You’ve probably heard it before: “Renting is just throwing money away.” But is that really true?
Let’s cut through the noise and look at the numbers. I’m going to show you how owning a home might actually save you money in the long run compared to renting. No fluff, no BS—just real numbers that matter.
The Scenario
Let’s compare renting and buying over a 5-year period. We’ll use realistic numbers to make this as applicable to you as possible.
Assumptions
Rental Property
- Monthly Rent: $1,800
- Annual Rent Increase: 3%
Home Purchase
- Home Price: $300,000
- Down Payment: 5% ($15,000)
- Loan Amount: $285,000
- Interest Rate: 5.5%
- Loan Term: 30 years
- Property Tax: 1.1% of home value annually
- Homeowner’s Insurance: $1,200 annually
- Maintenance Costs: 1% of home value annually
- Annual Home Appreciation: 3%
- Tax Bracket: 22% (for mortgage interest deduction)
Disclaimer: The interest rate of 5.5% is used based on the average 30-year fixed mortgage rate in the United States over the past 25 years (1998-2023). The property tax rate of 1.1% is based on the average U.S. property tax rate over the past 10 years.
Monthly Costs Breakdown
Renting
- Monthly Rent: $1,800
- Annual Rent Increase: 3%
Total Rent Paid Over 5 Years: $ 114,684
Owning
Calculating the Monthly Mortgage Payment at 5.5% Interest Rate
- Loan Amount: $285,000
- Interest Rate: 5.5% annual
- Loan Term: 30 years (360 months)
Using a mortgage calculator or the standard amortization formula:
Monthly Mortgage Payment (Principal & Interest): $1,619
Additional Monthly Costs:
- Property Tax: $300,000 x 1.1% / 12 = $275
- Homeowner’s Insurance: $1,200 / 12 = $100
- Maintenance Costs: $300,000 x 1% / 12 = $250
Total Monthly Housing Cost: $1,619 (Mortgage) + $275 (Tax) + $100 (Insurance) + $250 (Maintenance) = $2,244
Total Housing Cost Over 5 Years:
$2,244 x 60 months = $134,640
Tax Benefits of Owning
- Total Mortgage Interest Paid Over 5 Years: Approximately $78,592
- This can be calculated using an amortization schedule for a $285,000 loan at 5.5% interest over 5 years.
- Tax Savings Over 5 Years: $78,592 x 22% = $17,290
- Assumes you itemize deductions and are in the 22% tax bracket.
- Adjusted Total Housing Cost Over 5 Years: $134,640 – $17,290 = $117,350
Equity and Home Appreciation
- Equity from Mortgage Principal Paid Over 5 Years: Approximately $18,576
- Home Value Appreciation Over 5 Years:
- Future Home Value = $300,000 x (1 + 3%)^5 ≈ $347,800
- Appreciation Gain: $347,800 – $300,000 = $47,800
- Total Equity Gain: $18,576 (Principal Paid) + $47,800 (Appreciation) = $66,376
Net Cost of Owning Over 5 Years
- Total Housing Cost: $134,640
- Minus Tax Savings: -$17,290
- Minus Equity Gain: -$66,376
- Net Cost: $134,640 – $17,290 – $66,376 = $50,974
Comparative Summary
Renting
- Total Rent Paid Over 5 Years: $114,684
- Money that you’ll never see again.
Owning
- Net Cost of Owning Over 5 Years: $50,974
- After accounting for tax savings and equity gain.
Potential Savings by Owning: $63,710
The Bottom Line
Over a 5-year period:
Renting
- Costs You: $ 114,684
Owning
- Costs You: $50,974
Potential Savings by Owning: $63,710
Additional Considerations
- Stability: Owning provides predictable housing costs, whereas rent can increase annually.
- Freedom: Want to paint the walls neon green? Go for it. It’s your house.
- Opportunity for Income: You could rent out a room or space to offset costs.
Potential Risks
- Market Fluctuations: Home values can go down, but historically, they’ve trended upward over time.
- Maintenance Costs: Unexpected repairs can occur, but that’s why budgeting for maintenance is crucial.
- Life Changes: If you need to move, selling a home can take time and may involve costs.
Conclusion
When you break down the numbers, owning a home can be more cost-effective than renting in the long run. You’re not just paying for a place to live—you’re investing in an asset that can grow in value and build your wealth.
Next Steps
Ready to explore how these numbers look for your specific situation?
- Personalized Calculation: Contact me for a custom rent vs. buy analysis tailored to your circumstances.
- Get Pre-Approved: Understand what you can afford and lock in current interest rates.
- Ask Questions: I’m here to help you make an informed decision.
No hype, just real numbers. Let’s make your money work smarter.
Frequently Asked Questions
There are programs available that require as little as 3% down or offer down payment assistance. Let’s discuss your options.
Closing costs typically range from 2% to 5% of the home price. These can sometimes be negotiated or rolled into your mortgage.
If you plan to move sooner, we can run the numbers for a shorter time frame or discuss alternative strategies like renting out the property.
Disclaimer: This is a simplified example for illustrative purposes. Actual costs can vary based on numerous factors including interest rates, taxes, insurance, and individual financial situations. The interest rate of 5.5% is based on the average 30-year fixed mortgage rate in the United States over the past 25 years (1998-2023). The property tax rate of 1.1% is based on the average U.S. property tax rate over the past 10 years. Consult with a financial advisor or mortgage professional for personalized advice.
