Is renting really throwing money away compared with buying?
No. Owners also pay unrecoverable costs — mortgage interest, property tax, insurance, maintenance and transaction fees. On a $420,000 home at 6.5%, those unrecoverable costs run about $2,900/mo in year one, more than the $2,200 comparable rent.
Unrecoverable costs: owner vs renter, year one
| Cost | Owner | Renter |
|---|---|---|
| Mortgage interest | ≈$2,040/mo | — |
| Property tax + insurance + maintenance | ≈$893/mo | — |
| Rent | — | $2,200/mo |
| Buying closing costs (spread over 7 yrs) | ≈$150/mo | — |
| Total unrecoverable | ≈$3,080/mo | $2,200/mo |
How to read this table
- Total unrecoverable sits at the top of the table (≈$3,080/mo) — $2,200/mo. If your situation looks like this row, plan against the upper half of the range rather than the midpoint.
- Buying closing costs (spread over 7 yrs) anchors the bottom (≈$150/mo) — —. Treat this as the conservative case you should still be profitable at.
- The gap between the top and bottom row is roughly 21×. That spread is why a single blended average is close to useless here — pick the row that matches your setup instead of averaging the column.
- With 5 reference points in the "unrecoverable costs: owner vs renter, year one" table, the fastest way to use this page is to find the closest row, take its owner, then stress-test it ±30% before you build a plan on it.
Context
This is the '5% rule' logic popularised by Ben Felix: an owner's unrecoverable costs are roughly property tax (~1%) + maintenance (~1%) + cost of capital (~3%) ≈ 5% of value per year. If rent is below 5% of the price ÷ 12, renting is competitive.
What moves this number
Financing terms
Rate, down payment and amortisation drive cash-on-cash return more than purchase price does. The same building can cash-flow or bleed depending on the loan.
True operating expense ratio
Management, insurance, tax, maintenance, vacancy and capital reserve typically consume 35–50% of gross rent. Models that skip reserves overstate returns badly.
Vacancy and turnover
One 45-day vacancy plus a turn can erase a year of thin cash flow. Underwrite 5–8% vacancy even in tight markets.
Local regulation
Rent rules, short-term rental caps and licensing requirements change the achievable revenue of an identical property between neighbouring cities.
Methodology
Assumptions (all editable in the calculators): $420,000 home (≈2025 US median, NAR), 10% down, 6.5% 30-year fixed (Freddie Mac PMMS range), 3.5%/yr appreciation and rent growth (long-run FHFA HPI / CPI shelter), 1.1% property tax, 1% maintenance, $1,900/yr insurance, 3% buy and 6% sell costs, 6%/yr investment return. Excludes mortgage interest deduction, capital-gains tax and PMI.
Assumptions and caveats
- Returns exclude appreciation and principal paydown unless a row states otherwise.
- Local tax, insurance and regulation can move these figures by several points in either direction.
- This page was last reviewed on 2026-10-01. Ranges are updated as new data lands, so re-check before using them in a contract or a plan.
- Use these numbers as a starting range, not a guarantee — your own historical data always beats a benchmark.
Frequently asked questions
Is renting really throwing money away compared with buying?
No. Owners also pay unrecoverable costs — mortgage interest, property tax, insurance, maintenance and transaction fees. On a $420,000 home at 6.5%, those unrecoverable costs run about $2,900/mo in year one, more than the $2,200 comparable rent.
Which option pays the most in the unrecoverable costs: owner vs renter, year one table?
Total unrecoverable, at ≈$3,080/mo ($2,200/mo). That row represents the strongest case in this dataset, so use it as an upper bound rather than an expectation.
What is a realistic low-end figure?
Buying closing costs (spread over 7 yrs) at ≈$150/mo (—). Plan your costs so the low end still works, then treat anything above it as upside.
Why do the numbers vary so much?
The spread between the highest and lowest row is about 21×. Financing terms and true operating expense ratio explain most of that gap — see the drivers section above for the full list.
Where do these numbers come from?
Assumptions (all editable in the calculators): $420,000 home (≈2025 US median, NAR), 10% down, 6.5% 30-year fixed (Freddie Mac PMMS range), 3.5%/yr appreciation and rent growth (long-run FHFA HPI / CPI shelter), 1.1% property tax, 1% maintenance, $1,900/yr insurance, 3% buy and 6% sell costs, 6%/yr investment return. Excludes mortgage interest deduction, capital-gains tax and PMI.
How can I estimate my own number instead of using a benchmark?
Use the Rent vs Buy Net Worth Calculator on RevenueLab — it takes your own inputs and returns a figure specific to your setup, which is always more accurate than a published range.
Model your own numbers
Related reading
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Last updated 2026-10-01.