Rent or buy: user cost, purchase costs in 2026 and a 20-year wealth comparison

Basics11 min read · updated 1 September 2026 · 13 sources

Rent or buy? The monthly mortgage payment cannot answer this question. What matters is what living in your own home really costs, including the return the equity would have earned in a brokerage account, and what a renter does with the money saved. Here you calculate the user cost of housing, see the purchase costs as of 2026 and compare wealth after 20 years: a buyer versus a renter who invests the equity and the difference in ETFs. The calculation is an example with clear assumptions, not investment advice.

Asking the right question

A fair comparison keeps the budget the same: buyer and renter spend the same amount on housing and saving month after month. The buyer puts the equity into the home and pays the mortgage instalment, maintenance and property tax. The renter puts the same equity into a brokerage account and keeps adding the difference between the buyer's costs and the rent. Whoever ends up with more wealth has housed themselves better in financial terms. It says nothing about quality of life, security or freedom.

Three mistakes distort many calculations. Principal repayment is not an expense but saving. The purchase costs, by contrast, are gone immediately. And the opportunity cost of the equity, i.e. the return forgone in the brokerage account, is part of the cost of ownership, even though it never appears on a bank statement. A first rough calculation including leverage and concentration risk is in the article total wealth; here we calculate more precisely and over 20 years.

The user cost of housing

Economists measure the cost of ownership with the user cost of housing: what does it cost to live in a home yourself for one year? Poterba (1984) formulated the approach for the housing market, and Himmelberg et al. (2005) calculate a variant of it as the annual cost of ownership, which can be compared directly with the rent. In a simplified form for Germany, where owner-occupiers cannot deduct mortgage interest (Kaas et al. 2021):

Purchase costs in 2026

Under federal law, the real estate transfer tax (Grunderwerbsteuer) is 3.5% (GrEStG (1997), § 11); the federal states may set higher rates. North Rhine-Westphalia charges 6.5% (NRW Tax Administration 2026), and Bremen raised its rate to 5.5% on 1 July 2025 (Bremisches Gesetzblatt 2025). For notary and land registry fees, the consumer advice centre Verbraucherzentrale (2024) gives 1 to 1.5%. For estate agents, the commission on flats and single-family houses is split in half: a buyer who is a consumer pays at most as much as the seller, and only once the seller has paid (BGB (1896), §§ 656a–656d). In the example, we assume an illustrative 3.57% for the buyer's share.

Price-to-rent ratio: price versus rent

The simplest measure is the price-to-rent ratio (Kaufpreisfaktor): the purchase price divided by the annual base rent of a comparable home, excluding heating and service charges. In the example, it is €400,000 / €15,000 = 26.7 years' rent. The user cost tells you which ratio would be financially neutral: if it is 4.57% of the price, buying costs the same as renting at 1 / 0.0457 = 21.9 years' rent. Above that, the numbers favour renting; below it, buying.

Comparing the ratio alone is not enough, however. Himmelberg et al. (2005) show that price-to-rent and price-to-income ratios often misrepresent the cost of housing, because the user cost changes with interest rates and expected price increases: when rates are low, high ratios are not a reliable sign of a bubble, and when rates are rising, even moderate ratios can be expensive.

Leverage and concentration risk

• Leverage: with 20% equity plus purchase costs, every percentage point of price change moves the equity by a multiple of that, in both directions (see leverage).
• Concentration risk: a single home in a single place is the opposite of a diversified ETF portfolio. A regional labour market can hit your job and the value of your home at the same time.
• Interest rate risk: if the fixed-rate period ends before the loan is repaid, the follow-up instalment depends on tomorrow's interest rate.
• Hedge against rising rents: ownership largely freezes your housing costs. If you stay a long time and live in a region where rents fluctuate strongly, you gain security (Sinai and Souleles 2005).
• Liquidity: you can sell part of a brokerage account within days, but a home only as a whole, over months and with new transaction costs.

Worked example: wealth after 20 years

Assumptions (illustrative figures, calculated annually): a flat for €400,000 in North Rhine-Westphalia, purchase costs of €46,280, equity of €126,280 (purchase costs plus 20% of the price), a loan of €320,000 at 3.5% with 2% initial repayment and a 20-year fixed-rate period, i.e. an instalment of €17,600 a year. Maintenance of 1% of the purchase price and €1,200 of property tax and non-recoverable costs, both rising with 2% inflation. A comparable base rent of €1,250 a month, also rising by 2% a year. The flat gains 2% in value a year, and the renter's portfolio returns 6% after costs.

