Buy vs. Rent: How to Run the Real Numbers Yourself

TL;DR: The fastest gut-check is the 5% rule: take your home's price, multiply by 5%, divide by 12 — if that monthly number beats local rent, buying likely wins over the next few years. But the real answer also depends on maintenance (budget 1-2% of home value per year), closing and selling costs (6-10% combined), and what your down payment would earn if invested instead.

_Last reviewed: August 2026 · 8 min read_

Every buy-vs-rent calculator online spits out a different answer because they all hide their assumptions. You don't need a black box — you need four numbers you can plug in yourself, in about ten minutes, using your own city's prices and your own down payment.

Okoniq Property Hub helps you track ownership costs like maintenance, insurance, and tax bills over time, so if you do buy, you have real numbers instead of guesses when this question comes up again.

What is the 5% rule and does it actually work?

The 5% rule says total annual ownership costs — not just the mortgage — run about 5% of a home's value per year, split roughly into 1% maintenance, 1% property tax and insurance, and 3% opportunity cost or financing. Compare that monthly figure to local rent for a similar property.

Example: a $400,000 home costs about $20,000 a year to own under this rule, or roughly $1,667 a month. If a comparable rental runs $1,900, buying edges ahead. If rent is $1,300, renting wins — at least on pure cost. This rule comes from research popularized by economist Ben Felix and lines up with older 1%-per-month rental-yield rules investors have used for decades. It's not exact, but it's closer to reality than a mortgage calculator alone, because it forces in the costs people forget.

What hidden costs do buyers always underestimate?

Maintenance and transaction costs, consistently. Most first-time buyers budget the mortgage, tax, and insurance, then get surprised by a $9,000 roof or a $6,000 foundation repair three years in.

Plan for 1-2% of your home's value every year in upkeep — on a $350,000 house, that's $3,500 to $7,000 annually, some years zero, some years all at once. Roofs typically last 20-25 years but age faster than they should without basic upkeep, and foundations need seasonal checks most owners skip — see 5 foundation checks you're forgetting every spring. On top of maintenance, add closing costs of 2-5% of the purchase price when you buy, and 6-10% in agent commissions and closing costs when you sell. That 6-10% exit cost is why owning for less than 3-5 years usually loses to renting on paper, even in a flat market.

How do you calculate your actual breakeven point?

Divide your home price by the annual rent for a comparable place — that's the price-to-rent ratio, and it tells you how many years of rent it takes to equal the purchase price. A ratio under 15 usually favors buying; over 20 usually favors renting; 15-20 is a toss-up that depends on how long you'll stay.

| Price-to-Rent Ratio | Home Price | Annual Rent | Lean | |---|---|---|---| | 12 | $360,000 | $30,000 | Buy | | 18 | $360,000 | $20,000 | Depends on timeline | | 24 | $360,000 | $15,000 | Rent |

Run this with your own numbers: your target home price divided by 12 months of realistic rent for the same square footage and neighborhood. Most online rent estimators (Zillow, Rentometer) get you close enough. If the ratio is under 15 and you plan to stay 7+ years, buying tends to win even after maintenance and closing costs.

What does your down payment cost you if it's not invested?

Your down payment isn't free money sitting in the house — it's cash that could otherwise sit in an index fund earning a historical 7-10% average annual return. A $60,000 down payment invested instead of spent on a house could grow to roughly $115,000-$155,000 over ten years at those rates, before taxes.

This is the opportunity cost buyers almost never calculate, and it's a real number, not a hypothetical one. Weigh it against what you'd pay in rent over that same decade, plus rent increases (historically 3-5% a year in most US markets). If projected rent increases outpace what your invested down payment would earn after subtracting ownership costs like the ones covered in 20 easy ways to lower your utility bills, buying starts to look better the longer you plan to stay put.

How long do you need to stay for buying to make sense?

Most financial planners land on 5-7 years as the breakeven window, because that's roughly how long it takes for equity growth and avoided rent increases to outweigh the 8-15% round-trip cost of buying and selling (2-5% to buy, 6-10% to sell). If your job, health, or family situation makes a move within 3 years likely, renting is almost always cheaper once you run the real math, not just the mortgage payment.

If you do buy and plan to stay long-term, protecting the asset matters more than the purchase price. Systems like your electrical panel age out too — see 100 vs 200 amp service if you're evaluating an older home's capacity before you commit to years of ownership costs.

FAQ

Is it cheaper to rent or buy in 2025?

It depends on your city's price-to-rent ratio, but nationally, many major metros sit above 20, which favors renting short-term while ownership still wins in markets under 15 for buyers staying 7+ years.

What is the 1% rule in real estate?

The 1% rule says monthly rent should equal at least 1% of a property's purchase price for it to be a solid rental investment; it's an investor screening tool, separate from the 5% rule used for personal buy-vs-rent decisions.

How much should I budget for home maintenance each year?

Budget 1-2% of your home's value annually — on a $300,000 home that's $3,000 to $6,000 a year, though costs come in lumps rather than evenly, so a maintenance reserve fund matters more than a flat monthly line item.

Does a bigger down payment always make buying the better choice?

Not automatically — a larger down payment lowers your monthly mortgage cost but also increases the opportunity cost of money you're not investing elsewhere, so the breakeven math should include what that cash could earn at a 7% average market return.

How many years should I plan to stay before buying makes sense?

Most calculations show 5-7 years as the point where ownership costs, including the 6-10% cost of selling, are offset by equity growth and avoided rent increases.

This is educational information, not financial advice. Talk to a fee-only financial planner or CPA before making a buy-vs-rent decision tied to your specific income, savings, and local market.