Rent vs Buy Calculator

The 5% Rule

A common rule of thumb is the 5% Rule: If your annual rent is less than 5% of the home's value, renting is likely the better financial decision. This accounts for unrecoverable costs of homeownership like property tax (1%), maintenance (1%), and cost of capital/mortgage interest (3%).

Pros of Buying

• Equity Building: A portion of your mortgage payment goes towards principal, essentially a forced savings plan.
• Appreciation: Real estate generally appreciates over time, providing a hedge against inflation.
• Stability: Fixed-rate mortgages lock in your housing payment for decades, while rent tends to rise with inflation.

Pros of Renting

• Flexibility: easy to move for career opportunities or lifestyle changes.
• Liquidity: Your down payment money can be invested in the stock market, which historically has higher returns than real estate.
• No Maintenance: The landlord is responsible for repairs and upkeep.

Breakeven Horizon

Buying usually has high upfront costs (closing costs, down payment). It typically takes 5-7 years for the equity and appreciation to offset these initial costs compared to renting.