Rent vs Buy: When does buying actually pay off?
The break-even isn't 'when the mortgage is cheaper than the rent' — it's about transaction costs, taxes, opportunity cost, and how long you stay.
The wrong way to compare
The instinct is to look at the rent and look at the mortgage payment and pick whichever is smaller. That comparison is wrong in three ways.
Owning has costs that don't show up in the monthly payment: property tax, insurance, maintenance (rule of thumb: 1% of the home value per year), HOA dues, and the closing costs you pay up front. Renting has the opposite trap: the deposit you didn't hand to a bank could be invested in the market, and that opportunity cost compounds.
The honest comparison
The right question is: after N years, who has more wealth — the version of me that bought, or the version of me that rented and invested the difference? Calcly's Rent vs Buy calculator is built around exactly that frame. Plug in your numbers and watch the break-even year emerge.
The four levers that matter
- Time horizon. If you sell within 3 years, transaction costs (closing on the way in, agent fees on the way out — typically 2–6% each side) almost always sink the buy case.
- Local rent-to-price ratio. In high-rent metros, buying breaks even faster; in cheap-rent cities, renting and investing wins for longer.
- Mortgage rate vs. expected return. A high rate makes the carrying cost of the mortgage high, raising the bar for buying. The flipside: at a low rate, the leverage of a 5x-leveraged home appreciation amplifies the wealth gap in your favor.
- Tax treatment. Mortgage interest deduction (where applicable) lowers the effective cost of the mortgage, but only above the standard deduction.
Worked example
Take a $500k home, 20% down, 6.5% mortgage, $3,500/mo equivalent rent, 4% expected long-run home appreciation, 7% expected market return on the down-payment alternative.
At those numbers, the break-even sits around year 6: before then, renting and investing wins; after, the leveraged home appreciation plus the principal-paydown component of the mortgage payment puts buying ahead. Plug your own numbers into the calculator for your real break-even.
When buying loses even at long horizons
- Local home appreciation persistently below 2% (some Midwest US metros, much of Japan).
- HOA fees that swallow the principal-paydown gain.
- A mortgage rate well above the expected market return.
- You'll move within 3–4 years for any reason.
What the calculator doesn't price
Two things, both important, neither captured by any model: the option value of being able to move freely (rent wins), and the option valueof locking in your housing cost against inflation for 30 years (own wins). If you're close to break-even, these soft factors are the tiebreaker.
Tools to use next
- Rent vs Buy — the headline comparison.
- House Affordability — what price range is realistic for your income.
- Mortgage — payment with PITI for a specific home.
- Down Payment — how long until you've saved up.