Rent vs Buy Calculator — 30-Year Net Worth & Breakeven Horizon

The 5% rule (popularized by portfolio manager Ben Felix) estimates the unrecoverable annual cost of homeownership as roughly 5% of the home's value: ~1% for property taxes, ~1% for annual maintenance, and ~3% for the cost of capital (mortgage interest or lost opportunity cost on down payment equity). If annual rent is less than 5% of the purchase price of an equivalent home, renting and investing the difference in index funds is mathematically superior.

In most metropolitan markets with historical 3%–4% annual real estate appreciation, the breakeven horizon is between 4 and 7 years. Due to upfront buyer closing costs (2%–4%), future seller closing costs and agent commissions (6%–8%), and front-loaded mortgage interest amortization, selling a home within the first 3 years almost always results in a net financial loss compared to renting.

A $100,000 cash down payment tied up in home equity earns only the local residential appreciation rate (historically 3%–4% long-term nominal). That same $100,000 invested in a broad stock market index fund (like the S&P 500) has historically yielded ~10% nominal (~7% real). Over 20 years, this opportunity cost spread can create a $300,000+ net worth delta in favor of the renter.

Amateur home buyers calculate only Principal, Interest, Taxes, and Insurance (PITI). However, major capital expenditures (roof replacement $12,000, HVAC system $9,000, water heater, exterior paint, foundation settling, plumbing leaks) average 1% to 2% of the home's entire market value every single year over a 30-year lifespan.

Since the 2017 Tax Cuts and Jobs Act substantially increased the standard deduction ($14,600 for singles, $29,200 for married filing jointly in 2024/2025), over 90% of US homeowners now take the standard deduction rather than itemizing deductions. As a result, most buyers receive zero marginal tax benefit from mortgage interest or local property taxes.