Is it better to rent or buy a house?

Below, the example is worked through with the same math as our rent vs. buy calculator, followed by a table showing where the answer flips, so you can find your own situation.

Rent isn't the only money that's gone

"Renting is throwing money away" leaves out that owning has money that's gone too. In the first year of our example, owning costs about $3,172 a month that never comes back:

• Mortgage interest: $2,156
• Property tax: $381
• Home insurance: $212
• Maintenance: $423

Only about $373 a month of the payment pays down the loan and becomes yours. Compare that $3,172 with $2,070 of rent. On top of it, the buyer puts $110,000 into the down payment and closing costs, money a renter could keep invested. Buying earns this back mainly through the home's value growing, so the real question is whether that growth is enough.

The example

• $500,000 home, 20% down, 6.5% fixed rate, 30-year loan, $10,000 closing costs
• Comparable rent $2,070 a month (the national price-to-rent ratio applied to this price), rising 3% a year
• Home prices grow 3% a year; investments return 6% a year, with gains taxed at 15%
• Property tax 0.9%, maintenance 1% and insurance 0.5% of the home's value a year; 6% selling costs
• Sell after 10 years

Both sides spend the same amount each month. Whichever side's housing costs less that month invests the difference, and the renter invests the down payment and closing costs from day one. After 10 years:

• Buyer: $295,092. The home's sale price after selling costs, minus what's left on the loan.
• Renter: $387,340. Their investments, after tax on the gains.

Here the buyer never has money left over to invest: owning costs more than renting every month for all 10 years, though the gap shrinks from $1,404 to $1,126 a month as rent rises. At higher rents that flips, and the buyer invests the difference instead. The table further down includes that.

Renting comes out about $92,248 ahead. Mostly that's because the renter's invested money grows at 6% while the home grows at 3%, and owning costs more each month than renting does.

What would change the answer

Changing one assumption at a time, with everything else as above, buying comes out ahead if:

• comparable rent is above $2,590 a month (it's $2,070 in the example),
• home prices grow faster than 4.55% a year (3% in the example), or
• investments would return less than 1.91% a year (6% in the example).

Rent and home price growth matter most, and they move together. This table shows who comes out ahead after 10 years, and by how much, for combinations of the two. Find the row closest to the rent for a home like the one you'd buy:

* The example's rent. "Rent +$92K" means renting and investing comes out about $92,248 ahead; "Buy" means buying does.

Does staying longer help?

Often, yes: buying's one-time costs (closing costs now, selling costs later) get spread over more years. But it isn't automatic. In this example the gap actually widens over time, because the renter's investments keep compounding faster than the home's value:

Staying longer tips the answer toward buying only when the two are already close: when rent is high for the price, or home prices grow faster than in this example.

How sure is the answer?

Nobody knows how home prices and markets will move. So we reran the example across 300 simulated futures, with home prices and investment returns varying year to year around the rates above. Buying came out ahead in 27% of them. Outcomes ranged widely: in the middle 80% of futures, the result ran from renting ahead by $409,704 to buying ahead by $121,822. A bad decade for markets helps buying; a weak housing market hurts it.

A quick rule of thumb: the price-to-rent ratio

Divide the home's price by a year of comparable rent. In the example, that's $500,000 ÷ (12 × $2,070) ≈ 20.1, close to the national average of 20.2 from the Census Bureau’s American Community Survey 2023 1-year estimates. With the example's other assumptions, buying starts to win once the ratio falls below about 16, which is the $2,590 rent above. Use the rent for a home like the one you'd buy: median rents are usually for smaller homes than median sale prices, which makes renting look cheaper than it really is.

What this doesn't account for

• It assumes the renter actually invests the difference every month. If that money gets spent instead, buying looks better, because a mortgage forces you to save through principal payments.
• Stability, control over your home, and the freedom to move are real, but they aren't in the math.
• Taxes are simplified, and the loan is fixed-rate. See how the numbers work for the details and the default assumptions.