The gain from selling an owner-occupied home would be tax-free (EStG § 23 2009); the brokerage account, by contrast, is subject to flat-rate tax, with a 30% partial exemption (Teilfreistellung) for equity funds. We have taken this into account. Not included are estate agent fees on a later sale and the costs of follow-up financing.

Sensitivity: what tips the result

With a 6% ETF return, the buyer only breaks even at an increase in value of about 2.82% a year. Paradoxically, a higher loan rate helps the renter here: the buyer's instalment rises, and the renter invests the larger difference. The example does, however, compare a risky equity portfolio with a leveraged flat. Both results fluctuate strongly, and a 6% equity return over 20 years is an assumption, not a promise.

For advanced readers: risk, taxes and inflation

Strictly speaking, the user cost should also include a risk premium for the price risk of ownership, which our simple formula leaves out. Conversely, the renter bears a rent risk, which Sinai and Souleles (2005) put at the centre of their analysis: where rents fluctuate strongly, ownership is a hedge, and buyers pay a premium for it. Using US data, they found that rent variance one standard deviation higher raises the price-to-rent ratio by 2 to 4%.

Taxes and inflation also shift the calculation. Poterba (1984) showed for the US that, under the American tax system, inflation lowered the user cost and could explain up to 30% of the real rise in house prices in the 1970s. In Germany, owner-occupiers cannot deduct interest, but the gain on a sale after owner occupation is tax-free, and buying incurs a high real estate transfer tax. Kaas et al. (2021) show in a life-cycle model that extensive social housing, high real estate transfer tax and the lack of an interest deduction together explain about two thirds of the gap in the home ownership rate compared with the US.

And finally, the holding period: the purchase costs are incurred once. If you sell again after five years, you have to spread €46,280 of purchase costs and the estate agent fees of the sale over five years instead of 20. In the user cost, that means €9,256 a year instead of €2,314.

What the research shows

For the US, Beracha and Johnson (2012) compared buying with renting and investing the difference over more than 30 years: with a holding period equal to the average length of stay, renting was the better investment strategy for most of the period. In their interpretation, this is because the urge to own pushes prices above fundamental value. In the long run, residential property was nevertheless a surprisingly profitable asset class: Jordà et al. (2019) find real total returns for 16 countries since 1870 similar to those of equities, with lower volatility. That applies to diversified holdings, however, not to a single flat.

In Germany, according to the Bundesbank's household wealth survey, only just over two in five households lived in their own home in 2023 (Deutsche Bundesbank 2025). According to Kaas et al. (2021), the low rate is largely a result of the framework conditions. Taken together, the research argues neither in principle for buying nor for renting; it shows that prices relative to rents, interest rates, the holding period and your own rent risk are what decide.

Limitations and common mistakes

• Comparing the instalment with the rent: the instalment includes principal repayment, i.e. saving. Compare user cost with rent, or wealth at the end.
• A renter without discipline: the renter's advantage only arises if the difference is actually invested. If you spend it, you lose the comparison.
• Underestimating maintenance: heating, roof and mandatory renovation come in bursts. In the example, 0.5 percentage points more maintenance cost the buyer almost €80,000 of their lead.
• One number for 20 years: increases in value, returns and interest rates fluctuate. Calculate ranges rather than a single point.
• Forgetting the purchase costs: they arise immediately on purchase and again on sale if an estate agent is involved.
• Counting only money: freedom to remodel, protection from eviction, flexibility to move and security in old age are real but personal values.

How Portfolio Lab calculates it

Portfolio Lab does not simulate the value of a home or the mortgage loan. You can, however, play through the renter's side in detail: in the Backtest, you invest a starting capital such as the €126,280 plus a monthly contribution and see, with German taxes, what would have become of it historically. In Financial goals, you plan with the types “Savings rate”, “Goal (one-off)”, for example equity for a later purchase, and “Withdrawal (recurring)” for rent in retirement, optionally with annual growth; Monte Carlo shows the range of portfolio values.

You can find listed real estate as monthly series under Asset classes, and more on rental yield and valuation in the article real estate as an investment. How the app calculates savings plans is described in the Financial goals methodology.

This article explains a method; it is not investment or tax advice. Worked examples are simplified and rounded. All terms in the glossary.