Rent vs Buy: When Each Makes Sense (And Why There's No Universal Answer)
Why the 'Don't Throw Money Away on Rent' Advice is Often Wrong in 2025
The standard American Dream involves owning a house. Nearly everyone says they would rather own than rent. “Don’t throw money away on rent” is one of the most commonly repeated pieces of advice. So why is this a question?
The Bottom Line Up Front: In August 2025, renting currently costs less than buying in nearly every major market, but the right choice depends on your specific location, timeline, and financial discipline. Don't assume buying is always better.
I promised you this deep dive, and here it is. The rent vs buy decision is one of the biggest financial choices you'll make, yet most people approach it with outdated assumptions. The general wisdom says "stop throwing money away on rent" and "buying builds wealth." Sometimes that's true. Often it's not.
In 2025, the math has shifted dramatically from the 2010s. Ask anyone shopping for a house since 2023 and they’ll tell you how expensive mortgages are with today’s higher rates. In fact, CBRE found mortgage payments now average 38% more than rent across major U.S. markets. (source) But before you conclude that renting always wins, understand this: the decision is intensely local, and there are still cities where buying is actually cheaper than renting right now.
Let me show you when each makes sense, with real numbers from real markets.
The Current Market Reality
The National Picture: Buying a home requires ~$50k more income than renting. (source) The median mortgage payment exceeds the median rent in every large metro. (source)
But Geography Changes Everything: In Jackson, MS, buying costs ~20% less than renting. In San Francisco, buying costs ~200% more than renting. Same country, completely different financial decisions.
Simple Rules of Thumb
Before we dive into the detailed math, here are the quick guidelines:
Renting Usually Makes More Sense When:
You plan to move within 5 years (transaction costs)
You don't have 20%+ down payment saved (private mortgage insurance adds cost)
Local rent-to-purchase price ratios exceed 20x annual rent (California, Seattle, Boston, NYC)
Buying Usually Makes More Sense When:
You're in affordable markets (much of rural America, most of the South and Midwest excluding a few major metros)
You plan to stay 5+ years (longer is better)
You have stable income and 20%+ down payment
Local rent-to-purchase price ratios are under 12x annual rent
The Gray Zone: When ratios are 12-20x annual rent, run the detailed numbers for your specific situation.
Real Market Examples
Let me show you three different markets to illustrate how dramatically location affects this decision:
Example 1: San Francisco (Extreme Rent-Favored Market)
Median Home Price: $1.2 million
Monthly Mortgage Payment: ~$7,500 (including taxes/insurance)
Median Rent: ~$3,550
The Math: You'd pay $3,950 more per month to own versus rent. Over 10 years, that's $474,000 in extra costs before considering any appreciation.
Verdict: Rent and invest the difference. An exception would be if you plan to stay forever in San Francisco and want cost certainty, unless you're certain you'll stay 15+ years and have substantial income growth ahead.
Note: There are two simplifying assumptions here. First, I’m not subtracting the $870/month (month 1) in principal repayment that builds your home equity. It not an expense, but it is a mandatory payment and directly affects affordability. Second, I am using the median home and the median rent. You can argue the median home is larger or nicer than the median rental and when performing this calculation for yourself, you should use directly comparable properties. (e.g. one bedroom condo vs one bedroom apartment) Third, I assume a 20% down payment. Anything less and the mortgage becomes much more expense because the loan amount is higher and you add PMI.
Example 2: Nashville (Middle Ground Market)
Typical Home Price: $480,000
Monthly Mortgage Payment: ~$2,800 (including taxes/insurance)
Comparable Rent: ~$2,000
The Math: You'd pay $800 more per month to own. The break-even point depends on appreciation rates and how long you stay.
Verdict: Run the detailed calculation based on your specific timeline and down payment situation, but likely rent.
Example 3: Cleveland (Buying-Favored Market)
Typical Home Price: $132,000
Monthly Mortgage Payment: ~$990 (including taxes/insurance)
Comparable Rent: ~$1,200
The Math: You'd actually pay $210 less per month to own, while building equity.
