Rent vs Buy

⚠️ DISCLAIMER: I am not a financial advisor. This is not financial advice. These are notes on a system. Do your own research.

The Housing Question

“Should I rent or buy?” is one of the most emotionally charged financial decisions. Everyone has opinions. Real estate agents say buy. Your parents say buy. The internet says… it depends.

The truth: It’s math, not morality. Neither renting nor buying is universally better. The right answer depends on your numbers, your timeline, and your priorities.

The 5% Rule (Quick Decision)

Here’s a simple heuristic from financial planner Ben Felix:

Annual Cost of Owning = Home Price × 5%

This 5% breaks down roughly as:

1% — Property taxes
1% — Maintenance and repairs
3% — Cost of capital (opportunity cost of down payment + mortgage interest)

The rule: If annual rent < 5% of home price, renting is likely cheaper. If annual rent > 5%, buying might make sense.

Example: 5% Rule Calculation

Home price: $400,000 Annual cost of owning: $400,000 × 5% = $20,000/year ($1,667/month)

Compare to rent:

If rent is $1,400/month ($16,800/year) → Rent wins
If rent is $1,800/month ($21,600/year) → Buying might win

This is a simplification. The real calculation is more complex, but this gives you a quick filter.

The True Cost of Owning

Buying a home involves costs that don’t show up in the mortgage payment:

Upfront Costs

Cost	Typical Amount
Down payment	5-20% of home price
Closing costs	2-5% of home price
Moving expenses	$1,000-10,000
Immediate repairs/updates	Varies widely

Ongoing Costs

Cost	Typical Amount
Mortgage payment (P&I)	Varies
Property taxes	0.5-2.5% of home value/year
Homeowner’s insurance	$1,000-3,000/year
Maintenance	1-2% of home value/year
HOA fees (if applicable)	$200-500/month
Utilities (often higher than renting)	Varies

Hidden Costs

Cost	Notes
Opportunity cost	Down payment money not invested
Illiquidity	Can’t easily access home equity
Transaction costs	6-10% to sell (agent fees, closing)
Time	Maintenance, yard work, repairs
Mobility reduction	Harder to move for jobs/opportunities

The True Cost of Renting

Renting has costs too, often overlooked:

Factor	Notes
Rent increases	2-5% annually in most markets
No equity building	Monthly payment builds nothing
No tax benefits	Can’t deduct mortgage interest
Less control	Landlord decides renovations, pets, etc.
Lease constraints	Typically 12-month commitments
Moving costs	Every 2-3 years on average

BUT: Renters avoid property tax, maintenance, HOA fees, and can invest the difference.

When Does Each Make Sense?

Buy If...

✅ You’ll stay 5+ years (ideally 7-10+)
✅ You have stable income and employment
✅ You have 20% down payment (avoid PMI)
✅ You have 6+ month emergency fund remaining after purchase
✅ Local rent is > 5% of home price annually
✅ You want the responsibilities of ownership
✅ You’re in a stable or growing market

Rent If...

✅ You might move in < 5 years
✅ Your income is variable or uncertain
✅ Local rent is < 5% of home price annually
✅ You value flexibility and mobility
✅ You’d rather invest the difference
✅ You don’t want maintenance responsibilities
✅ You’re in a declining or uncertain market

Decision Matrix: Your Situation

Winner: Rent + Invest Difference (18% confidence)

Excelled in Flexibility (20% weight, +1.0 points) and Monthly Cost (25% weight, +0.5 points)

Option	Score	Monthly Cost	Wealth Building	Flexibility	Stability	Lifestyle Fit
★ Rent + Invest Difference	100%	1.8	1.8	1.6	0.9	0.9
Buy Home	91%	1.3	2.0	0.6	1.3	1.1
Rent (Status Quo)	88%	2.0	0.8	1.8	0.8	0.8

Recommendation: Weak recommendation: Options are closely matched. Top choices: Rent + Invest Difference, Buy Home, Rent (Status Quo). Consider additional criteria or stakeholder input.

Strengths & Weaknesses

Rent + Invest Difference

Strengths: Monthly CostWealth Building

Weaknesses: Lifestyle FitStability

Buy Home

Strengths: Wealth BuildingStability

Weaknesses: FlexibilityLifestyle Fit

Rent (Status Quo)

Strengths: Monthly CostFlexibility

Weaknesses: Lifestyle FitStability

Analysis method: Weighted Score

Note: This uses balanced weights. Your personal situation might weight factors differently:

Job uncertainty? Weight flexibility higher
Kids/schools? Weight stability higher
High rent market? Weight monthly cost higher

Customize Your Analysis

To make this decision for your specific situation:

Calculate your numbers:
- What’s the home price you’re considering?
- What’s comparable rent?
- What’s your down payment amount?
- What would that down payment earn if invested?
Assess your timeline:
- How long will you likely stay?
- Is your job/career stable?
- Any major life changes coming?
Consider non-financial factors:
- Do you want to maintain a property?
- How important is flexibility?
- What does your partner/family prefer?

Use our Decision Matrix tool to run your own analysis with your weights.

Common Myths

'Renting is throwing money away'

This is the most persistent myth. Every dollar of rent pays for housing—a real service. Meanwhile, mortgage interest, property taxes, maintenance, and insurance are also “thrown away” (not building equity).

The real question is: does the equity you build exceed what you could have built by investing the difference? Often it doesn’t.

'Real estate always goes up'

On average, home prices track inflation—about 3-4% annually before costs. After transaction costs, maintenance, and opportunity cost, real returns are often modest.

Some markets have exceptional growth. Many don’t. Past performance doesn’t guarantee future returns.

'You need to buy before you're priced out'

FOMO is not a financial strategy. Markets can go sideways or down for years. Buying at an inflated price to avoid missing out often backfires.

If you can’t afford to buy comfortably today, forcing it rarely ends well.

'Mortgage interest deduction makes buying cheaper'

The mortgage interest deduction only helps if you itemize deductions AND your itemized deductions exceed the standard deduction. After the 2017 tax law changes, most homeowners take the standard deduction—getting zero tax benefit from mortgage interest.

The Real Answer

Neither buying nor renting is inherently better. The right choice depends on:

Your numbers — Run the actual math for your situation
Your timeline — Buying is a long-term commitment
Your priorities — Stability vs flexibility, control vs convenience
Your market — Local rent-to-price ratios vary wildly

Don’t let social pressure, FOMO, or “conventional wisdom” make this decision. Do the math. Be honest about your priorities. Choose what fits your life.

The Bottom Line

Rent vs Buy is:

Math, not morality — Neither choice is universally right
The 5% rule — Quick filter: if rent < 5% of home price, renting is likely cheaper
Timeline-dependent — Buying only makes sense for 5+ year horizons
Personal — Your priorities matter as much as the numbers

The biggest financial mistake isn’t renting or buying—it’s making this decision emotionally instead of analytically.

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