Renting vs. Buying: The Math Behind the Decision

It's a tough decision for everyone, especially when moving to a new area. To rent or buy?

Along with anything related to cars, this topic is one that gets people fired up a lot. The personal finance blogosphere is full of passionately written posts arguing for either side's benefits, along with compromises like house-hacking and AirBnB side hustles.

I'm not here to argue whether your house is an investment or not. I own a home, and I enjoy it very much, but your personal results may vary. I don't consider my house an investment; rather, it is a place to live and have a home-base. 

Living Arrangements and Transportation

For most people, the two most significant expenses are living arrangements and transportation. By maximizing your savings on those two expenses, you're setting yourself up for financial success.


If you are currently contemplating renting vs. buying, SmartAsset has a cool calculator that might help you. (Affiliate Note – I am not associated with SmartAsset in any way, and this is not an affiliate link. How's that for a blogging curveball?)

When you first go to the site, it will walk you through 5 simple questions to get a basic gauge on whether you should buy or rent. The questions are focused around:

  • Your Location
  • What is your monthly rent?
  • What is the price of the home you are considering
  • Your marital status
  • What is your annual pre-tax income?

(*Note – If you've visited the site before, you might not get prompted with the questions since you already have cookies for the site in your browser. If you want to do the 5-step question process repeatedly, you can delete the SmartAsset cookies from your browser settings and refresh the site. Additionally, you could enter the data on the left side of the calculator.)

To show the results you get from the initial 5-step wizard that the calculator presents you with, I used median numbers for Washington D.C. I also used the 20001 zip code in DC; it's not the wealthiest but not the poorest.

  • Zip Code – 20001
  • The Median monthly rent for a one-bedroom apartment in Washington DC is $2,000
  • The median home price of homes for sale in Washington is $549,000, according to Zillow
  • I chose single as my status
  • The median income in Washington in 2016 was $75,506


Here are the results I got:

  rent vs. buy


Not a huge surprise here, the calculator says it's better to rent for 13 years than buy for the “median” scenario in Washington D.C.

The Washington D.C. area has one of the most expensive housing markets in America. For folks with average salaries, it's likely advantageous to rent versus jumping into homeownership that, on average, costs over a half-million dollars.

One of the cool things about the way they designed the site is that you can easily adjust many of the values with a slider tool to instantly see how different numbers will affect the answer (the sliders are on the left side of the screen capture above).

Once you have your results, scroll down further on the page. You will see a detailed breakout of the costs. Most of the detail is on the ownership side since buying has so many different costs than renting.

rent vs. buy


As you can see, they've really attempted to be comprehensive in their cost modeling. For home purchasing options, they allow you to enter possible HOA (Home Owner Association) fees, annual homeowners insurance, and the annual home value increase.

For renting options, they consider the annual rent increase and renter's insurance.

There are also advanced fields for inflation and “rate of return on savings,” which, comically, defaults to 4.00% (who's getting that on savings these days!)

Pick by Geography

Better yet: they have a great interactive map that goes down to the county level. It's super cool because you can adjust a slider representing the number of years you plan to stay in that house, and the map dynamically changes the data of all 3,000 U.S. counties to show the data.

You know how I love maps.

buy vs. rent


Like all calculators, this program obtains base data from sources and uses it to make intelligent assumptions (see below).

rent vs buy


Additionally, in the “About The Answer” section, you will find a pretty detailed explanation about how the cost of ownership and renting is calculated. I have to say: it appears they've covered their bases pretty well. It's more thorough than many calculators grab a few pieces of ‘average' data for a region and make a glorified pivot chart.

Further down the page, they have a section entitled “How Long You Have to Live in America’s Biggest Cities for Buying to Make Sense.” The information covers major cities in America and gives an average time you'd have to live there for buying to make sense.

For instance, Washington, D.C., and Boston are under the heading of “Old Money.” The claim is that the average length of ownership in Washington would need to be around 6.5 years for homeownership to outweigh renting on a return on your investment basis.

Money Isn't Everything.

The term “break-even horizon” refers to the time required for buying to beat renting. According to Zillow, the average time in America is right around two years. But individual markets across America are, of course, very different and have tons of variables.

This SmartAsset calculator can help you find the break-even horizon for a particular area and has many tools to adjust the variables for flexibility.

That being said, the mostly non-economic variables of a location, such as proximity to family, weather, and recreation opportunities, are a large part of what makes us happy. These variables, of course, cannot be ignored and can complicate a rent or buy decision. See, can you pursue fire and still live in a nice house.

Solid financial planning makes ample room for the non-financials that comprise happiness. So, use this calculator wisely.

This post was expertly crafted by accidental FIRE. He is an outdoor adventurer and teacher who lived a mostly frugal life only to find out “accidentally” that he was financially independent before he knew it was a thing. He practices and preaches the principle of stoicism and believes many can achieve financial independence by doing the same. He writes all about it at Accidental FIRE.

Michael launched Wealth of Geeks to make personal finance fun. He has worked in personal finance for over 20 years, helping families reduce taxes, increase their income, and save for retirement. Michael is passionate about personal finance, side hustles, and all things geeky.