Comparing rent with a mortgage payment is the usual way to decide between renting and buying, and it's misleading. Rent is a renter's whole housing cost. The mortgage payment is only part of an owner's, and part of it is principal, which is savings rather than cost.
The 5% rule, popularized by Ben Felix of PWL Capital in 2019, compares rent with the costs of owning that you never get back.
The rule
Estimate an owner's yearly unrecoverable costs as 5% of the home's value:
- About 1% property tax. It varies a lot by state and county.
- About 1% maintenance. Felix calls this the hardest number to pin down.
- About 3% cost of capital. That's mortgage interest on the borrowed part, plus the return the down payment could have earned if it had been invested instead.
Multiply the home price by 5% and divide by 12. If you can rent a comparable home for less than that, renting is the cheaper way to live there, as long as you invest the difference. If rent costs more, owning wins.
Applied to 30 cities
| City | Typical list price | 5% rule monthly cost | Typical rent | Cheaper by the rule |
|---|---|---|---|---|
| Seattle, WA | $820,000 | $3,417 | $1,895 | Renting |
| Los Angeles, CA | $973,000 | $4,054 | $2,505 | Renting |
| Denver, CO | $639,000 | $2,663 | $1,895 | Renting |
| Portland, OR | $495,000 | $2,063 | $1,585 | Renting |
| Austin, TX | $489,000 | $2,038 | $1,705 | Renting |
| San Diego, CA | $907,000 | $3,779 | $3,190 | Renting |
| Las Vegas, NV | $502,000 | $2,092 | $1,790 | Renting |
| Phoenix, AZ | $404,000 | $1,683 | $1,515 | Renting |
| Dallas, TX | $387,000 | $1,613 | $1,455 | Renting |
| Albuquerque, NM | $384,000 | $1,600 | $1,445 | Renting |
| Boston, MA | $805,000 | $3,354 | $3,050 | Renting |
| Washington, DC | $630,000 | $2,625 | $2,465 | Renting |
| Sacramento, CA | $506,000 | $2,108 | $2,035 | Renting |
| Charlotte, NC | $437,000 | $1,821 | $1,790 | Renting |
| New York, NY | $893,000 | $3,721 | $3,690 | Renting |
| Tucson, AZ | $252,000 | $1,050 | $1,060 | Buying |
| Fresno, CA | $446,000 | $1,858 | $1,890 | Buying |
| Chicago, IL | $493,000 | $2,054 | $2,125 | Buying |
| Nashville, TN | $469,000 | $1,954 | $2,150 | Buying |
| Louisville, KY | $333,000 | $1,388 | $1,555 | Buying |
| Columbus, OH | $268,000 | $1,117 | $1,335 | Buying |
| Houston, TX | $347,000 | $1,446 | $1,880 | Buying |
| San Antonio, TX | $288,000 | $1,200 | $1,570 | Buying |
| Jacksonville, FL | $319,000 | $1,329 | $1,740 | Buying |
| Milwaukee, WI | $217,000 | $904 | $1,210 | Buying |
| Indianapolis, IN | $231,000 | $963 | $1,430 | Buying |
| Baltimore, MD | $254,000 | $1,058 | $1,640 | Buying |
| Memphis, TN | $176,000 | $733 | $1,370 | Buying |
| Philadelphia, PA | $189,000 | $788 | $1,475 | Buying |
| Detroit, MI | $116,000 | $483 | $1,245 | Buying |
By this rule, renting is cheaper in 15 of 30 cities, led by Seattle, WA, where typical rent is 55% of the 5% figure. Buying wins most clearly in Detroit, MI, where typical rent is 2.6 times the owner's 5% cost.
Caveats that matter
A typical home and typical rent aren't the same home. Listings for sale skew toward houses, and rentals skew toward apartments. For your own decision, compare the rent on the place you'd actually rent with the price of the place you'd actually buy.
Your 5% may not be 5%. At 7.40% mortgage rates, the cost of capital on the borrowed part is above Felix's 3%. Property taxes run well above 1% in some states and well below it in others. Older homes cost more to maintain. Adjust each piece.
It ignores price growth. The rule treats home price growth and investment returns as roughly a wash over time. If local prices are rising fast, owning looks better than the rule says; if they're falling, worse. List prices are down on a year ago in 19 of these cities; see the home value forecast by city.
It assumes you invest the difference. Renting only wins if the money that would have gone to the down payment and extra costs gets invested, not spent.
For a fuller picture, see the price-to-rent ratio for each city on rent or buy by city, or forecast a specific ZIP with Predictye Property and Predictye Rent.
Sources
- Ben Felix, PWL Capital (2019), the 5% rule: 1% property tax, 1% maintenance, and 3% cost of capital, annually, as a share of home value.
- City figures are RentCast market data for each city's most populous ZIP codes, as of October 14, 2026, counting only ZIP codes with at least 20 active listings. They're averages of ZIP medians, not appraisals.
Don't guess. Just Predictye.