Rent vs Buy Calculator – True Homeownership Cost & 30-Year Wealth Breakeven
Rent vs. Buy: The 5% Rule & Opportunity Cost
The decision to rent or buy is not simply a comparison of your monthly rent check versus a mortgage payment. True homeownership carries extensive "unrecoverable costs"—including mortgage interest, property taxes, homeowner insurance, HOA assessments, and perpetual maintenance (often estimated at 1% of home value annually).
The Power of Investing the Difference
When renting, you preserve substantial capital that would otherwise be locked in a down payment and transaction closing costs (typically 6% agent commissions upon sale). When renters invest that lump sum in a diversified index fund (historical ~7% to 10% returns), compounding investment growth often outpaces home equity over shorter horizons (under 5 to 7 years).
When Does Buying Win?
Buying typically beats renting when you plan to stay in the home for 7+ years, allowing appreciation and fixed mortgage amortisation to surpass high upfront transaction fees.
Frequently asked questions
What is the 5% rule for renting vs buying?
The 5% rule estimates unrecoverable home costs: ~3% mortgage cost + 1% property tax + 1% maintenance = 5% of home value per year. If annual rent is less than 5% of the property purchase price, renting is often financially advantageous.
How do property taxes affect the math?
Property taxes are completely unrecoverable sunk costs that increase over time as municipal assessments rise.
What closing costs should I budget for?
Buyers typically pay 2% to 4% in closing fees, while sellers pay 5% to 6% in real estate agent commissions and transfer taxes.
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