Rent vs buy: how long do you need to stay for buying to win?

Why a break-even year exists at all

Buying costs a lot at both ends. Closing costs are typically 2–5% of the price going in, and selling costs — agent commission, transfer taxes, concessions — commonly run 6% or more coming out. Together that is often around 8% of the purchase price spent on the transaction itself.

Meanwhile renting costs nothing to start or to leave, and the money you did not put down can be invested. Ownership only pulls ahead once equity and appreciation have covered the transaction costs, the maintenance, the property tax and the return that down payment would have earned elsewhere. Early in the mortgage, most of the payment is interest, so equity builds slowly, which pushes the break-even further out.

Worked example: $400,000 home versus $2,000 rent

Assumptions: 10% down, 6.5% mortgage over 30 years, 2% closing costs, 6% selling costs, 3% annual appreciation, 1.1% property tax, 0.35% insurance, 1% maintenance, rent starting at $2,000 and rising 3% a year, and a 5% annual return on the cash the renter keeps invested.

Break-even here lands around year nine. That is later than the popular "five years" rule of thumb, and the reason is the 6.5% rate: at a lower rate, or with faster rent growth, the crossover comes much sooner.

Which assumptions actually decide it

• Rent growth. If rent rises 5% a year rather than 3%, renting gets expensive fast and break-even can pull in by several years.
• Appreciation. This is the assumption people are least able to predict and the one that swings the result most. Small changes compound over a decade.
• Mortgage rate. It sets how much of each early payment is interest rather than equity.
• How long you stay. Not an assumption but a decision — and it is usually the one that determines whether buying was right.
• Investment return on the down payment. Ignore it and buying looks better than it is.

Because the answer is so assumption-dependent, the useful output is not a verdict but a sensitivity ranking. The rent versus buy calculator flags which input is deciding your result, so you can test whether the verdict survives a plausible change to it.

What the numbers cannot tell you

A break-even year is a financial comparison under assumptions you chose. It does not price the flexibility of a lease, the security of a fixed payment, the cost of a roof failing in year four, or a local market that moves against the national average. Treat it as one input to the decision rather than the decision.

If the comparison favours buying, size the payment with the mortgage calculator. If it favours renting, the savings growth calculator shows what the down payment could do while you wait.