Verdict: Buy if you have the down payment and plan to stay 5+ years.
The Detailed Calculation
For those who want to run the real numbers, here's the complete analysis framework:
Step 1: Calculate True Monthly Costs
Renting Costs:
Monthly rent (if utilities are included, subtract them to make a fair comparison)
Fees (pets, parking, etc)
Renter's insurance (~$20/month)
Buying Costs:
Principal and interest payment
Property taxes
Homeowner's insurance
PMI (if less than 20% down)
Maintenance (budget 1-2% of home value annually)
HOA fees (if applicable)
Step 2: Factor in One-Time Costs
Renting:
Security deposit
Moving costs
Application fees
Buying:
Down payment
Closing costs (2-3% of purchase price)
Moving costs
Immediate repairs/improvements
Step 3: Consider Opportunity Costs
This is the most important step! It’s the hardest concept to understand, but it’s the real reason renting can come out ahead.
The Key Question: What could you earn by investing your down payment instead of using it for a house?
If you have $80,000 for a down payment and invest it at 8% annual returns instead, you'd have $172,000 after 10 years. Compare this to the equity you'd build through homeownership.
In every comparison, you have to account for what you would do with the down payment money. That down payment is locked away inside your house earning nothing, though it does give you the ability to capture appreciation. This is why home equity loans exist. People are wealthy on paper, but instead of being invested in income-generating assets, the paper wealth is locked inside a house. Renting and investing the down payment often comes out ahead!
Step 4: Account for Appreciation and Rent Increases
This is essentially impossible to do. No one knows what will happen to housing or rental prices. That said, houses do not always appreciate. There are plenty of market right now (August 2025) that have seen price decreases this selling season. Many people who purchased in 2023 and sold in 2025 lost money. Similarly, rental prices do not always go up. Dallas, Phoenix, and parts of Florida saw rents fall in 2023 and 2024 as tens of thousands of new apartment units were constructed.
If you need another example, there was also a housing bubble in the late 2000s where prices declined 62% in Las Vegas.
Still, you have to make some sort of assumption to do the math, so I suggest the below. Look at trends in your areas to find more accurate numbers for your situation.
Home Appreciation: Historically 3-4% annually, but varies dramatically by location
Rent Increases: Typically 2-3% annually
Step 5: Factor in Tax Benefits
Homeowners: Mortgage interest deduction (if you itemize, which isn’t as common today)
Renters: Some states offer renter's tax credits
The Forced Savings Psychology
*This is the most important section of this post.*
Here's where buying has a massive advantage that pure financial calculations miss: forced savings.
The average homeowner's net worth is 25-40 times higher than the average renter's. This isn't just because homes appreciate. It's because mortgage payments force people to save through principal payments.
The Reality Check: Most renters don't actually "invest the difference." Life happens. There are emergencies, temptations, and "just this once" purchases. The mortgage payment forces you to build equity whether you feel like saving that month or not.
This psychological benefit is real and powerful. If you're not naturally disciplined about saving and investing, the forced savings aspect of homeownership might outweigh the pure financial analysis.
However: If you are disciplined about investing, renting in expensive markets and investing the difference can build more wealth than homeownership.
Be honest with yourself. If you are a super-saver, renting might be the answer for you. If you struggle with impulse purchases, being locked into saving via a mortgage might be a better option.
Personally, I prefer renting, but I own my current house because the math favored it at the time. (My 30-year mortgage is at 2.5%, so even though renting is now cheaper in my city, it’s not cheaper for me because my costs are locked at a lower number.)
When Life Circumstances Matter More Than Math
This is a financial independence newsletter, so naturally I focused on the math. However, this decision isn’t purely financial. Your lifestyle also has a large impact on the decision.
