To Rent or to Buy? Let's do the math!

The $500K House That Actually Costs ~$1.58M (Here’s Why)

Author

Michela Allocca
August 19, 2025

👉🏻 The TL;DR (5 minute read):

Buying isn’t automatically “better.” We’ll stack the all-in costs (down payment, closing, mortgage interest, taxes, insurance, maintenance) against the flexibility and opportunity cost of renting + investing.

👉🏻 Money Move of the Week:

If you are a renter, and you were to purchase your ideal (realistic) home tomorrow, what would the monthly cost difference be? Reply to this email and let me know!

🚨 Get started on your personal finance journey with one of my budgeting tools! Check out the Personal Finance Dashboard and the Basic Budgeting Template! 

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MONEY
To Rent or to Buy? Let's do the math!

In the US, we are force fed homeownership as being the pinnacle of financial success.

And trust me - I understand the desire the purchase a home and have a space that can truly become your own.

But over the last few years, we’ve seen an enormous shift in the housing market. Between higher interest rates, inflated prices, and less availability, purchasing a home has become out of reach for many of us (myself included!!)

In fact, the median age of a first-time homebuyer is now 38 (THIRTY EIGHT!!) which is the highest it’s been, ever.

With general affordability being the biggest issue here, does the argument that owning a home and building equity “is better” still hold?

Well, as with 99.9% of everything - it depends. So today I am going to breakdown the true cost of a $500K home in the current housing market.

Friendly reminder that this is a nuanced conversation, I am not judging your personal decisions, and making the choice to buy a home is about more than the simple math I will share today.

The goal here is to illustrate the true cost of buying a home, and hopefully put your mind at ease if you feel like you are trowing money away by renting (you’re not).

The Real Math

When we think of buying a house, usually the costs that come to mind are the downpayment and whether or not you can afford the monthly payment.

But there are so many other costs to consider as part of the purchase, including (but not limited to):

  • Property taxes (average 1.25%)

  • Home insurance ($200/month on the low end)

  • Maintenance (1-3% annually, ~$10,000)

If you were to purchase a $500,000 home and put 20% down ($100K in cash), then take out a $400K mortgage at current interest rates which are 6.5%, with all the additional costs included that I just outlined… after 30 years your total outflow on the home would be $1.58M.

Yes, you read that right. And that’s a conservative estimate that assumes favorable factors and straight line expenses (which are not realistic).

What is equity, really?

The whole financial argument behind purchasing property is “equity” and I often see people use equity as a catch-all rationale for any expense related to a house.

The more I talk about this on social media, the more I have started to think that a lot of people just don’t understand what equity is. So let’s define it:

The equity you have in your home is the difference between what the house is worth, and what you’ve paid for it.

So, let’s say you purchase the house for $500,000 and you owe $350,000 on your mortgage. Your equity is $150,000. But if you’ve also put $50k into it for repairs, interest, insurance, etc.. your true equity is actually $100K.

This can work in your favor - and we’ve see it to an exaggerated degree in the last few years - if the value of your home goes up (which that is obviously the goal).

So let’s say after a year, the value of your home went up to $600,000. Your equity would then be $250,000. Pretty simple math.

What we seem to forget is that all the sunk costs of owning your home erode the true equity you actually have.

So in our $500K example, if you put $1.58M into that house over 30 years, you’d need to sell it for $1.58M to just break even.

And it would need to be worth more than that for you to have any real equity.

OBVIOUSLY - it is not always so simple and straightforward. But I want to highlight that the equity conversation is not always what it seems and you should not be treating the purchase of a primary residence as an investment where you will make money.

Run the Numbers for Yourself

At this point, we’ve only looked at a singular example. But hopefully it’s started to encourage you to explore the true cost of homeownership, especially if you’ve been feeling some pressure in your life to buy property.

Here are a few questions you ask yourself if you’re thinking about a home purchase:

  • How long would you plan to stay? (Buying time horizon should be minimally 5 years!!)

  • Do you feel stable in your career and professional life - enough so to take on additional liability related to the home?

  • Have you calculated a break-even analysis? Meaning, have you run the true total costs of the home, and identified what it would need to sell for in order to break even on the purchase?

  • Did you explore the alternative - which would be renting for now and investing the difference?

I am not anti-home ownership!

I very much so look forward to owning my own home one day, and having a space that is truly mine where I can have some land and really settle in.

But in the current economy, and the current market, in the areas I would be interested in purchasing in, the math simply makes no sense.

And I know this, because I’ve looked at it from every angle 100 times over.

Yes, I know that rents go up. And yes, I know that in certain areas it makes more financial sense.

But to me, when I decide to purchase a home it will make both financial and life sense, and I’m just not there yet. AND THAT IS OK!!

Renting does not make you less of a person, and buying a house doesn’t make you better than anyone else. Especially if you can’t truly afford it.

I elaborate more on this conversation, the math, and my thoughts around it on this week’s youtube video which you can watch here!

WEEKLY RECOMMENDATION

Many first-time home buyers are pushing 40. And for those who have been patiently waiting for the market to “get better” - the outlook looks disappointing. Rates may go down later this year, but the impact of that will likely lead to higher prices and another frenzy. It feels bleak - but you’re not alone!

RESOURCES
What’s Happening This Week at Break Your Budget

  • This week on Don’t Depend on Daddy: We’re talking micro-habits to make your life better! You don’t need to have a 15-step morning routine that takes 3 hours to have a better day. I share why small habits are important, and a bunch of examples you can start incorporating into your routines!

  • Why I Choose to Rent: If you enjoyed this newsletter and want more details around the math I shared and my thought process on evaluating the decision to buy property, you will love this weeks video!

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xoxo,

Michela