Rent vs Buy 2026 — The Math Behind the Decision

The Real Cost Comparison

The "rent is throwing money away" argument misses half the picture. Homeownership has massive hidden costs: maintenance, property tax, insurance, PMI, closing costs, and opportunity cost of your down payment.

Run your own rent vs buy comparison with the Mortgage Calculator→

Here's a real comparison for a $350,000 home vs renting a similar place for $2,000/month:

Buying costs $773/month more than renting in year one. But the buyer is building equity — roughly $400/month goes toward principal in the first year, increasing over time.

The Break-Even Point

The break-even point is when your accumulated equity, appreciation, and tax savings exceed the extra costs of buying.

With these assumptions:

• 3% annual home appreciation
• 3% annual rent increase
• 6.75% mortgage rate
• 10% down payment
• Marginal tax rate: 22%

The typical break-even: 4-6 years. If you'll stay fewer than 5 years, renting is usually cheaper. Beyond 7 years, buying almost always wins — and the advantage grows rapidly.

What Changes the Math

Factors that favor buying:

• High rent in your area (rent-to-price ratio above 6%)
• Low mortgage rates (sub-5% tips the scales heavily)
• Strong home appreciation (4%+ per year)
• Ability to put 20% down (eliminates PMI)
• Mortgage interest deduction (if you itemize)

Factors that favor renting:

• High mortgage rates (7%+)
• High property taxes (2%+ states like NJ, IL)
• Short expected stay (under 5 years)
• Strong investment returns on the money you'd otherwise use for down payment
• Flat or declining home prices

The Opportunity Cost Nobody Mentions

A $35,000 down payment (10% on a $350K home) invested in an S&P 500 index fund instead would grow to approximately:

Home equity wins because you're leveraged — you control a $350,000 asset with $35,000. But leverage works both ways. A 10% price decline wipes out your entire down payment; an S&P decline of 10% only costs $3,500.

The 5% Rule (A Simple Framework)

Total annual cost of owning = property tax (1%) + maintenance (1%) + cost of capital (3%) = ~5% of home value.

If 5% of the home's value exceeds annual rent, renting is cheaper. If it's less, buying wins.

$350,000 home: 5% = $17,500/year = $1,458/month Rent for equivalent: $2,000/month

In this case, the ownership cost ($1,458) is less than rent ($2,000), so buying wins — but only if you stay long enough to recover closing costs (typically 5+ years).

The Non-Financial Factors

Not everything fits in a spreadsheet:

For many people, the psychological benefit of owning outweighs a marginal financial advantage to renting.

NYT — Rent vs Buy Interactive Calculator→

Frequently Asked Questions

Is it ever financially better to rent forever?

In very expensive markets (SF, NYC, Boston), the price-to-rent ratio can be so high that renting and investing the difference beats buying even over 20+ years. But this requires disciplined investing — most renters don't actually invest the savings.

What about housing market crashes?

The 2008 crash saw 30%+ declines in some markets. If you bought at the peak with 5% down, you were underwater for 5-7 years. This risk is real but historically rare — and irrelevant if you don't need to sell during a downturn.

Run your specific numbers with our Rent vs Buy Calculator. See your full mortgage costs with the Mortgage Calculator or check how much home you can afford with the Home Affordability Calculator.