Rent vs. Buy: Is Renting Money Down the Drain or Smart Investing?
With 30-year fixed US mortgage rates lingering between 6.5% and 7.5%, the traditional belief that "buying is always better than renting" is no longer automatically true.
1. The 5% Rule of Unrecoverable Homeownership Costs
When buying a home, roughly 5% of the home's value goes toward unrecoverable costs every year: 1% property tax, 1% maintenance/repairs, and ~3% cost of capital (interest & insurance). If rent is cheaper than these unrecoverable costs, renting can be financially superior!
2. The Opportunity Cost of Down Payment Capital
Putting $80,000 cash into a house down payment means that cash cannot compound in the S&P 500 (historical average 8%-10%). This decision engine calculates exact opportunity cost differences.