Rent vs Buy

David Treat
Published on December 28, 2016

Rent vs Buy

The housing market across California has had large price gains over the past years, with statewide median prices attaining November 2007 highs. Consumers often contemplating whether it is more beneficial to buy a property now or continue renting. To assist with this decision, C.A.R. has looked at the costs and benefits of renting versus owning property in California and eight of its local regions over a seven year time horizon.




The costs of buying include the monthly mortgage payment, insurance and taxes, and improvements and repairs. These costs were offset by the benefits of buying: mortgage interest and property tax deductions, and investment appreciation. The costs of renting include the monthly rent payment and renter insurance, which were offset by the benefits of renting: the appreciation on investing the down payment in the stock market.


For the State of California, consumers can save 96.5 percent per month by buying a property. At the local level, buying in Los Angeles County will save you 96.4 percent per month.


In several counties, given price and rent appreciation, buying will net the individual income over the seven year time frame. For example, buying in San Francisco and Alameda will net the owner 119 and 106 percent respectively per month over the purchase time horizon.


These results are given with the caveat that the buyer must have on hand the standard 20 percent downpayment, and are driven by the large increases in both rental prices and home prices across the state. Again, over the 7 year horizon purchasing make sense financially in these counties.


Along with incorporating price levels, the analysis includes tax deduction benefits as many of the costs associated with homeownership general upkeep, inflation, insurance, mortgage rates; as well as the opportunity cost of not investing in the market, and general price levels. On the rental side, it annualizes average rent and rent increases for the county (eg. it would understate the benefit of renting a rent stabilized unit) and includes rental insurance, and security deposits.




For more personalized recommendations given your own income, and local situation with regard to purchase and rental prices. You can use the assumptions on markets and prices listed below to guide you. Enter your information into our rent vs. buy calculator and see if it’s time for you to purchase your home!




C.A.R. looks at the monthly mortgage on a single family detached home based on the C.A.R. median price and the Real Facts average rent in each respective area for the first quarter of 2014. The monthly costs of home ownership include the mortgage payment, insurance and taxes. The mortgage interest and tax deduction savings are subtracted from the cost of ownership. The monthly costs of renting include the rent payment and renters’ insurance.



  • Owners and renters live in same residence for 7 years.
  • Income tax rate: 34.3% (25% federal plus 9.3% CA income tax bracket) based on annual household income of $87,698 for married couple filing jointly. (Source: C.A.R.)
  • Inflation rate: -1.5% (Source: U.S. Bureau of Labor Statistics)


  • Have a 20% down payment
  • Median price, loan amount, mortgage interest rate and monthly payment (Source: C.A.R.)
  • Term: 30 years
  • MID & property tax deduction savings calculated based on 30-year amortization schedule. Average of first seven years was taken.
  • Property tax rate: 1% the first year and increases by 2% annually
  • Annual home insurance cost: 0.38%
  • Average annual spending on home improvements & repairs: $2,370 (Source: Harvard JCHS)
  • Investment appreciation calculation
    • Average annual (tax-free) home price appreciation rate: 5.3% (Source: S&P/Case-Shiller)
    • Present value of the accrued interest on median price over 7 years


  • Security deposit: $1,700, average California monthly rent (Source: RealFacts)
  • Monthly payment annual rent increase:
  • Average of present value of accrued interest on starting rent over 7 years
  • Monthly renter insurance cost: $22.5 (Source: Cost Helper)
  • Investment appreciation calculation : 11.8% (Source: DJIA from FRED)
    • Investment = home down payment + security deposit
    • Capital gains tax rate: 15%
    • Present value of accrued interest on down payment and security deposit sum over 7 years


Rent vs Buy
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