Is it better to rent or buy a home?

It depends on your timeline, local market, and financial situation. Buying generally wins over 7+ years when you account for equity buildup and appreciation. Renting wins short-term due to flexibility and avoiding transaction costs. The break-even point averages 5-7 years nationally but varies widely by city.

When does buying a home break even vs renting?

The break-even point is when home equity exceeds the investment portfolio a renter would build with the down payment and monthly cost savings. Nationally, this averages 5-7 years with typical appreciation rates and rent increases.

What is the 5% rule for renting vs buying?

The 5% rule says multiply the home price by 5% and divide by 12. If your monthly rent is less than that amount, renting is often cheaper. This accounts for property taxes (~1%), maintenance (~1%), and opportunity cost (~3%) of homeownership.

Does buying a home build more wealth than renting?

Historically yes, over long time periods. Homeowners benefit from appreciation, forced savings through equity, and leverage. But renters who invest their down payment and monthly savings can also build substantial wealth, especially in high-priced markets where rent is significantly cheaper than owning.

How does rent increase affect the rent vs buy comparison?

Higher rent increases make buying more attractive over time. If rent grows at 3% annually, a $2,000 rent becomes $2,427 in 7 years and $3,262 in 20 years — while a fixed-rate mortgage payment stays the same. This 'payment stability' is one of the biggest long-term advantages of buying.

Rent vs Buy Calculator

Compare the long-term financial impact of renting versus buying. Find your break-even year and see how net worth compares over 5 to 30 years.

Monthly Rent

Annual Rent Increase

Home Price

Down Payment %

Mortgage Rate

Home Appreciation

Buying Wins By

Year 1

Buying's equity exceeds renter's investment portfolio by year 1

Monthly Buy Cost

$2,529

Monthly Rent

$2,000

Down Payment

$70,000

Monthly P&I

$1,816

Net Worth Comparison Over Time

Year	Home Value	Home Equity	Renter Portfolio	Rent Cumulative	Winner
5	$415,690	$152,838	$123,194	$127,419	Buy
10	$493,710	$254,867	$172,492	$275,133	Buy
15	$586,372	$381,145	$232,666	$446,374	Buy
20	$696,426	$538,265	$313,831	$644,889	Buy
25	$827,136	$734,872	$423,312	$875,022	Buy
30	$982,378	$982,378	$570,984	$1,141,810	Buy

How to Use This Rent vs Buy Calculator

Enter your renting and buying scenarios side by side to find your financial break-even point.

Quick Compare Tab

Enter Monthly Rent and Annual Rent Increase on the renting side, and Home Price, Down Payment %, Mortgage Rate, and Home Appreciation on the buying side. The calculator shows the break-even year (when buying's equity first exceeds the renter's investment portfolio) and a comparison table for key years. Click "More options" to customize maintenance rate, insurance, property tax, and investment return assumptions.

Detailed Analysis Tab

This tab shows a full year-by-year breakdown comparing home equity growth versus a renter's investment portfolio, with the break-even year highlighted in green. Use this to see how sensitive the outcome is to your assumptions.

How the Calculation Works

Buyer's Monthly Cost = P&I Payment + Property Tax + Insurance + Maintenance
Renter's Monthly Cost = Current Rent × (1 + Annual Increase)^year

Buyer's Net Worth = Home Equity = Home Value − Remaining Loan Balance
Home Value(year n) = Purchase Price × (1 + Appreciation)^n

Renter's Net Worth = Investment Portfolio
Renter invests the down payment + monthly cost savings vs buying
Portfolio grows at the assumed investment return rate

Break-Even Year = First year where Buyer Net Worth ≥ Renter Net Worth

The model assumes the renter invests the down payment they would have used, plus any monthly cost difference between renting and buying, in a diversified investment portfolio. This is a key assumption — if the renter doesn't invest, buying wins much sooner.

Example: Austin, TX — Rent $2,000 vs Buy $350,000

Alex's Decision — Austin, TX

Alex pays $2,000/month rent with 3% annual increases. They could buy a $350,000 home with 20% down at 6.75% with 3.5% appreciation.

Monthly Rent	$2,000
Rent at Year 10	$2,688
Rent at Year 20	$3,613
Monthly Mortgage (P&I)	$1,816
Total Monthly Buy Cost	~$2,700
Down Payment Invested	$70,000 → ~$254K (30 yrs at 6%)
Home Value at Year 30	~$986,000
Home Equity at Year 30	~$986,000
Break-Even Year	~Year 7

In this scenario, Alex's monthly cost to buy is higher than rent initially. But the mortgage payment stays fixed while rent rises 3% annually. By year 7, home equity surpasses the renter's investment portfolio. By year 30, the homeowner is ahead by approximately $500,000.

Frequently Asked Questions

It depends on your timeline, local prices, and discipline to invest. Buying generally wins over 7+ years when appreciation compounds and rent keeps rising. Renting wins if you'll move within 3-4 years (transaction costs eat early equity) or if you're in an overpriced market where the price-to-rent ratio exceeds 25. The most important variable: will the renter actually invest the difference? Most don't, which makes buying the forced-savings winner for many people.

Nationally, the break-even point averages 5-7 years. It's shorter in markets with high rent growth and strong appreciation (Austin, Nashville), and longer in expensive markets with low cap rates (San Francisco, NYC) where rent is much cheaper than mortgage costs. Key factors that shorten break-even: higher down payment, lower interest rates, strong home appreciation, and fast-rising rents.

The 5% rule (popularized by financial planner Ben Felix) says to multiply the home price by 5% and divide by 12. If your monthly rent is below that amount, renting is likely the better financial choice. The 5% breaks down as: 1% for property taxes, 1% for maintenance, and 3% for the opportunity cost of the equity you'd have invested otherwise. Example: a $400,000 home × 5% ÷ 12 = $1,667/month. If you can rent the same home for less than $1,667, renting may be cheaper.

Fed data shows homeowners' median net worth is about 40x higher than renters ($255,000 vs $6,300 in 2022). However, this is partly due to selection bias — people who can buy tend to have higher incomes. Academically, a disciplined renter who invests the down payment in a diversified portfolio can match or exceed homeowner returns over long periods. The difference: most renters don't invest the difference. If you're not a diligent investor, owning a home functions as forced savings.

Higher rent inflation strongly favors buying. At 3% annual increases, a $2,000 rent becomes $2,688 in 10 years and $3,262 in 20 years. Meanwhile, a fixed-rate mortgage payment never changes. This "payment stability" means a buyer's housing costs shrink in real (inflation-adjusted) terms over time, while a renter's costs keep rising. In cities with 5%+ annual rent increases, the break-even point can be as short as 3-4 years.