Rent vs Buy Calculator

The "Renting is Throwing Money Away" Myth

You've probably heard that renting is throwing money away, and paying a mortgage is paying yourself. This is a massive oversimplification that ignores the massive unrecoverable costs of homeownership.

The Unrecoverable Costs of Buying

When you rent, 100% of your rent is an unrecoverable cost. But when you buy, you have several unrecoverable costs that do not build equity:

• Interest: For the first 10 years of a 30-year mortgage, the vast majority of your payment goes to bank interest, not principal.
• Property Taxes: You pay this every year, forever.
• Maintenance: Roofs, HVACs, and plumbing break. Budget 1-2% of the home's value per year.
• Closing Costs: When you sell, you will lose about 6% of the sale price to realtor commissions.

The 5-Year Rule

Because of closing costs and the heavy front-loading of mortgage interest, it almost never makes mathematical sense to buy a house if you plan to move within 5 years.

When you buy a house, you are making a leveraged bet that the property will appreciate in value fast enough to outpace your taxes, maintenance, and interest payments. Historically, real estate appreciates at 3% to 5% per year, which makes homeownership highly profitable over a 10-to-20-year horizon, but risky in the short term.