Renting vs Buying
The biggest financial decision most people make — and the one most people get wrong because they listen to realtors instead of running the math.
TL;DR
Buying is not always better than renting. Use the 5% rule: multiply the home price by 5%, divide by 12. If comparable rent is cheaper, renting + investing the difference often builds more wealth. Buy only if you plan to stay 7+ years, can afford 20% down without draining savings, and the monthly cost fits 25% of your income.
The Real Costs Compared
| Cost | Renting | Buying |
|---|---|---|
| Monthly Payment | $1,500 - $3,000 (varies by market) | $2,200 - $4,500 (mortgage + taxes + insurance) |
| Upfront Cost | First + last month + security deposit (~$3K-$6K) | Down payment + closing costs (~$40K-$100K on a $400K home) |
| Building Equity | No — 100% goes to landlord | Yes — roughly 30-40% of payment goes to principal (initially) |
| Maintenance & Repairs | Landlord's responsibility | Your responsibility — budget 1-2% of home value/year |
| Property Taxes | Included in rent (indirectly) | $3,000 - $15,000+/year depending on location |
| Flexibility | Can move after lease ends (12 months) | Tied to location — selling costs 5-6% of home value |
| Tax Benefits | None | Mortgage interest deduction, $250K/$500K capital gains exclusion |
| Investment of Difference | Invest what you save vs buying | Equity appreciation + leverage |
The 5% Rule
The 5% rule estimates the annual unrecoverable cost of owning a home: ~1% property taxes + ~1% maintenance + ~3% cost of capital = 5%
Home Value x 5% / 12 = Break-Even Rent
$300K Home
$1,250/mo
break-even rent
$500K Home
$2,083/mo
break-even rent
$750K Home
$3,125/mo
break-even rent
If you can rent a comparable place for less than these amounts, renting + investing the difference is likely the better financial choice.
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Glen's Take
I rent in Miami Beach. By choice. The math works in my favor here — and in many expensive cities.
Buying a home is not a financial strategy — it is a lifestyle choice. Sometimes it is also a good investment. Sometimes it is not. The American dream of homeownership has been so aggressively marketed that people buy houses they cannot afford, in cities they might leave, with money they should be investing.
Run the numbers for your specific situation. If buying makes sense mathematically AND aligns with your lifestyle, buy. If not, rent without guilt and invest the difference. There is no moral virtue in having a mortgage.
Frequently Asked Questions
Is renting really throwing money away?
No. Renting provides a place to live — that is not throwing money away. When you buy, a significant portion of your payment goes to interest, taxes, insurance, and maintenance — not equity. A renter who invests the difference between renting and buying (the down payment, maintenance savings, etc.) in index funds can end up wealthier than a homeowner in many scenarios.
What is the 5% rule for renting vs buying?
The 5% rule says: multiply the home's value by 5% and divide by 12. If your monthly rent is less than that number, renting is likely cheaper. For a $400,000 home: $400,000 x 5% = $20,000/year = $1,667/month. If you can rent a comparable place for under $1,667/month, renting is the better financial choice.
How long do you need to live somewhere for buying to make sense?
Generally, 5-7 years minimum. Buying and selling a home involves 5-6% transaction costs (realtor commissions, closing costs). It takes several years of appreciation and equity building just to break even on those costs. If you might move within 3-5 years, renting is almost always cheaper.
Is 2026 a good time to buy a house?
It depends entirely on your local market, financial situation, and timeline. In general: if you can afford a 20% down payment without depleting your emergency fund, plan to stay 7+ years, and the 5% rule favors buying in your market, it can be a good time. Do not buy a house just because you feel social pressure to do so.
What hidden costs of homeownership do people forget?
Property taxes ($3,000-$15,000+/year), homeowner's insurance ($1,500-$4,000/year), maintenance and repairs (1-2% of home value/year = $4,000-$8,000 on a $400K home), HOA fees ($200-$500/month if applicable), and opportunity cost of the down payment (that $80K could be invested instead).
Recommended Resources
Tools & books I actually use and recommend
The Psychology of Money
Morgan Housel on why managing money is about behavior, not intelligence. Short, brilliant chapters you'll re-read.
View on AmazonThe Little Book of Common Sense Investing
John Bogle's manifesto on why low-cost index funds beat everything else. Straight from the founder of Vanguard.
View on AmazonInteractive Brokers
Low commissions, global market access, and professional-grade tools. This is where I hold my positions.
Open an AccountSome links above are affiliate links. I only recommend products I personally use. See my full disclosures.
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