Rent vs. Buy: A Break-Even Analysis With Real Numbers

The Cost of Owning

The loan is $320,000, and the principal-and-interest payment is $2,022.62, or $24,271 a year. Add annual property tax of 1.2% of the home's value ($4,800), maintenance at 1% ($4,000), and homeowner's insurance at 0.4% ($1,600). The total first-year cash cost is about $34,671, or $2,889 a month, compared with $26,400 in rent for the year. Owning is about $8,271 a year more expensive in cash terms at the start, even though part of the mortgage payment builds equity.

The model leaves out transaction costs on the purchase, the mortgage interest tax deduction (which depends on whether you itemize), and moving costs. Selling costs of 6% are included at the end.

The Renter's Side

The renter pays $26,400 in year one, with rent rising 3% a year. Instead of buying, they invest the $80,000 down payment and each year's cost difference between owning and renting. At a 7% return, that investment portfolio compounds, and it is the benchmark against which the owner's equity is measured.

The comparison is net worth after selling costs: the owner's equity (home value less sale costs less the mortgage balance) versus the renter's investment portfolio.

How the Break-Even Moves

In the base case, the owner pulls ahead around year 14. The result is highly sensitive to the assumptions. If the home appreciates 4% a year instead of 3%, the break-even drops to 5 years. At 2% appreciation, the owner does not catch up within 30 years in this model. If the renter's investments earn only 5%, buying wins by year 7. If rent is $2,800, buying wins by year 3, and if rent is only $1,800, buying does not win within 30 years. A mortgage rate of 5.5% instead of 6.5% moves the break-even to year 6.

The price-to-rent ratio captures much of this. When annual rent is low relative to the purchase price, renting tends to win, and when it is high, buying wins. Here, the $26,400 annual rent against a $400,000 price (a ratio of about 15) sits in a middle zone.

What the Model Ignores

Real life adds forced savings: many owners would not invest the difference consistently, so the equity built through a mortgage may be larger in practice than the renter's portfolio. Taxes, which can favor buying through deductions or the exclusion of capital gains on a primary residence, vary by country. On the other side, owners face special assessments, big repairs like roofs, and concentration of wealth in a single asset.

Non-financial factors matter as well: stability, control over your space, flexibility to move for work, and the risk of a falling market.

How to Run Your Own Analysis

Use your local numbers: price, down payment, rate, property tax, insurance, and realistic maintenance, plus actual rent for a comparable home. Test pessimistic and optimistic appreciation and investment returns. Estimate how long you will stay realistically. If your break-even is longer than your expected stay, renting is likely cheaper; if it is shorter, buying is likely better.