Rent or Buy? How I’d Make the Call

I’ve heard this line at many family gatherings, as well as at work and from other relatives. There seems to always be someone who believes renting is wasting money. This is another one of those easy-sounding clichés that’s passed around until people stop questioning it. For quite some time, I thought about it myself. I thought about owning a house and the fact that I wasn’t yet there. Eventually, I decided to take the time and do my own math to find the truth. When I finished doing the numbers, the picture became clearer. It was certainly more favorable to anyone who’s thinking about moving and possibly needs to pay for things such as braces for their kids or help support a parent.

Either option (buying or renting) can be the smart thing to do. Your ability to make a good decision depends primarily on the math involved in your situation, how long you expect to remain in your current location, and finally, what you’d prefer to do with your weekend.

Let me show you how I think you should approach making this decision.

Where does the idea that “renting is throwing money away” go wrong?

Firstly, renting provides you a space to live for each month. Once the month is gone, it’s gone. That part is accurate. However, the statement completely fails to mention that a significant portion of a monthly mortgage payment also disappears. For example, during the first couple of years of a typical 30-year mortgage, a large majority of your monthly payments are going towards interest. According to Freddie Mac, the average rate for a 30-year fixed-rate mortgage in early June 2026 is about 6.48%. So, when a homeowner makes their first mortgage payment, only a small sliver goes toward the principal. The rest of the payment is essentially interest paid to the lender for use of the property.

Also, property taxes, homeowners insurance premiums and maintenance costs all contribute to expenses related to owning a home, and none of these expenses build equity. Many homeowners use a rule of thumb of about 1% of the purchase price per year for maintenance. Also, a water heater breaking or needing replacement may occur earlier than anticipated and can be expensive. Similarly, an older home may need additional repairs before sale. You won’t get any of that money back until the property sells.

Calculating the real cost of owning a home

Before comparing your mortgage payments to your rent payments, consider including all the expenses that your mortgage payments exclude. Closing costs usually range between 2% to 5% of the purchase price of the home and are generally required to be paid upfront. Using the national median existing-home price of $417,700 in April 2026 (as reported by the National Association of Realtors), the closing costs associated with purchasing that property would likely be between $8,400 and $20,900. In addition to closing costs, property taxes are usually calculated based upon the assessed value of your home, commonly about 1% to 2% of the value per year, and often increase over time. Homeowners insurance premiums are also increasing rapidly in many parts of the country due to increased weather-related risks. Maintenance costs (usually estimated at about 1% of the home’s value per year) are incurred regardless of whether your home is new or old. Finally, if you put 20% down on that same median-priced home ($83,540), you lose access to an investment vehicle (such as stocks) that may earn a higher return on investment than maintaining an owned residence. While no bills exist for this lost investment potential, it is another cost of owning a home.

How long do you need to own to break even?

Because so many of the costs associated with purchasing a home are incurred in the initial stages of ownership (closing costs, agent commissions when selling, etc.), it requires several years for the benefits associated with owning a home to exceed those associated with renting. That point at which owning begins to be financially advantageous compared to renting is referred to as your break-even point. Before reaching this point, you’d have been financially better off had you rented. Afterward, owning becomes financially beneficial. That’s why the five-year rule exists: if you believe that you’ll remain in your current home for at least five years, purchasing will provide sufficient time for owning to become financially advantageous. Conversely, if you may choose to relocate within fewer than five years, renting will normally yield greater economic returns. The break-even period can extend beyond five years in more expensive markets and be reached more quickly in less expensive markets. In reality, the closer your break-even date approaches, the greater benefit leasing offers as selling too early can negate any gains realized from owning.

If circumstances arise that could lead you to leave your present location prematurely (for example, losing your job, getting divorced, having an elderly parent that you wish to care for, or having children who will soon enter college), then renting isn’t failing to grow up. It’s merely aligning your decision with the life that you have.

A quick two-minute gut check

To get an estimate of how affordable it’s to buy versus rent in your particular area, you can quickly calculate your local price-to-rent ratio. Take the price of a home you’re considering purchasing and divide it by the annual rent charged for a similar home. If your price-to-rent ratio is below about 15, it appears more economical to buy; above about 20 indicates renting is preferable; and ratios falling in between indicate that both options appear equally viable depending on how long you anticipate staying in your present location and how anxious you feel about taking on the uncertainty associated with owning a home.

While this ratio can’t definitively direct your choice between renting and buying a home, it should provide insight about which direction your local housing market is trending.

Photo by todd kent on Unsplash