Rent vs Buy Decision Guide
A rent-versus-buy decision is easier to evaluate when the important numbers sit beside each other. This worked example compares average net cost, net home-sale proceeds, and the renter portfolio at several holding periods.
By Ethan Hayes Published
In this $500,000 example, the final 30-year net-worth gap is Buying +$358,844 under a 6% investment-return assumption. The average net-cost comparison and the long-term asset comparison can point in different directions.
The two monthly figures are average net costs over the full holding period, not the rent check or mortgage bill in that year. The renter figure averages cumulative rent and insurance after modeled investment gains. The buyer figure averages purchase and ownership cash outflows after estimated net sale proceeds. The asset columns then compare those net sale proceeds with the renter portfolio.
| Holding period | Avg renter net cost / mo | Avg buyer net cost / mo | Net home-sale proceeds | Renter portfolio | Net-worth result |
|---|---|---|---|---|---|
| Year 1 | $2,274 | $4,227 | $93,721 | $117,154 | Renting +$23,433 |
| Year 5 | $2,306 | $2,252 | $176,211 | $172,937 | Buying +$3,274 |
| Year 10 | $2,373 | $1,861 | $299,256 | $239,896 | Buying +$59,359 |
| Year 20 | $2,535 | $1,334 | $635,242 | $436,467 | Buying +$198,775 |
| Year 30 | $2,636 | $698 | $1,152,950 | $794,106 | Buying +$358,844 |
Buying starts with $100,000 of down payment plus modeled closing costs. Selling costs also make a short ownership period expensive. Renting keeps more cash liquid, and the model gives that alternative cash a chance to remain invested.
That does not mean renting always wins. It means the move date matters. A buyer who stays long enough may benefit from principal paydown and appreciation, while a renter needs to maintain the assumed investment contributions to capture the modeled advantage.
A comparison chart is only as useful as its assumptions. These are the model inputs used for every row above. Local taxes, insurance, maintenance, HOA dues, rent increases, mortgage rates, and selling costs can differ substantially.
| Input | Assumption |
|---|---|
| Home price | $500,000 |
| Down payment | $100,000 (20%) |
| Mortgage | 6.5% fixed for 30 years |
| Starting monthly rent | $2,800 |
| Annual renter insurance | $250 |
| Annual property tax | $5,500 |
| Annual homeowners insurance | $1,600 |
| Annual maintenance reserve | $4,000 |
| Monthly HOA dues | $0 |
| Annual HOA growth | 0% |
| Upfront purchase taxes | $0 |
| Legal and closing fees | $3,000 |
| Annual property-tax growth | 2% |
| Mortgage insurance | None |
| Annual rent growth | 3% |
| Annual home appreciation | 3% |
| Annual investment return | 6% |
| Selling costs | 5% of sale price |
They are average net costs over the selected holding period, not the current rent check or mortgage bill. The renter figure accounts for modeled investment gains; the buyer figure accounts for estimated net sale proceeds.
No. Also compare liquidity, actual monthly cash flow, the likely holding period, and final assets. A lower modeled average net cost does not capture every financial or lifestyle tradeoff.
No. It is a worked example using stated assumptions. Run your own numbers and stress-test rent growth, appreciation, investment return, maintenance, and selling costs before deciding.
Worked examples are calculated from the assumptions shown on this page, and results are rounded only for display. Use the linked calculator to test a complete scenario with your own property and financing estimates.
These estimates are for educational purposes and are not lending, tax, legal, or financial advice. Actual mortgage terms, property costs, investment returns, and home values can differ materially.
This example is a starting point. Change the inputs in the calculator before making a housing decision.
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