Renting vs. Buying a Home in 2025
Are you considering whether to rent or buy a home this year? Here’s how to make a good decision. I use the Boise, Idaho market as an example, but the principles below apply anywhere in the United States.
Executive Summary
The decision whether to rent or buy a home should be based on both financial and non-financial factors.
The difference in dollars between buying and renting involves assumptions about the future and is specific to your situation. With a little homework, you can come up with a reasonable estimate to help you make a good decision.
Non-financial considerations should play a key role in your decision whether to rent or buy. You may make the right decision to buy or rent by determining that non-financial benefits outweigh the other costs.
My Story
We moved to Boise from Texas in 2013. The local housing market was just starting to recover from the 2009 financial crisis. Some sellers were still anchored on the prices paid before the fall and home inventory was tight. We didn’t know anything about the area and neighborhoods, so we signed a month-to-month lease and started to explore.
After eight months of open houses, we found the home we are in today in the foothills. We made the decision mostly on intangible factors, as I thought it would be a mediocre investment at best, especially after participating in a miniature bidding war. The confluence of several factors, including Boise’s continued coastal relocation growth and Covid work-from-home, powered the local housing market to new heights, making our purchase a fairly good investment, in addition to a great place to live. I didn’t know that would happen and assign myself no credit for guessing right. The purchase could have turned out to be a bad or at least mediocre financial decision, though in hindsight it would still be the right one for us for non-financial reasons.
As I learned though this and previous experiences, assessing and weighing the financial and non-financial factors is key to making a decision you will feel good about in the future. This requires a little work, but is worth it in the long run. Conventional wisdom, like the belief that owning a home is a great investment, is often wrong.
The Financial Factors
Key Assumptions
To compare the financial cost of buying versus renting you need to make assumptions about future plans, costs and other amounts. These include:
how long you will be in the home
future interest rates
how much you will spend maintaining the home
future amounts of other costs, such as taxes and insurance
inflation
How Long do You Plan to Live in the Home?
This is a key assumption. The longer you live in a house you buy, the more buying makes financial sense. You incur large one-time costs to buy and sell a home, like closing costs and real estate brokerage commissions. To properly account for these costs and compare them to the cost of renting, you spread them over the period of time you own the home. This is called amortization. Each year you live in the home reduces the annual average cost of these fixed expenses.
Make an educated guess based on your stage of life and what you know now about future changes (such as potential job moves and kids going to college). A rule of thumb is that you must live in a home for at least five years for it to make financial sense to buy. Don’t stop there with your analysis, however.
The Cost of Money
If you buy your home with a mortgage, then interest will likely be your largest ongoing homeownership cost until the mortgage is paid down. High interest rates make buying a home more expensive and impact rents as well, as landlords try to recoup their interest costs by raising rents.
You can determine your starting annual interest cost based on your mortgage rate quote, amount financed and mortgage term. Your cost could go down in the future if you refinance at a lower rate (and it could go up, if you use an adjustable-rate mortgage). Since we don’t have any reliable way of estimating future interest rates, use your beginning interest rate for your comparison but keep in mind that this could change, especially if you plan to be in the home for more than five years.
Home Maintenance Costs
Maintenance costs are one of the least attractive features of home ownership. One percent of the home’s value is often cited as a common estimate for ongoing maintenance costs, though I have found this to be a bit high for homes over $1,000,000. I suggest using 1% per year for homes up to $1,000,000 and .75% per year for any amount of the home’s value over $1,000,000. Of course, there may be property-specific features like swimming pools and complicated home technology features that require adjusting assumptions upward.
Property Taxes and Insurance
You should be able to estimate property tax costs based on your proposed home purchase price. For example, Boise's effective property tax rate averages around 0.69% to 0.75% of assessed value.
If the home’s current assessed value is lower than the purchase price, you can assume that the assessed value will be adjusted to an amount closer to the purchase price in the next assessment after closing – the tax collectors pay attention to selling prices. Deduct any homeowner’s exemption from this amount and multiply the remainder by the effective property tax percentage to get a conservative estimate for yearly property taxes.
