Rent or buy: what makes sense if you want to stop early
In Italy, owning your home is almost an article of faith. But if you're aiming for financial independence, the right question isn't "rent or mortgage?", it's: which one needs less capital for the rest of your life?
Why the usual comparison isn't enough
The classic comparison sets the mortgage payment against the rent and concludes that "rent is money down the drain". But it forgets two things: interest, purchase costs and maintenance are also money you never get back; and money tied up in the house isn't available to generate income.
If you're planning to stop working, it helps to think differently: how much capital do you need, in each case, to have a home forever?
The FIRE comparison
If you own, you need the value of the home (already paid for) plus the capital to cover annual ownership costs: maintenance, building fees, insurance, any property taxes. A cautious estimate is 1–1.5% of the home's value per year.
If you rent, you need the capital that sustains the rent forever, adjusted for inflation.
Example with a €300,000 home, 1.5% ownership costs (€4,500 a year) and a 3.5% withdrawal rate:
| Calculation | Capital needed | |
|---|---|---|
| Owning | €300,000 + €4,500 ÷ 3.5% | ≈ €428,600 |
| Renting at €12,000 a year | €12,000 ÷ 3.5% | ≈ €342,900 |
| Renting at €18,000 a year | €18,000 ÷ 3.5% | ≈ €514,300 |
A rule of thumb: under these assumptions, the break-even point is annual rent of about 5% of the home's value. If renting an equivalent home costs less than 5% of its price, renting needs less capital; if it costs more, owning is more efficient. Change the withdrawal rate and costs and the threshold moves: redo the sum with your own numbers.
What the calculation doesn't tell you
In favour of owning
- No tax on "implicit rent": living in your own home isn't taxed, while portfolio withdrawals used to pay rent are partly taxed.
- Stability in old age: at 80, finding a new home or absorbing a rent increase is harder. For many people, security is worth more than a few points of efficiency.
- Inflation protection: home values tend to track inflation over the long run, as rents do.
In favour of renting
- Flexibility: stopping work often means you can live somewhere else, perhaps somewhere much cheaper. As an owner, moving costs thousands between selling and buying.
- Diversification: with a home, much of your wealth sits in a single property in a single city.
- Transaction costs: agency fees, notary and taxes are paid on every purchase and sale, and often add up to several thousand euros.
What about the mortgage?
If you buy with a mortgage, you have an extra expense until it's paid off, but a temporary one. It shouldn't be treated as permanent in your FIRE number: see the guide pay off your mortgage or invest.
So, which is better?
There's no answer that fits everyone, and that's the point. If you already own your home outright, it's often the most solid part of the plan. If you still have to decide, work out the capital needed in both scenarios, based on where you want to live after you stop working, not just today.
It's one of the choices that most affects your FIRE number, and one worth making with the numbers in front of you.
Try the tool: Mortgage calculator: payment, interest and overpayments. Payment, amortisation, 19% tax credit and the saving from a partial early repayment.
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