How long do you have to stay for buying to beat renting?
The answer is a year, the crossover year: the first year from which a buyer who sold the home would have at least as much wealth as a renter who invested instead, and keep it to the end. DecisionSheet's rent vs. buy calculator reports it directly. With every default in place it reports "Never": renting stays ahead for all 30 years. Raise the rent from $2,400 to $3,500, holding everything else, and the crossover is year 6.
A common rule of thumb says to buy only if staying at least 5 years. It is a rule of thumb; no source is cited for it here. Across the cases below, the model's crossover ranges from year 6 to never, plus one test case with no selling cost that crosses in year 2.
What the crossover year measures
The model follows two households from the same starting cash, month by month for 30 years.
- The buyer pays 20% down on a $550,000 home plus 3% in closing costs, then each month pays principal and interest on a 30-year loan at 6.5%, plus property tax, insurance, HOA dues and a maintenance reserve. At each year-end the model asks what the buyer would walk away with after selling: home value, less the loan balance, less a 6% selling cost.
- The renter pays rent and renter's insurance and invests the $126,500 the buyer put in at closing. In any month the buyer spends more than the renter, the renter invests the difference; in any month the renter spends more, the buyer invests it instead.
Net worth for the buyer is the after-sale proceeds plus any such investments; for the renter, the investment account. The crossover year is the first year-end from which the buyer's figure is equal or larger at every remaining year-end of the 30 years.
The default case: no crossover
The defaults are a $550,000 home against $2,400 a month in rent, a price-to-rent ratio (price divided by a year's rent) of 19.1. In the first month the buyer pays $4,014 and the renter $2,421, rent plus insurance.
After year 1 the renter is ahead by $56,411. At year 5, the rule's mark, the buyer would leave a sale with $202,146 and the renter holds $295,905, a gap of $93,759. The gap widens every year and reaches $1,305,818 at year 30 (open this scenario). The default assumptions are 3.5% a year of home price growth, 3.5% a year of rent growth and an 8% annual return on the renter's investments. On these inputs, no length of stay within 30 years makes the buyer's net worth catch up.
A higher rent: crossover in year 6
Change one input, the rent, to $3,500. The price-to-rent ratio falls to 13.1, and the monthly outlays start closer: $4,014 to buy, $3,521 to rent (open this scenario).
The renter still leads after year 1, by $42,734, and still leads at year 5, by $8,157. In year 6 the buyer moves ahead by $2,698 and stays ahead to year 30, finishing $899,525 in front. Here the rule of thumb falls one year short.
What closing and selling costs do
A buyer who sells early pays two transaction costs the renter never does: $16,500 (3%) at purchase and, in this model, 6% of the home's value at sale. The model deducts the selling cost at every year-end, as if the home were sold that year.
In the $3,500 case at year 5, the home is worth $653,227 and the buyer's equity before a sale is $241,339. The 6% selling cost takes $39,193, leaving $202,146. Together with the closing costs, that is $55,693 of transaction costs, against a gap of $8,157 in the renter's favor.
Set the selling cost to zero, the only change from the $3,500 case, and the crossover moves from year 6 to year 2; at year 5 the buyer is ahead by $31,036 (open this scenario). A zero selling cost is a test, not a scenario; it isolates how much of the early deficit that one cost accounts for in this model.
A stressed case: a 7.5% mortgage rate
Take the $3,500 case and raise the mortgage rate from 6.5% to 7.5%, the only change. The buyer's first monthly outlay rises to $4,309, the renter is $34,137 ahead at year 5, and the crossover moves to year 11. Buying still finishes ahead at year 30, by $483,377 (open this scenario).
The investment return is the other assumption the answer leans on. Back at the default $2,400 rent, lowering the renter's assumed return from 8% to 5% produces a crossover in year 23 (open this scenario). At 5.5% there is none again: the renter is $27,291 ahead at year 30 (open this scenario). That return is an assumption, not a forecast; the model applies the same rate every year with no bad years.
Reading the five-year rule against the model
In these six cases the crossover is year 2 (the no-selling-cost test), 6, 11 and 23, and in two cases never. The rule names one number; the model's answer moves with the rent, the rate, the selling cost and the assumed return. The only case within a year of the rule is the $3,500 case, where the crossover comes one year later.
Assumptions and limits
- The model is pre-tax. It does not apply the mortgage interest deduction, which is available only to those who itemize (IRS Publication 936). It does not tax the renter's investment gains, or the gain on the home sale; a sale of a main home can exclude up to $250,000 of gain, or $500,000 on a joint return, if ownership and use tests are met (IRS Topic 701).
- The renter invests the whole upfront sum and every month's difference, without fail, at a constant return. A renter who spends the difference does not build that account.
- Home value, rent, insurance and HOA dues each grow at a fixed yearly rate. Property tax and maintenance are percentages of the current home value.
- Selling costs are 6% of the sale price at every year-end. The loan is a fixed rate for its full term, with no refinancing and no private mortgage insurance.
- A lead that renting later takes back does not count as a crossover. With some inputs buying is ahead for a stretch and then falls behind; the calculator then reports no crossover and names the years buying was ahead.
Method and sources
The model is calculateRentVsBuy in the rent vs. buy calculator. It
runs both households month by month, converts the annual investment return to an equivalent
monthly rate, steps home value and rent once a year, and values the buyer as if selling at each
year-end. Every figure above is the model's output for the inputs in the scenario links; other
inputs are the calculator's defaults: 1.1% property tax, $1,800 a year of
insurance, $120 a month HOA, 1% maintenance, 2.5% general
inflation.
- IRS Publication 936, Home Mortgage Interest Deduction: home mortgage interest is deductible only when deductions are itemized on Schedule A.
- IRS Topic 701, Sale of your home: the $250,000 and $500,000 exclusions and the two-of-five-years ownership and use tests.
Open this scenario in the calculator
All figures on this page come from the Rent vs. Buy calculator. Change any input there and the numbers update.