Homeowner’s insurance costs will likely increase at the rate of inflation, which I cover below.
Inflation
Inflation impacts both buyers and renters. For buyers, the cost of maintenance, insurance and taxes will march upward. Renters feel the impact in their annual rent increases.
General inflation tends to average 2-3% annually. Inflation has been higher than historical averages for the past few years, which we hope is an anomaly. For the Boise area, I recommend assuming that maintenance, insurance, property taxes and rents will go up by 3% per year.
Investment Considerations
To fully capture the difference between renting and buying, you must look beyond costs. If you buy a home, you will benefit from any future increase in the home’s value. On the other hand, if you rent, you can invest the amount you would otherwise spend on down payments and mortgages.
More assumptions are necessary here. First, you must make an assumption about how much home prices will rise over the period you plan to own the home. You can easily collect historical data for your area to help you make a reasonable assumption, which is just an educated guess. For example, in Ada County, where Boise is located, home values increased by 6-7% annually from 2004-24. This is higher than historical averages in the US, which are in the 3-4% range. Like most other assumptions, be conservative with your estimate.
If you rent, you will avoid a down payment and mortgage. Any savings can and usually should be invested, either to save for a home purchase in the future or to achieve other financial goals like retirement. Since we take into account the benefit from future home price appreciation, we should also take this return into account as a benefit to renting. The return you make by investing will depend on a number of factors, including whether you invest in something safe like bank CDs or a riskier asset class like stocks. You can reference your investing history or consult a financial planner to help arrive at a reasonable figure. Be honest with yourself. If you likely won’t save and invest any amount freed up by renting, then assume your return will be zero.
Tax Matters
Buying a home offers huge tax advantages, right? Maybe. The devil is in the details.
There are two categories of potential tax benefits:
the ability to deduct the mortgage interest you pay on your tax return, and
the ability to deduct property taxes paid.
Both of these benefits are limited by the Internal Revenue Code, which gets a little technical. In short, if you take the standard deduction, then you can’t deduct property taxes and interest.
Will You Itemize?
Are you better off taking the standard deduction? Ninety percent of families are. If you are, then you will not receive any federal income tax benefit from owning a home. You are better off taking the standard deduction if it is higher than the total of your itemized deductions in a year. The standard deduction amounts for 2025 are:
Single: $15,000 (plus $2,000 if 65 or older)
Married Filing Jointly: $30,000 (plus $1,600 per spouse 65+)
You can estimate your itemized deductions by adding up the following amounts:
the mortgage interest you will pay in the first year of your mortgage balance up to $750,000, if you are married filing jointly (by using a mortgage calculator such as this one), plus
all of the taxes you can itemize and deduct, such as property taxes on the home and state income taxes (the total for this item cannot be greater than $10,000 in 2025, even if you pay more), plus
the amount of gifts to charities you estimate you will make in the year (there are IRS limits based on your income), plus
other itemized deductions such as high medical expenses (IRS limits apply and it is unusual to have a large amount in this category).
Got that? I know this is daunting. Don’t try to be precise. Look at what you paid in state income taxes and gave to charity over the past few years to help. If your mortgage interest by itself is greater than your standard deduction, then you know you will get a benefit. Consult a tax professional if you need help.
How Much Will the Tax Benefit Be?
If you will benefit by itemizing, as described above, the tax benefit you get from deducting interest and property taxes depends on your marginal tax rate. This is the rate that you pay on your last dollar of income in a year. Your tax preparer can tell you which figure to use. If you do your own taxes, you can usually find the figure in your tax preparation software.
Since the standard deduction is available whether you rent or buy, you should only look at the amount by which your itemized deductions exceed your standard deduction when calculating the tax benefit. A case study helps illustrate this point.
