Rent is $1,200, and buying feels like $2,000 — but rent is throwing money away, right? Not always. At Simply Decided, we do the 3-year break-even math. If you won’t stay 3 years, rent wins. If you’ll stay 5+ years, buying usually wins. Here’s the exact test we use.
Rent vs Buy: The 3-Year Rule
Rent if: You will move in less than 3 years. Closing costs + realtor fees take 3 years to make back. Less than 3 = you lose money buying.
Buy if: You will stay 5+ years, you have 5%+ down, and your total buy cost is less than 30% of take-home pay. 5+ years = you build equity that beats rent.
The 5% Rule — Do It In 1 Minute
Forget online calculators with 20 boxes. Use the 5% Rule:
| Cost | Rent | Buy (per month) |
| Payment | $1,200 rent | Mortgage + taxes + insurance |
| Hidden | $0 | + 1% maintenance /12 + HOA |
| Example $200k home, 7% rate, 5% down | $1,200 | ~$1,450 mortgage + $200 taxes + $100 insurance + $167 maintenance = $1,917 |
Math: If $1,917 to own vs $1,200 to rent = owning costs $717 more per month. Over 2 years, that’s $17,208 extra. If you move in 2 years, rent wins by $17k. If you stay 6 years, that extra builds $30k+ equity and wins.
The 60-Second Rent vs Buy Tool
Educational estimate only. Based on YOUR monthly rent, home price you would buy, and how many years you will stay you enter. Uses 5% Rule: monthly cost to own is roughly 5% of home price per year divided by 12 including mortgage, taxes, insurance, and 1% maintenance. Ignores down payment, closing costs 6-8%, HOA, appreciation, tax deductions, rent increases. Not financial advice.
When Renting Wins — Real Examples
- You move in less than 3 years for work or family
- Rent $1,200 vs buy $1,900 on same house — you save $700/mo renting
- You have less than $10k emergency fund — buying wipes you out
- HOA + old roof/AC — maintenance will be more than you think
When Buying Wins — Real Examples
- You will stay 5+ years in the same area and love the neighborhood
- Rent is rising 5%+ a year and a buy payment is fixed
- You have 5% down + 3% closing + 3 months emergency left over
- Total buy cost is under 28-30% of take-home pay
FAQ: Rent vs Buy?
Q: Is renting throwing money away?
No — if you move in under 3 years, renting saves you money. Closing costs and realtor fees are 6-8% of the home price.
Q: What is the 5% rule?
Monthly cost to own = roughly 5% of home price per year /12. That includes mortgage, taxes, insurance, and 1% maintenance.
Q: How long until buying beats renting?
3 years to break even, 5+ years to clearly win and build equity.
Next decision: Should I fix my budget or start over? — 50/30/20 Test
Disclaimer: Educational only, not financial advice. Talk to a qualified financial advisor about your situation.
Frequently Asked Questions
What is the 3-year break-even rule?
Rent if you’ll move in less than 3 years — closing costs and realtor fees take 3 years to make back. Buy if you’ll stay 5+ years, have 5%+ down, and total buy cost is under 30% of take-home pay.
When does renting win?
If you move in less than 3 years, have less than $10k emergency fund, or the buy cost on the same house is $700/mo more than rent.
When does buying win?
If you’ll stay 5+ years, have 5% down plus closing and emergency funds, and total buy cost is under 28-30% of take-home pay.
When should I ignore this rule and talk to a professional?
The tool ignores down payment, closing costs, HOA, appreciation, and tax deductions — talk to a qualified financial advisor about your situation.
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