Rent vs. Buy: Which Makes Financial Sense for You?

Jun 6, 2025 | 7 min read

Buying your personal residence might be the biggest financial decision you will make in your life. You need to ask yourself whether buying is the optimal choice when compared with renting. In the face of many assumptions and costs that go into renting or buying a home, the decision isn’t easy. 

This guide simplifies the rent vs. buy decision by focusing on the key factors that actually matter long-term. You'll learn which variables to prioritize and how to make an informed housing choice that fits your financial future.

Breaking Down the Rent vs. Buy Choice

When renting vs. buying a home, think of each decision as leading to a future bag of money.

In the case of renting, it refers to the money saved by not buying a home, which is then invested in a diversified portfolio. If rent costs $3,000 monthly but buying the same house costs $5,000 (mortgage, taxes, maintenance, insurance), you save $2,000 monthly to invest. These savings will change over time with inflation.

For buying, focus on your home's future value. If you purchase a home for $1M today, what will it be worth in 30 years when the mortgage is fully paid off? That future home value represents your return as a homeowner. The costs associated with buying should be viewed as benefits to the renter who avoided them.

This approach compares the total financial impact of each option over time. For example, when maintenance costs rise in year 10, the homeowner absorbs those costs, while the renter avoids them entirely. On the flip side, if inflation pushes rents higher, the renter ends up paying more, making renting less attractive than buying.

Now let's examine the key factors that drive each decision:

• Renting

  • Monthly Rent: The primary cost associated with renting is the rent paid monthly.

  • Future Inflation: Inflation significantly impacts renters, who face rising rents over time. Lower inflation favors renters; higher inflation favors homeowners. Rent typically increases faster than general inflation. 

  • Portfolio Growth: We assume a 10% annual return for a globally diversified investment portfolio. 

  • Down Payment: The down payment gives renters an investment head start. We assume they invest their 20% down payment plus 3% closing costs in a diversified portfolio instead of real estate.

  • Moving costs: Moving costs matter too. We assume $1,000 per year for renters (inflation-adjusted), though it's a minor input.

• Buying

  • Home Price: Initial home price is arguably the most important factor for prospective homeowners, as it determines down payment size, monthly costs, and maintenance expenses.

  • Down Payment: The down payment size directly affects your monthly mortgage payment. We assume a standard 20% down payment.

  • Interest Rate: We assume a 6.5% rate for a 30-year fixed mortgage.

  • Maintenance: Annual maintenance typically costs 1% of your home's value. On a $1M home, that's $10,000 yearly or about $833 monthly.

  • Homeowner’s insurance: This protects against major damage like fires, floods, or storms that fall outside regular maintenance. Costs typically range from 0.5%-1% of home value per year, so we assume 0.5%.

  • Home Price Appreciation: Home prices generally track rental price growth over the long term. Since rents historically rise 1% above inflation, we assume home values follow the same pattern.

While many factors affect the rent vs. buy decision, four variables drive most of the outcome: monthly rent, home price, interest rate, and future inflation.

We will discuss why this is true in a moment, but let’s use a real-world example to make the renting vs. buying decision come to life.

Renting vs. Buying: A Real-World Example

Take my situation: I rent a 650 sq. ft 1-bedroom in San Francisco for $2,600 monthly. A comparable unit costs around $600k to buy. With 20% down payment ($120k), I'd have a $480k mortgage at 6.5%, resulting in monthly payments of roughly $3,000. Factor in property taxes, insurance, and maintenance, and total monthly costs hit $4,300, which is about 60% of my current rent.

Now let's see how this plays out over 30 years. Since 1980, U.S. rents have grown 4.00% annually. At this rate, my $2,600 rent would climb to about $8,100 by year 30. Meanwhile, the homeowner's costs would rise from $4,300 today to roughly $6,900 in year 30 due to inflation on taxes, insurance, and maintenance.

Note that since the rental payment at the end of 30 years exceeds the cost of buying ($8,100 > $6,900), we assume that the renter must sell down some of their portfolio to cover their increased rent. In this way, the renter who saved money during the early stages of the mortgage has to end up spending extra money near the end of the mortgage because of higher rent prices. Unlike the homeowner, the renter did not lock up their cost of housing and pays for it decades later.

After 30 years, here's how they compare: The $600k home appreciates to $1.9M. Meanwhile, the renter's monthly savings, invested at 7% annually, grow to $2.3M. The renter comes out $330k ahead despite paying higher rent in later years.

Try our rent vs buy calculator to see how these factors play out for your situation.

Below I have shown how this calculator works with the numbers from my San Francisco example above. Note that all of the values shown are nominal dollars:

Under these assumptions, renting is clearly the better choice. But change just one variable and the outcome flips. Drop the interest rate to 5.5%, and buying becomes the better choice:

Lower interest rates reduce the homeowner's monthly costs, which means the renter saves and invests less each month. With smaller monthly investments, the renter's portfolio grows less overtime and no longer beats the home's final value.

