Rent vs buy: the break-even year

By David Chen · Published October 3, 2026

Rent versus buy is usually argued as a preference. It is not: it is a cash-flow comparison with one genuinely unknowable input, and the part that can be calculated is larger than most people assume. The useful output is not “which is cheaper” but how long you have to stay for buying to have been the cheaper choice.

The example below is one house and one rent, carried through fifteen years month by month: a $420,000 home with 10% down at 6.50% over 30 years, against renting the equivalent place for $2,300 a month. Every figure comes from the model described in this section, and the model is stated in full so you can disagree with a specific assumption rather than with the conclusion.

What the model assumes

Six assumptions do most of the work. All are inputs you can change in the calculator; none are facts.

• Rate 6.50%, term 30 years on a $378,000 loan. The monthly principal and interest is $2,389.22, fixed for the whole period.
• Property tax 1.10% a year of the purchase price, home insurance $1,800 a year, no HOA, and maintenance at 1.00% a year — the roof, the boiler, the things a landlord would otherwise pay for.
• Buying costs 2.50% of the price and selling costs 7.00% of the sale price.
• Home prices rise 3.00% a year, and rent rises 3.00% a year.
• The money you do not put into a house earns 5.00% a year. For the buyer that is nothing, since the cash is in the property. For the renter it is the whole point.
• A single inflation rate applies to rent, property tax, insurance, HOA and maintenance. Holding the owner's costs flat while rents rise — a common shortcut — tilts the answer toward buying for no good reason. The fixed mortgage payment is already a real advantage against rising rent; nothing extra is added.

Fifteen years, month by month

Owning this home costs $3,274.22 a month at the start, against $2,300 in rent. The renter is therefore $974.22 a month better off in cash, and the model gives the renter credit for investing it. Both sides are then compared on the same basis — money out, minus what is still there at the end:

After fifteen years, buying is $44,744 ahead. That is a real number, and it is much smaller than the gap a mortgage rate comparison would suggest, because the renter's portfolio ends up worth $289,525 — $114,250 of contributions and $122,775 of investment gains on money that never went near a house.

The break-even is year 11

The single number that answers the practical question is the year the two paths cross. Below, positive means buying has become the cheaper option up to that point:

Seven years of losses, then a crossing in year 11. The first year alone costs $38,538 relative to renting — more than a tenth of the purchase price, gone before any equity exists worth speaking of. Anyone who buys expecting to be better off within two or three years is working from a model that does not include transaction costs.

What actually drives it

The buying side can be written as a single sum, which is also how the calculator checks itself: transaction costs at both ends, plus interest, plus the costs of holding the property, minus the appreciation.

Two lines dominate. The first is $56,304 of round-trip transaction costs — $10,500 to get in and $45,804 to get out — which is money that buys nothing and is why the early years are so expensive. The second is interest: $326,333 against only $103,726 of principal repaid in fifteen years. On a $378,000 loan, fifteen years of payments clears a little over a quarter of it.

The rent side is simpler: $513,330 of rent over fifteen years, rising with inflation, offset by $122,775 of investment gains. Renting is not cheap; it is simply cheaper per month, and the difference is what the renter keeps.

The assumption that decides everything

Hold everything else fixed and vary only the annual rate of home price growth. The same fifteen years, the same house, the same rent:

This is the honest core of the rent-versus-buy question. Across a two percentage point range — 1% to 3% a year, both entirely plausible for the same city over the same decade — the answer moves from “buying never catches up” to “buying is $44,744 ahead”. Below roughly 2.5% annual appreciation, buying loses on a fifteen-year view.

What the model leaves out

Two omissions, both disclosed because both move the answer:

• Tenant insurance is not modelled. It is a small monthly amount and it would push slightly against renting.
• The renter's discipline is assumed, not observed. Crediting $974.22 a month to an investment account is the neutral assumption; a household that spends it instead is running the renting path without the offsetting benefit, and their real outcome looks nothing like the table. If that is the likely reality, the comparison above overstates renting.

It also does not price the things that are not money: control of the property, security of tenure, and the ability to leave. A model can tell you that buying costs $38,538 more in the first year; it cannot tell you what you would pay to own the place.

The short version

On a $420,000 home with 10% down, against $2,300 a month in rent, buying costs $38,538 more than renting in year one and does not break even until year 11. It ends fifteen years $44,744 ahead — provided home prices rise about 3% a year. At 2% it never catches up. The round-trip transaction cost is $56,304, the interest over fifteen years is $326,333 against $103,726 of principal, and the renter ends with a $289,525 portfolio. The decision turns on the appreciation assumption, so work the range rather than the point.

Frequently asked questions

This guide is educational and is not financial advice. Figures were produced by our calculator and independently recomputed before publication; your lender's own documents govern your loan. Spot an error? Tell us — see also our disclaimer.