paydown usually comes out ahead.
Buying and selling a home costs roughly 8% to 10% of its price in total. If you might move within a few years, those costs usually outweigh any appreciation and equity you build, even when buying looks great over the long run.
Things the spreadsheet doesn’t capture
- Stability. Owners control when they move and aren’t exposed to rent increases or a landlord selling. For families with kids in school, that can outweigh a modest financial edge.
- Flexibility. Renters can move for a job, downsize, or relocate cheaply. That option has real value early in a career.
- Risk concentration. A home is a large, undiversified, illiquid asset in one local market, usually bought with leverage.
- Your time. Owners handle repairs and maintenance, or pay someone to.
- Tax rules. The mortgage interest deduction only helps if you itemize. When you sell a main home you’ve owned and lived in for at least two of the last five years, a large part of the gain is generally tax-free. IRS Publication 523 has the limits.
How to decide
- Estimate honestly how long you’ll stay. Under five years tilts strongly toward renting.
- Find the real rent for a comparable home, not a smaller apartment.
- Run both paths in the rent vs. buy calculator with local tax rates and a conservative appreciation assumption.
- Check that the buying payment works for your budget with the house affordability calculator and leaves room for repairs.
- If the numbers are close, let the non-financial factors decide.