Choose Renting When:
Your job requires frequent relocation (because selling a house is obnoxious and expensive)
You're in a major life transition such as marriage or a career change (because the house you buy may no longer meet your needs)
You want maximum flexibility (much easier to end a lease than sell a house)
You hate dealing with maintenance issues (home maintenance is expensive, often 1-2% of the value annually)
You're in an overpriced market but need to be there temporarily
Choose Buying When:
You want stability and control over your living space (fixed payment and you can choose the paint color)
You have kids and want consistent schooling
You enjoy home improvement projects
You've found your long-term community
You want protection against rent increases (but watch out for rising taxes, insurance, and HOA fees)
As always, I encourage you to be practical. Don’t sell your home and move into a trailer if you live in a social neighborhood and all your friends live there. Balance the financial decision with the lifestyle decision.
The Markets Where Each Makes Sense
These change every year. Right now, homes are much more expensive than five years ago and interest rates are higher. Do your own research. Still, here’s what the markets look like today:
Rent-Favored Markets (Short-Term):
San Francisco Bay Area (Price-to-rent ratio: 36x)
Los Angeles (Price-to-rent ratio: 35x)
Seattle (Price-to-rent ratio: 36x)
Boston (Price-to-rent ratio: 25x)
New York City (Price-to-rent ratio: 16x, but this is not just Manhattan, which is much higher.)
Austin (Price-to-rent ratio: 20x)
Most expensive coastal areas
Buy-Favored Markets:
Detroit (Price-to-rent ratio: 8x)
Baltimore (Price-to-rent ratio: 14x)
Philadelphia (Price-to-rent ratio: 14x)
Memphis (Price-to-rent ratio: 13x)
Most small-to-medium cities in the South and Midwest
Areas with strong job growth but affordable housing
Important Note: Even in rent-favored markets, buying can make sense if you're staying 10+ years and have substantial income. Even in buy-favored markets, renting might be right if you're uncertain about your timeline.
Plus, there’s lifestyle. There’s a reason people are willing to pay a premium in San Francisco to own. If you make $500k annually, you’re less worried about the subpar return on the equity in your home and more concerned with control over your space.
Common Mistakes to Avoid
Renters' Mistakes:
Assuming they'll invest the difference (but never actually doing it)
Underestimating how rent increases compound over time (don’t just accept the increase year after year)
Buyers' Mistakes:
Buying too much house for their budget (don’t be house poor)
Ignoring opportunity costs of the down payment and future home equity (that down payment is locked away earning 0% and you have to pay to access future equity with a home equity loan)
Underestimating total ownership costs (taxes, maintenance, HOA fees, insurance, closing costs)
Buying when they might move within 3-5 years (probably paying a 6% commission when sold)
The 2025 Market Outlook
Current conditions favor renting in most major markets, but this could change:
Mortgage rates around 7% make buying expensive (not historically, but relative to more recent years)
Home prices remain elevated from the pandemic boom (sellers would rather stay in place than sell for a loss)
Rent growth has slowed as new apartment construction increases
If mortgage rates drop to 5%: Assuming, flat prices, the buying premium would shrink and many more markets would be attractive to buy
If rates hit 3%: It would actually be cheaper to buy than rent in most markets. (Again, this assumes prices don’t increase, which they likely would as buyers compete.)
My Recommendation
Run the numbers for your specific situation, but don't ignore the psychology.
Use a detailed rent vs buy calculator (the New York Times has an excellent one) for your specific market and circumstances. But also honestly assess your saving and investing discipline.
If you're financially disciplined: In expensive markets, renting and investing often wins. In affordable markets, buying usually wins.
If you struggle with consistent saving: The forced savings aspect of homeownership is probably worth paying a premium for, even in somewhat expensive markets.
If you're uncertain about your timeline: Rent. The transaction costs of buying and selling make short-term ownership expensive.
The Bottom Line
There is no universal right answer. The person who tells you "buying is always better" or "renting is always smarter" is wrong. The right choice depends on:
Your local market conditions
How long you plan to stay
Your financial discipline
Your life priorities and circumstances
What I can tell you with certainty: don't default to either choice without running the numbers. In today's market, that analysis might surprise you.
The most important decision isn't rent vs buy. It's making sure you're building wealth regardless of which you choose. Whether that's through forced equity building via homeownership or disciplined investing while renting, the key is having a plan and sticking to it.
What's your situation? Are you surprised by how the math works out in your local market? The comments are a great place to share market-specific insights from your area.