Rent vs. Buy: Making the Right Decision
The decision to rent or buy is far more than comparing a mortgage to a rent payment. True cost analysis requires examining closing costs, maintenance, property taxes, insurance, opportunity cost of the down payment, and expected home appreciation.
The Hidden Costs of Buying
- Property taxes: 0.5%–2.5% of home value annually
- Maintenance: 1%–2% of home value per year
- Closing costs: 2%–5% at purchase; 5%–6% real estate commission when you sell
- PMI: Required if down payment < 20% — adds 0.5%–1.5% of loan/year
The Opportunity Cost of a Down Payment
A 20% down payment on a $380,000 home is $76,000. Invested at 7%/yr in an index fund, that grows to ~$149,500 in 10 years. This "lost" growth is a real cost of buying that most comparisons ignore. Our calculator accounts for it.
When Does Renting Win?
- Short stays: If moving within 2–4 years, transaction costs make buying inefficient
- High price-to-rent ratios: Above 20 typically favors renting
- Career uncertainty: Flexibility has real financial value
Break-Even Analysis
The break-even year is when cumulative buying costs drop below renting costs. Before that point, renting is the better financial choice. Plan to move before break-even? Rent. Plan to stay longer? Buy.