Rent vs Buy in High-Interest Environments: The Unrecoverable Costs Framework

Comparing the economics of renting versus homeownership requires evaluating unrecoverable expenses. For homeowners, unrecoverable costs include mortgage interest (the cost of debt), property taxes (the cost of municipal services), maintenance/repairs (~1-2% of property value), and the cost of equity (the opportunity cost of down payment capital).

The 5% Rule of Thumb

When mortgage interest and capital return expectations align, the unrecoverable cost of homeownership approximates 5% of home value annually. If equivalent annual rent is less than 5% of the purchase price, renting and investing the surplus capital mathematically outperforms buying. Run your personal local numbers through our Rent vs Buy Calculator.