Summary of Renting vs. Buying a Home: The 5% Rule

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The 5% Rule is a guideline that suggests that you should expect to pay unrecoverable costs of owning a home equal to 5% of the value of the home. This rule can be used to help investors think about the financial side of their rent versus buy decision.

• 00:00:00 The 5% rule is a simple calculation that estimates the total unrecoverable costs of renting to the total unrecoverable costs of owning. This rule is based on assumptions about historical returns, inflation, and risk. Due to the volatility of real estate markets, home owners should not base their decision on recent returns alone.
• 00:05:00 The 5% rule is a guideline that suggests that you should expect to pay unrecoverable costs of owning a home equal to 5% of the value of the home. This rule can be used to help investors think about the financial side of their rent versus buy decision.
• 00:10:00 The "5% Rule" is a financial advice rule that recommends that, in order to afford a home, you should spend no more than 5% of your annual income on mortgage payments.