Rent vs Buy: How Long Before Buying a Home Pays Off?

The common claim that renting is throwing money away leaves out half the comparison. Owners also pay costs that build no equity: interest, property tax, insurance, maintenance, and buying and selling costs. A renter, meanwhile, can invest the down payment instead of putting it into a house.

The useful comparison is net cost: everything you pay out, minus what you get back at the end.

A worked example

This hypothetical compares a $400,000 home with 20% down ($80,000) at 6.5% against renting a similar home for $2,100 a month. Assumptions:

Assumption	Value
Closing costs	$12,000
Property tax / insurance / maintenance	1.1% / 0.4% / 1.0% of value a year
Home appreciation	3.5% a year
Selling costs	6% of the sale price
Rent increases	3% a year
Return on the invested down payment	7% a year

Net cost after	Buying	Renting
3 years	$88,120	$57,110
10 years	$195,139	$198,161

Buying starts far behind because closing and selling costs are spent before much equity exists. It catches up as rent rises and the loan pays down. In this example buying becomes the cheaper path after about 9 years 7 months.

Change the assumptions in the rent vs buy calculator.

What decides the answer

• How long you stay. This matters more than anything else. Over three years, renting is about $31,000 ahead in this example.
• Appreciation and investment returns. If home values stay flat while investments compound, renting can stay ahead for much longer.
• Rent compared with the price. Where rent is high relative to home prices, buying pulls ahead sooner.

This example leaves out tax deductions (which help only households that itemize), PMI, moving costs, and everything that isn't money, like stability and freedom to renovate.

Source: CFPB: Buying a house.