Everyone tells you buying is always better. The numbers don't agree — at least not until year 5 or 6 in most markets. Here's the complete picture: what ownership actually costs, when the break-even happens, and the one number that determines everything.
🧮 Skip straight to your numbers: Use the Rent vs Buy Calculator to find your exact break-even year and 10-year cost comparison. Takes 60 seconds.
This is the most repeated — and most misleading — piece of personal finance advice. Let's look at what buying a $400,000 home at 7% actually costs in year one:
| Cost | Year 1 Amount | Goes Toward Equity? |
|---|---|---|
| Mortgage interest | $22,500 | No |
| Property taxes | $5,200 | No |
| Home insurance | $1,800 | No |
| Maintenance | $4,000 | No |
| Mortgage principal | $5,460 | Yes |
| Total year-1 cost | $39,000 | Only $5,460 is equity |
Renting a similar $400,000 home costs roughly $2,400–$2,800/month in most US markets — about $29,000–$33,000/year. In year one, renting the same home is often $6,000–$10,000 cheaper than owning it, even before accounting for the opportunity cost of the down payment.
When people calculate whether they can afford a house, they look at the mortgage payment. Here's what they forget:
Buying wins — but it takes time. The break-even point is when total buying costs (including opportunity cost of down payment) equal total renting costs. Here's how it looks by market:
| Market | Break-Even Year | Example Cities | Why |
|---|---|---|---|
| Affordable | 3–4 years | Cleveland, Memphis, Detroit | Low price-to-rent ratio |
| Mid-tier | 5–6 years | Atlanta, Phoenix, Charlotte | Moderate appreciation |
| Expensive | 7–10 years | Denver, Seattle, Boston | High prices vs rents |
| Ultra-expensive | 12+ years | NYC, SF, LA | Price-to-rent ratios extreme |
The key insight: if you move before the break-even, you almost certainly lost money buying vs renting. The average American moves every 7–8 years. In expensive markets, buying barely breaks even by then.
Economist Ben Felix popularized this shortcut: multiply the home price by 5%, divide by 12. If your rent is lower than this number, renting is likely better financially.
Example: $400,000 home × 5% = $20,000 ÷ 12 = $1,667/month.
If you can rent a similar home for under $1,667/month, the math favors renting. In most US cities, the rent on a $400K home is well above $1,667 — which is part of why buying wins long-term in most markets. But in cities like San Francisco or NYC where a $1.5M home rents for $4,000/month, the math is much closer to the break-even threshold.
A $400,000 home requires roughly $90,000–$95,000 upfront (20% down + closing costs). What if you rented and invested that money instead?
$95,000 invested in a low-cost index fund averaging 8%/year grows to:
That's the opportunity cost of buying — the wealth you could have built by investing the down payment instead. Our calculator accounts for this in the comparison.
Find your personal break-even point — enter your rent, home price, and location assumptions.
Open Rent vs Buy Calculator| Down Payment | On $400K Home | Monthly Mortgage | PMI |
|---|---|---|---|
| 3.5% (FHA) | $14,000 + closing | $2,525 | +$150–200/mo |
| 10% | $40,000 + closing | $2,278 | +$120–160/mo |
| 20% | $80,000 + closing | $2,130 | None |
| 30% | $120,000 + closing | $1,864 | None |
Note: at 7% interest on a $400K home with 20% down, that $2,130/month is just the mortgage. Add $433 property tax, $150 insurance, $333 maintenance = $3,046/month true cost. Compare that to your rent carefully.
This article is for educational purposes only and does not constitute financial or real estate advice. Real estate values, tax rates, and market conditions vary significantly by location. Always consult a licensed real estate professional and financial advisor before making housing decisions.