● Money & small business
Rent vs buy: when does buying actually pull ahead? (a $400,000 home, year by year)
"Rent is throwing money away" skips half the math. Buying also costs a down payment, closing costs, interest, taxes, repairs and, when you sell, an agent's commission. A fair comparison asks one question: after the years you'd stay, what would you have? The buyer has the home's equity after selling. The renter has the down payment invested, plus whatever they saved each month by renting. You can run your own numbers in the rent vs buy calculator.
The example
A $400,000 home, 20% down, 3% closing costs, a 30-year mortgage at 6.5% ($2,022.62 a month), 1.1% property tax, $1,800 insurance, 1% a year for maintenance, 6% selling costs, and home values rising 3.5% a year. The alternative: $2,300 rent, rising 3.5% a year, plus $180 renters insurance. Invested money earns 6% a year.
In the first month buying costs $2,872.62 against $2,315.00 to rent, and it takes $92,000 up front. The renter invests that $92,000 and the monthly difference.
| After | Buyer would have | Renter would have | Difference |
|---|---|---|---|
| 1 year | $72,737 | $104,394 | renting +$31,657 |
| 3 years | $108,343 | $129,474 | renting +$21,131 |
| 5 years | $147,015 | $154,826 | renting +$7,811 |
| 6 years | $167,591 | $167,553 | buying +$38 |
| 10 years | $259,102 | $218,193 | buying +$40,908 |
| 20 years | $631,242 | $390,751 | buying +$240,490 |
Buying starts far behind: closing costs are gone the day you buy, and selling costs would take 6% of the price if you sold early. Year by year, the mortgage is paid down, the home's value grows, and rent keeps rising, so buying catches up and pulls ahead in year 6.
What moves the break-even year
| Change from the example | Buying first ahead in | Difference after 10 years |
|---|---|---|
| None (the example) | year 6 | buying +$40,908 |
| Home values flat (0% a year) | year 22 | renting +$95,968 |
| Home values +2% a year | year 14 | renting +$23,252 |
| Mortgage rate 5.5% | year 5 | buying +$81,481 |
| Mortgage rate 7.5% | year 11 | renting +$462 |
| Rent $1,900 instead of $2,300 | year 20 | renting +$34,086 |
| Rent $2,800 instead of $2,300 | year 4 | buying +$134,651 |
| Investments earn 8% instead of 6% | year 11 | renting +$373 |
| Investments earn 4% instead of 6% | year 5 | buying +$76,029 |
- Home price growth matters most, and it's the least certain. At 3.5% a year buying wins in year 6; with flat prices it takes until year 22.
- Rent relative to price decides a lot. Where rent is cheap compared with buying, renting and investing can stay ahead for decades.
- The renter only wins if they actually invest the difference. The comparison assumes the down payment and every month's savings are invested. Spend them and buying wins sooner.
- How long you stay is the practical question. Every version above favors renting if you'd move within 3 years, and six of the nine still do at 5 years.
Left out: income tax (mortgage interest deductions, capital gains), moving costs, and the value of flexibility or stability. Every figure comes from the same month-by-month model as our rent vs buy spreadsheet, which was checked against an independent simulation. Not financial advice.