Compare the true all-in cost of renting versus buying a home over any time horizon. Accounts for equity building, opportunity cost, maintenance, taxes, and appreciation. Free, no signup.
The True Cost of Buying a Home
Most rent vs buy analyses make the mistake of comparing monthly mortgage payment to monthly rent. This misses several major costs of homeownership that renters don't pay:
- Down payment opportunity cost: Money used for a down payment can't be invested. At 7% annual returns, a $80,000 down payment becomes ~$157,000 in 10 years.
- Property taxes: Average 1.1% of home value annually in the US — on a $400,000 home that's $4,400/year.
- Maintenance: The 1% rule — budget 1% of home value annually for repairs. On a $400K home, that's $4,000/year.
- Insurance: Homeowner's insurance averages $1,200–2,000/year.
- Transaction costs: Closing costs (2–5% of price) when buying, real estate agent fees (5–6%) when selling.
When buying typically wins
Buying makes more financial sense when you plan to stay 5+ years, home prices are reasonable relative to rents (price-to-rent ratio below 20), you can afford 20% down payment to avoid PMI, and local home price appreciation is strong. Owning also provides inflation protection and forced savings through equity.
Frequently Asked Questions
What is a price-to-rent ratio?
Price-to-rent ratio = Home price / Annual rent. Example: $400,000 home / ($2,000/month × 12) = 16.7. Below 15 generally favors buying; 15–20 is a grey zone; above 20 often favors renting. San Francisco and NYC regularly exceed 30, while many Midwest cities are below 12. It's a quick screening tool before running detailed numbers.
Does buying always build more wealth than renting?
No — this is a common myth. If a renter invests the down payment and monthly savings compared to buying (the "rent and invest the difference" strategy), they can build comparable or greater wealth depending on investment returns vs home appreciation. The calculator above accounts for this opportunity cost.
How much does it cost to sell a house?
Typically 8–10% of the sale price, including: real estate agent commissions (5–6%), closing costs (1–2%), staging and repairs (0.5–1%), and capital gains tax if applicable. On a $400,000 sale, that's $32,000–$40,000 in transaction costs — a significant factor that makes short-term buying rarely profitable.