Renting vs. Owning: Pros and Cons
A one-page, side-by-side look at what renting and owning cost you over five years, and the equity owning can build.
If you've ever wondered where your housing money goes over time, this one's for you. It's a one-page, side-by-side look at a renter and a homeowner over five years: what each one spends on housing, and what each one has to show for it at the end.
I like it because it's quick, and once you see how it works, it's easy to redo with your own numbers.
The renter's side
The renter's math is simple. The example uses a rent of $2,000 a month and holds it flat, which comes to $24,000 a year and $120,000 over five years. That money pays for a place to live, plus the flexibility and landlord-handled repairs that come with renting, but none of it turns into ownership.
The owner's side
The owner's example assumes a buyer puts 20% down with a fixed-rate mortgage. In this scenario the monthly payment runs a bit higher than the rent, but part of every payment pays down the loan. After five years the buyer owes less than they borrowed, and if the home has gained value, that adds to their equity too.
One thing worth knowing: part of the owner's equity in the example is the down payment they put in at the start. So it isn't all new money, but it's money that's still theirs instead of spent.
What the snapshot leaves out
A one-page comparison keeps things simple, so here's what it doesn't capture:
- Maintenance and repairs, which owners pay for and renters mostly don't
- Rent increases, since the example keeps rent the same all five years
- Appreciation, which isn't guaranteed. Home values can rise, stay flat or fall
- Your own numbers. The price, rate and rent in the example are one scenario, and yours will look different
Running it for your own situation
Swap in what you pay in rent now, a price range you're considering and a payment estimate from a lender, then look at both sides over the number of years you realistically expect to stay. That last part matters, because the example leans on a five-year window. A lender can give you a real payment figure for your budget.
Common questions about renting vs. owning
Does owning always come out ahead of renting?
No. The example shows how equity can build over five years, but it leaves out maintenance and assumes the home gains value, which isn't guaranteed.
Is all of a homeowner's equity profit?
No. Some of it is the down payment the buyer put in up front, and some comes from paying down the loan. Any increase in value adds to it, but that's never a sure thing.