Is it better to rent or buy a house?

It depends on your timeline and market. Buying usually wins after 5 to 7 years in a home; renting wins for shorter stays or very expensive markets.

What is the 5 percent rule in real estate?

If annual rent is less than 5 percent of the home's price, renting is likely cheaper. The 5 percent approximates the unrecoverable costs of owning: taxes, maintenance, and the down payment's opportunity cost.

Rent vs Buy Calculator: The Math That Actually Matters

Renting is not throwing money away and buying is not always building wealth. Here is the math that settles it.

Renting usually wins for stays under 5 years; buying usually wins after 7 to 10 years, because closing costs and early mortgage interest take years to overcome. The 5 percent rule gives a quick answer: if annual rent is under 5 percent of the home price, renting is likely cheaper. Weigh the full costs on both sides before you decide.

The 5 percent rule

Multiply the home price by 5 percent. If the annual rent is below that number, renting is probably cheaper; if above, buying likely wins. A $400,000 home has a 5 percent benchmark of $20,000 a year, or $1,667 a month.

The 5 percent represents the unrecoverable costs of owning: property tax, maintenance, and the opportunity cost of the down payment. It is a shortcut, not a verdict, but it gets the answer right most of the time.

How long you stay decides everything

Buying has high upfront costs: closing costs of 2 to 5 percent of the price, moving, and immediate repairs. Those costs amortize over time, which is why short stays favor renting.

The breakeven is usually 5 to 7 years in an average market. Stay 10 years and buying almost always wins; move in 3 and renting wins even in cheap markets. Be honest about your timeline.

Costs renters forget and buyers forget

Renters forget rent increases. At 3 percent annual growth, a $1,500 rent becomes $1,740 in five years, while a fixed mortgage payment never moves.

Buyers forget maintenance. Budget 1 percent of the home value per year, plus the lumpy surprises: a roof is $10,000 to $20,000, an HVAC system $7,000 to $12,000. Homeownership is a part-time job managing those bills.