Should You Rent or Buy?

"Rent is throwing money away" is one of the most expensive financial myths in history. Here is how to actually compare the costs.

The "Unrecoverable Costs" Framework

When comparing Rent vs. Buy, most people simply compare the monthly Mortgage Payment to the monthly Rent Payment. This is a mistake. A mortgage payment contains principal (which is savings/equity) and interest (which is a cost). Rent is entirely a cost.

To make a fair comparison, you must look at Unrecoverable Costs—money that leaves your pocket and never comes back.

Renting Costs

  • Your Rent Payment
  • Renter's Insurance (usually negligible)

Buying Costs

  • Property Taxes: Usually 1-2% of home value annually.
  • Maintenance: Approx. 1% of home value annually.
  • Mortgage Interest: The cost of renting money from the bank.
  • HOA Fees: Monthly dues that build no equity.
  • Cost of Capital: The investment returns you lose by tying up your down payment.

If the total unrecoverable costs of owning are higher than rent, renting is mathematically superior—provided you have the discipline to invest the difference.

Do the Math for Your City

Our model accounts for appreciation, maintenance, taxes, and investment opportunity costs to find the true winner over 10+ years.

Compare Rent vs. Buy

The 5% Rule (A Shortcut)

If you need a quick back-of-the-napkin math trick, use the 5% Rule. It helps you estimate the monthly unrecoverable cost of owning a home.

Multiply the home price by 5%, then divide by 12. If you can rent a comparable home for less than that number, renting is likely the better financial deal.

Example: $500,000 Home

$500,000 × 5% = $25,000 / 12 = $2,083 / month

The 5% covers: 1% Property Tax + 1% Maintenance + 3% Cost of Capital (Interest + Opportunity Cost).

The Flexibility Factor

Beyond the math, renting buys you flexibility. Selling a home is expensive (typically 6-10% of the sale price in fees). If you might move within 5-7 years, the transaction costs of buying will almost certainly outweigh any equity you build.

Check our Home Affordability Calculator to see what price range keeps you safe if you do decide to buy.