Case Study
John and Sarah, a married couple, will pay $30,000 in mortgage interest and $9,000 in state and local taxes in 2025 if they buy a home. In addition, they will give $2,000 to their church. Their standard deduction as a couple filing jointly is $30,000. Their itemized deductions are $41,000 ($30,000 + $9,000 + $2,000), so they itemize their deductions and get a tax benefit. They are in the 22% marginal federal tax bracket and their Idaho income tax rate is 5.3%. Their incremental tax benefit is:
Their itemized deductions minus the standard deduction: $11,000 ($41,000 - 30,000)
multiplied by
Their marginal tax rate of 27.7% (22% federal + 5.3% Idaho), expressed as a decimal
= $3,003 tax benefit
John and Sarah can think of this as a $3,003 reduction in cost of homeownership in their overall comparison of buying versus renting.
Putting it all Together
If you have made it this far, you are probably wondering how to put all of this information to use as you weigh buying versus renting.
First, write down the information that doesn’t require assumptions. This includes the proposed purchase price of a home you are considering, rent prices for your area and current mortgage rates.
Next, go through the items above and make reasonable assumptions about the other figures you need to make a comparison. Write them down, keeping in mind that you aren’t trying to achieve scientific precision.
Finally, find a good online comparison calculator that will do the math and tell you the projected difference in dollars between renting and buying using the figures you input. I recommend this one from the New York Times. It may be behind a paywall, but is worth a short-term subscription to access. You may also be able to get free access to the New York Times through your local library (you can at the Boise libraries, for example). There are other calculators; this one is easy to use and comprehensive.
Putting it all Together: A Case Study
Taylor and Travis are renting in Boise, Idaho, paying $2,300 per month for their comfortable apartment. They have saved up for a home down payment and are trying to decide whether buying a home now makes sense. The home they are considering is priced at $506,000 (the average for Boise).
They are approved for a 30-year mortgage at a fixed interest rate of 6.75%, with 20% down.
Here are the other key assumptions they make:
They will live in the home for 7 years before a likely job relocation out of the area
Home maintenance costs will average 1% of the home’s value
Property taxes will be .75% per year
Inflation will average 3% annually - their home value and rent will increase at this rate
If they continue to invest the money they would otherwise dedicate to a down payment and mortgage, they will earn 4.5% annually
Their marginal tax rate (state and federal) is currently approximately 28% (married filing jointly). They don’t have any other itemized deductions.
Plugging these numbers into the calculator, Travis and Taylor see that, over seven years, assuming they sell the house at the end of that time, renting will be $60,000 less expensive than buying.
This does not mean they should continue to rent. Instead, this allows them to decide whether the non-financial factors discussed below outweigh that cost, which is a personal decision. They can make a good decision based on data and their values and goals.
The Non-Financial Factors
If everyone based their home purchase decision purely on a financial analysis like the one described above, there would be a lot fewer homeowners. There are significant benefits to buying a home that are hard to value in dollar terms.
For example, you may value the idea of knowing you control one of your most important needs - a residence. You, not a landlord, decide when and how to customize your home. As long as you pay the mortgage, the home won’t be sold without your consent, potentially forcing you to move. You are the master of your domain.
Also, some may feel that owning a home establishes roots in a community, contributing to a sense of acceptance, stability and accomplishment. This is real, even if it is hard to value.
Renting has intangible benefits as well. How much do you value mobility? If you rent, you can move on short notice as life changes or when you want to live somewhere else. This gives you flexibility. A home is not a liquid asset. It will take time and money to trade one house for another, adding friction to the ability to move.
Simplicity is another advantage to renting. If you rent and something goes wrong, you call your landlord and they fix it. Homeowners face the complexity of diagnosing problems, managing contractors and generally dealing with the headaches that come with fixing things that break.
These are personal preferences. You may place a lot or a little value on them. The important thing is to think about them in the overall analysis, especially if the financial analysis comes out in favor of renting. The you can ask whether the intangible benefits are worth the difference in financial cost.
Summary
Using the process described above, you can calculate a reasonable estimate of the difference in cost between buying and renting. Remember, you are seeking an estimate, not precision, as the future is uncertain.
Your personal circumstances, including how long you plan to live in the home and your tax situation, are key variables.
Once you have an estimate, you can consider whether non-financial benefits outweigh any financial costs, in order to make a decision that is right for you.
Want to talk to a financial planner about this decision? Schedule a time to talk using the link at the top of this page.