Rent or buy? How long you need to stay for buying to pay off
Buying a home only beats renting once you have stayed long enough to earn back the costs of buying and selling. In our example, a $350,000 home against $1,950 rent, that point comes in year 8. Sell sooner and renting comes out ahead. Stay longer and buying pulls away.
How the comparison works
A fair comparison has to count everything, not just the mortgage payment against the rent. LifeCalculator's rent vs. buy calculator tracks two households with the same budget:
- The buyer pays a 20% down payment and 3% closing costs, then the mortgage, property tax, insurance and 1% of the home's value each year in maintenance. When they sell, they pay 6% in selling costs.
- The renter invests the money the buyer spent on the down payment and closing costs. Each month, whoever has the cheaper housing cost invests the difference.
At the end, we compare net worth. For the buyer, that's the home's value minus selling costs and the remaining loan, plus any savings. For the renter, it's their investment account.
The example
A $350,000 home, 20% down, a 6.5% 30-year mortgage, 1.1% property tax, $1,800 a year in insurance and 1% maintenance. Home prices grow 3.5% a year. The comparable rental costs $1,950 a month and rises 3.5% a year. The renter's investments earn 6%.
In the first year, owning costs about $2,550 a month against $1,950 rent, so the renter invests about $600 a month on top of the $80,500 down payment and closing costs they kept.
| Years you stay | Buyer's net worth | Renter's net worth | Who's ahead |
|---|---|---|---|
| 3 | $94,800 | $117,056 | Renting by $22,256 |
| 5 | $128,638 | $142,179 | Renting by $13,541 |
| 8 | $184,991 | $180,730 | Buying by $4,262 |
| 12 | $272,617 | $233,451 | Buying by $39,166 |
Why buying starts behind
The buyer's first-day costs are gone the moment they close. The 3% closing costs are about $10,500 here. Selling costs another 6% of the future price, over $23,000 even after a few years. Early mortgage payments are mostly interest, so equity builds slowly. The renter, meanwhile, has the full down payment working in the market from day one.
Over time, three things turn it around. The home grows in value on the full $350,000, not just the down payment. The loan balance falls faster each year. And rent keeps rising while the mortgage payment stays fixed.
What moves the break-even point
The result is sensitive to a few inputs. Changing one at a time from the example, at an 8-year stay:
| Change | Result after 8 years | Break-even |
|---|---|---|
| Base case | Buying ahead by $4,262 | Year 8 |
| Rent is $1,500 instead of $1,950 | Renting ahead by $57,606 | Not within 30 years |
| Rent is $2,500 | Buying ahead by $79,878 | Year 3 |
| Home prices grow 2% a year | Renting ahead by $38,896 | Year 17 |
| Home prices grow 5% a year | Buying ahead by $52,228 | Year 4 |
The rent level matters most. At $1,500 a month, the $350,000 home costs almost 20 years of rent, and renting and investing the difference is hard to beat. When rent is high relative to prices, buying pays off quickly.
Things the numbers don't capture
- Stability. Owners can't be asked to leave when a lease ends, and their payment doesn't jump with the rental market.
- Flexibility. Renters can move for a job or a better school without the cost and delay of selling.
- Discipline. The comparison assumes the renter really invests the difference every month. Many people don't. A mortgage works as forced savings.
- Taxes. The mortgage interest deduction helps only those who itemize, which is a minority of U.S. households since 2018. Home sale gains are mostly tax-free for primary homes up to set limits.
Put your own numbers into the rent vs. buy calculator, especially the rent you'd actually pay for a similar home. Try a few values for home price growth and see how sensitive your result is.
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