To Rent Or To Buy? What The Real Estate Agents Won't Tell You

If you chat with real estate agents about the decision to rent or to buy, you will likely hear the following:

"Renting is just paying someone else's mortgage."

"You're throwing money away every month."

"It's the American Dream for a reason."

In their minds, buying a home is like a rite of passage. If you have the means, why not invest in property?

Here's the thing: real estate, like most investments, is not a one-size-fits-all solution.

Both renting and buying have their merits. And the right choice depends on your personal finances, your future plans, and market conditions.

But before we get into the analysis, it's important to rephrase the debate...

Don't think of this decision as buying vs. renting, but instead buying vs. investing. Because the alternative to buying a home isn't just paying rent — it's the opportunity to invest that down payment money elsewhere.

The case for buying:

• Building Equity: Every payment made on a mortgage contributes to the equity in your home. Over time, if the property appreciates, this can become a very valuable asset.
• True Ownership: If you pay off your mortgage, the house becomes yours outright. This will dramatically reduce your expenses.
• Tax Benefits: Mortgage interest and property tax payments can often be deducted. This can save homeowners a pretty penny each year.
• Customization: As a homeowner, you have the freedom to remodel and decorate your space as you see fit. There is no need to ask for permission.

The case for renting:

• Flexibility: Renting provides flexibility, especially if you're unsure about settling in one place. Moving cities? No problem. Changing jobs? Easy.
• Fixed Monthly Costs: A mortgage is your minimum monthly housing cost, but rent is your maximum. Renters don't pay for insurance premiums, HOA fees, property taxes, etc.
• No Maintenance: When the roof leaks or the HVAC fails, it's the landlord's responsibility to fix it. You don't have to deal with the hassle of the repair or face the costs.
• Diversification: Instead of sinking all of your money into a single asset, renters can diversify their investments across stocks, bonds, and more.
• No Credit, No Problem: Does looking at your credit score app make you cringe? Renting can give you the time you need to improve your score and qualify for a better mortgage rate.

Now, to determine the right financial decision, there are a lot of factors to consider. So let's outline a few assumptions:

• Mortgage rate: Currently ~7% depending on your location and credit score.
• Home value appreciation: Since 2000, single-family homes across the U.S. have appreciated 4.5% per year.
• Rent appreciation: Rent appreciation varies widely by city and neighborhood. But I pulled 3.5% as a nationwide average (from the CPI Rent Index).
• Ownership costs: For the purpose of this comparison, I use 1% for upkeep and maintenance, 1% for property taxes, and 0.5% for home insurance.
• Opportunity cost: Here I assumed that instead of buying a home, you can invest in an S&P 500 Index Fund returning ~10% per year.

Lastly, of course, is the actual cost to buy versus the cost to rent. And what really matters here are the relative prices.

For example, if the cost to buy your desired home is $450,000 and the cost to rent a comparable apartment is $1,875, the annual rent multiple is 20x.

($1,875 x 12) x 20 = $450,000

Given all of these assumptions, we can finally look at which option is more affordable and when. Let's dive into the numbers!

At a 20x rent multiple (or higher), you should always rent. Renting is so affordable, in this case, that it makes more sense to lock in those savings and invest the difference.

But this changes as renting gets more expensive...

At 18x, buying becomes the cheaper option after ~7 years. (Thanks to rent increases and the equity build-up in the home.)

So, if you plan to stay in the same place for more than 7 years, buying is likely the better financial decision.

At 16x, buying is more affordable after just 5 years. And at 14x, this drops to 4 years.

If you want to apply this same framework to your own decision-making...

• Find the rental rate of your target house/apartment
• Use Zillow to estimate the property's purchase value
• Tweak any assumptions for your local market
• Run your own analysis here​

One final takeaway: owning a home isn't always just about the numbers.

For many people, ownership creates a sense of permanence, of putting down roots, and of truly making a space your own that renting simply can't provide.

On the flip side, the freedom and flexibility of renting can bring peace of mind to those who value mobility or who aren't ready to commit to a particular location.

So, the numbers can shed some light on this decision, but don't let them dictate your choice completely! Your personal preferences and life goals are just as important in this equation.