What is Buy vs Rent Comparison?
The buy vs rent comparison evaluates the total financial cost of purchasing a home versus renting over the same period, accounting for mortgage payments, down payment opportunity cost, maintenance, closing costs, property tax, insurance, and equity accumulation. It helps you determine the break-even point at which buying becomes cheaper than renting. Model your mortgage with the Mortgage Calculator and check investment yields with the Rental Yield Calculator.
The Formula
Buy Total Cost = Down Payment + Closing Costs + PITI + Maintenance − Equity Built − Appreciation Rent Total Cost = Monthly Rent × Months + Annual Rent Increases
Worked Example
Comparing buying a $400,000 home in Raleigh, NC ($80,000 down, $320,000 mortgage at 6.75%) vs renting at $2,100/month over 10 years.
- Buying: P&I = $2,076 × 120 months = $249,120
- Buying: property taxes ($4,000/yr × 10) + insurance ($1,800/yr × 10) = $58,000
- Buying: closing costs (2.5%) = $10,000
- Buying: maintenance (1% of value/year) = $40,000 over 10 years
- Buying: equity built after 10 years ≈ $58,000; appreciation (4%/yr per Case-Shiller) ≈ $192,000
- Renting: $2,100/month rising 3%/year = $289,000 over 10 years
📌 Over 10 years, buying costs about $357,120 gross but builds $250,000 in equity + appreciation (net cost: ~$107,120). Renting costs $289,000 with zero equity. Buying wins by ~$182,000.
Why This Matters
The equity argument
Every principal payment builds equity in your home. Rent payments build equity in your landlord. Over 30 years, a US homeowner accumulates roughly $300,000-500,000 in housing wealth per Federal Reserve Survey of Consumer Finances that renters do not.
Flexibility vs stability
Renting provides flexibility to move quickly and avoids maintenance costs and property tax reassessments. Buying provides stable monthly P&I (on a fixed-rate loan) and protection against rent increases. Your life stage and career mobility determine which matters more.
Tax treatment differences
Homeowners who itemize can deduct up to $10,000 in state and local taxes (SALT cap per the 2017 Tax Cuts and Jobs Act) and mortgage interest on up to $750,000 of acquisition debt. Renters receive no federal housing deduction. For buyers in high-tax states with mortgages above $400,000, the itemized deduction often exceeds the standard deduction by $3,000-8,000 per year, reducing the effective cost of ownership.
Common Mistakes
❌ Ignoring opportunity cost of the down payment
An $80,000 down payment invested in an S&P 500 index fund at 10% average returns grows to $207,000 in 10 years. This "lost" investment return is a real cost of buying, though leveraged home appreciation often beats it when you factor in the 5x leverage from 80% LTV.
❌ Comparing monthly mortgage to monthly rent
A direct comparison is misleading. Buying includes property taxes, insurance, HOA, maintenance, and PMI, but also includes equity and appreciation. Compare total net cost over time, not monthly payments alone.
❌ Using a short time horizon in a high-closing-cost market
Closing costs on both the buy and eventual sell side total 8-12% of the home price. If you buy and sell within 2-3 years, transaction costs alone can wipe out any equity or appreciation gains. The NYT Buy vs Rent calculator and most financial models show buying only wins after 5-7 years in most US metros.
Industry Benchmarks
| Category | Good | Average | Poor |
|---|---|---|---|
| Break-even point | 3-5 years | 5-8 years | 10+ years |
| Mortgage vs rent ratio | PITI < Rent | PITI ≈ Rent | PITI > 1.3× Rent |
| Price-to-rent ratio (annual) | Below 15 (buy favored) | 15-20 | Above 20 (rent favored) |
Source: Case-Shiller Home Price Index & Zillow Observed Rent Index
Benchmark data sourced from Case-Shiller Home Price Index & Zillow Observed Rent Index.