Introduction
With Five Cents, Buying or Renting: How to Do the Maths, we'll work through a fair comparison of what each option costs and what you could have left at the end. We'll separate monthly affordability from long-term wealth, include the costs people miss, and test assumptions about prices, rents and investment returns. The starting point is making sure you're comparing the same housing need.
Choose homes with roughly similar size
Choose homes with roughly similar size, condition, location and access to work or services. Comparing a small rental with a much larger purchase answers a different question: whether you want to pay for more space. Then choose a period that reflects how long you realistically expect to stay. Run both options over that same period. Buying and selling involve costs that can weigh heavily on a short stay. But there's no universal year when buying becomes cheaper. Your local figures determine that.
Keep two questions separate. First, what cash must leave your account each month, and can you afford it while keeping a reserve? Second, after the chosen period, what would you own or have saved? A mortgage payment includes interest and principal. Interest is a borrowing cost. Principal reduces your debt and builds equity. Both affect today's budget, but they have different effects on wealth.
Equity also isn't readily available spending money. Accessing it usually requires selling or borrowing, with costs and conditions attached. Start the buying calculation with the cash needed upfront: the down payment, purchase taxes, legal or registration charges, inspections, loan fees and immediate repairs. Record moving costs wherever they apply.
Then use the actual mortgage terms to estimate payments and the remaining balance at your chosen endpoint. Don't simply multiply the starting loan by an interest rate. Repayment changes the balance over time. Add property taxes, insurance, building fees, routine maintenance and a realistic allowance for major repairs. Include only differences in utilities when comparing equivalent homes.
A larger down payment reduces borrowing
A larger down payment reduces borrowing, but also leaves less cash available for emergencies or other uses. Check both the cash required to complete the purchase and what's left afterwards. Next, build the rental calculation. Include rent across the whole period, allowing for possible increases, plus renter-paid insurance, fees, moving costs and any maintenance the agreement assigns to you.
A refundable deposit ties up cash, but isn't automatically a permanent expense. Account for its expected return. Then include the money the renter hasn't used for a down payment and purchase costs. If that money is saved or invested, model its ending value using a clearly stated assumption, after relevant fees and taxes. This isn't a promise of returns.
If renting also leaves more money available each month, include those savings too. Apply the same treatment to any monthly surplus on the buying side, rather than assuming only renters can save. Now bring both options to the same endpoint. A straightforward method is to give each household the same starting savings and the same income available for housing and saving. Track what each spends and what remains.
For the owner, add the estimated sale price, subtract selling costs and repay the remaining mortgage. Add any separate savings. For the renter, count savings and investments, plus any deposit returned. Compare those ending totals alongside the monthly budgets. If you instead calculate ownership cost from cash paid out, include the down payment and all mortgage payments before subtracting net sale proceeds. That captures principal correctly.
What it means
Don't omit principal from the outflows and then subtract sale proceeds that include the equity it created. That would make buying look artificially cheaper. Treat the first result as a scenario, not a forecast. Repeat the calculation for a shorter stay, weaker property prices, higher repairs and different investment returns. Test rent increases and, where your mortgage rate can change, higher payments.
Keep the currency and inflation treatment consistent. Don't mix today's purchasing power with future cash amounts. Research local taxes, transaction charges, rental rules and any subsidies rather than importing another country's assumptions. If a small change reverses the result, the financial advantage is fragile. Then consider flexibility, control over the home and your tolerance for repairs separately. Those matter, but they shouldn't be disguised as arithmetic.
A useful comparison needs equivalent homes, a shared time horizon and complete costs. Monthly affordability and ending wealth answer different questions, and neither removes uncertainty. Gather local quotes, mortgage terms and rental details, then test several plausible scenarios before drawing a conclusion.
To explore the next decisions, you can generate two new Five Cents podcasts: Understanding Mortgage Rate Risk and Budgeting for Home Repairs. And with that, you're up to speed in a few minutes.