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
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- Loan Amount: $285,000
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- Interest Rate: 5.5% annual
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- 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:
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- Property Tax: $300,000 x 1.1% / 12 = $275
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- Homeowner’s Insurance: $1,200 / 12 = $100
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- 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?
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- Personalized Calculation: Contact me for a custom rent vs. buy analysis tailored to your circumstances.
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- Get Pre-Approved: Understand what you can afford and lock in current interest rates.
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- 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
What if I don’t have a 5% down payment?
There are programs available that require as little as 3% down or offer down payment assistance. Let’s discuss your options.
What about closing costs?
Closing costs typically range from 2% to 5% of the home price. These can sometimes be negotiated or rolled into your mortgage.
I’m not sure if I’ll stay in the area for 5 years. Does buying still make sense?
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.
