Time horizon in buy vs rent: how long you stay

Why the first years look so bad for buying

Buying front-loads costs: closing costs, legal fees, inspection and title insurance on the way in, then commission, legal fees and any mortgage penalty on the way out. Those costs are spread over however many years you stay, so a short stay carries them heavily.

On the base case, a $600,000 home with 20% down at 4.5%, a 25-year amortization, 3.5% yearly appreciation, $2,300 monthly rent growing 3% a year, a 5.5% investment return, 2% inflation and an Alberta purchase, the buyer's cost to sell is $33,862 if they leave after one year and $38,047 after ten. These are illustrative planning inputs, not market data.

Rent has no such friction, which is why the renter leads in the first years even though the buyer is paying down principal.

Results by stay length

Net worth difference is the buyer's net worth minus the renter's at the end of the stay, after the buyer pays selling costs. The break-even point on these inputs is about 5.7 years.

A longer stay does not fix a weak assumption

It is tempting to say that staying longer always rescues buying. The data does not support that. The table below holds the horizon and home price growth together.

At 3.5% growth, each extra stretch of time helps. At 1% or 2%, a longer stay makes the gap bigger, because the home grows more slowly than the costs of owning it.

• Time amplifies whatever the growth assumption is. With favourable growth it compounds the lead; with weak growth it compounds the shortfall.
• The same logic holds for a high mortgage rate: at 7.5%, the buyer's shortfall rises from $67,569 at three years to $247,886 at twenty (see buy vs rent in a high-rate market).

Probability by horizon

The calculator's Monte Carlo view adds random yearly variation and reports how often buying finishes ahead. With volatility of 6 points for home values and 12 for investments, buying finishes ahead in about 41% of 1,000 paths for a 3-year stay, 51% for 5 years, 61% for 10 years and 68% for 15 years.

The numbers show the pattern, not a promise. Longer horizons let growth and principal repayment do more work, but the spread of outcomes also widens, so a long stay raises the odds without removing the risk. See probability tool to change the assumptions.

Estimating your realistic horizon

A horizon is a guess about your own life, which is harder than guessing a rate. A few questions help you set an honest number rather than an optimistic one:

• Are there job, school or family changes in the next five years?
• Would the home still suit you if the household grew or shrank?
• Do you expect to stay through at least one mortgage renewal?
• How would you handle a transfer or a sudden move (see relocation and remote work)?
• Could you keep the home as a rental if you left, and what would the rules and taxes be?

Using the break-even in practice

Treat the break-even as a threshold for your decision, not a countdown. If your realistic stay is well below the break-even, the comparison favours renting on those inputs; if it is well above, it favours buying. If it is close, your answer depends on assumptions you can only estimate, and small changes will flip it.

Check the break-even under a cautious case as well as the base case. The break-even calculator lets you do this, and break-even explained describes how the point is found. For how this fits among other inputs, see sensitivity analysis.