We can test other variables as well. Keep the 6.5% interest rate but increase inflation slightly, from 4% to 4.5% over 30 years, and buying becomes the better choice.

Buying a home is essentially a hedge against future inflation. If you expect high inflation, buying lets you lock in today's housing costs while renters face constantly rising rents. But in low-inflation environments, homeowners can get stuck with high mortgage payments that don't get "inflated away" over time.

Beyond general inflation, what matters is how housing performs relative to other prices. If home prices rise slower than overall inflation, renting becomes more attractive since your stock portfolio investments outpace real estate returns.

While falling home prices might seem unlikely, it's already happening in some areas. ResiClub Analytics found that home prices in major Florida and Texas cities have been dropping year over year.

This shows that home prices won't always keep pace with inflation. This is a key assumption in most rent vs. buy analyses.

While many factors affect the rent vs. buy decision, future inflation is the most critical and also the hardest to predict. If you expect sustained high inflation, buying can make sense even at current interest rates above 6%.

Now that we've walked through a specific example, let's discuss the broader rent vs. buy landscape in today's market.

Should You Rent or Buy in Today's Market?

Even though the example above used high San Francisco prices, the rising cost of homeownership isn't limited to expensive cities. Nationally, John Burns Research & Consulting found that homeownership costs about $1,000 more per month than renting as of July 2023.

Looking at this chart, buying was cheaper than renting around 2012 to 2013. Many potential buyers at the time didn’t have enough saved for a down payment and ended up missing that optimal window.

Even with improved financial circumstances, renting can still make financial sense today. The key is running your own numbers based on your specific situation, local market conditions, and assumptions about future inflation.

Of course, the rent vs. buy decision isn't purely financial. Let's explore the non-financial factors that also matter.

Non-Financial Factors in the Rent vs. Buy Decision

While financial analysis often drives the rent vs. buy decision, money isn't everything. The non-financial considerations ultimately come down to a trade-off: flexibility versus stability.

Renting offers significant flexibility. Your wealth stays liquid rather than tied up in home equity, and you can relocate whenever circumstances change. But this flexibility comes with reduced stability. If your landlord decides not to renew your lease, you might need to uproot your family, potentially forcing your children to change schools and rebuild their social connections in a new neighborhood.

Homeownership flips this equation. You gain stability and control over your living situation but sacrifice the flexibility to easily move for new opportunities or changing life circumstances.

Stability encompasses more than just housing costs. The ability to provide children with a consistent neighborhood, school, and community environment can be worth more than any financial advantage. This is why many families choose the stability of homeownership over the flexibility of renting.

Ultimately, the rent vs. buy decision is deeply personal. You don't owe anyone an explanation for your choice. Despite societal pressure that frames homeownership as the "American Dream," renting can be the smarter financial and lifestyle choice for many people.

Run your own numbers and consider what truly matters to you. Flexibility or stability? High or low future inflation? Is the timing right for homeownership? Your personal answers to these questions should drive your decision.

---

IMPORTANT DISCLAIMERS

Past performance is no guarantee of future returns

The graphs and charts in this commentary are for illustrative purposes only and not indicative of any actual investment. Index returns do not reflect any fees, expenses, or sales charges. It is not possible to invest directly in an index. Stocks are not guaranteed and have been more volatile than other asset classes. Historical returns were the result of certain market factors and events which may not be repeated in the future. Financial professionals are responsible for evaluating investment risks independently and for exercising independent judgement in determining whether investments are appropriate for clients.

This material is intended for information purposes only, and does not constitute investment advice, a recommendation or an offer or solicitation to purchase or sell any securities.

Disclaimer: Investments are not guaranteed and are subject to investment risk, including possible loss of the principal amount invested. Past performance is no guarantee of future results. All allocations and opinions expressed are as of the date of this presentation and subject to change. The information contained herein does not constitute investment advice or a solicitation. Information obtained from 3rd parties is believed to be accurate, but has not been independently verified.

The opinions expressed in this article are for general informational purposes only and are not intended to provide specific advice or recommendations for any individual or on any specific security. The material is presented solely for information purposes and has been gathered from sources believed to be reliable, however Israilov Financial LLC cannot guarantee the accuracy or completeness of such information, and certain information presented here may have been condensed or summarized from its original source. Israilov Financial LLC does not provide tax or legal advice, and nothing contained in these materials should be taken as such.

As always, please remember investing involves risk and possible loss of principal capital. Advisory services are only offered to clients or prospective clients where Israilov Financial LLC and its representatives are properly licensed or exempt from licensure. No advice may be rendered by Israilov Financial LLC unless a client service agreement is in place.