The math nobody runs before buying a house

by Luís Rijo 9 min read
Housing Prices

There is a number nobody tells you when you are standing in a kitchen imagining your life in it. Not the mortgage payment. Not the deposit. Not even the property tax, although that one at least appears on a brochure somewhere. The number is the total annual drag of owning - every cost that evaporates without building equity - and for most buyers, it runs to roughly 5% of the home's value every single year before the house has gone up a cent.

Ben Felix, Portfolio Manager and Chief Investment Officer at PWL Capital, put that figure to work in a recent appearance on The Diary of a CEO. His message was blunt: most people comparing renting to buying are solving the wrong equation. They look at the mortgage payment, look at the rent, and pick the lower number. That is not a financial analysis. It is a comparison of two different things dressed up to look like the same one.

The correct question, Felix argues, is not "which monthly payment is smaller?" It is "what is the true unrecoverable cost of owning, and does renting for less than that - while investing the difference - leave me better off?" When you run those numbers honestly, the answer is often not what the real estate industry wants you to hear.

Why houses feel like investments but mostly are not

The idea that buying a home is the cornerstone of personal wealth is not accidental. It is the output of decades of rising prices, favorable tax treatment, and a cultural story so dominant that questioning it reads as eccentricity. In Canada, the US, the UK, and across most of Western Europe, homeownership has been treated less as a housing choice and more as a rite of financial passage - the moment a person graduates from throwing money away to building something real.

The data supported the story, at least for a while. In Canada, home prices climbed roughly 163.5% in inflation-adjusted terms between 1981 and 2024, while median real wages grew just 20% over the same period. Anyone who bought early enough and sold at the right moment looked like a genius.

But survivorship bias - the tendency to remember the winners and forget everyone else - does a lot of work in that story. The people who bought at the peak in Toronto in 2021 and are sitting on losses today do not make it into the family anecdote. The person who bought a condo, got a job offer in another country, and found themselves trapped by transaction costs and a falling market does not show up in the comment section triumph posts.

Felix is not an ideologue. He is not anti-homeownership. His argument is narrower and more useful: that most people have never done the side-by-side comparison properly, because they have never been shown all the costs that belong on one side of the ledger.

Unrecoverable costs - money spent that generates no return and cannot be retrieved - are the heart of the issue. A mortgage payment contains two components: principal (which does build equity) and interest (which is a fee paid to the bank, gone forever). Most buyers in the early years of a mortgage are paying overwhelmingly in interest. Property taxes are pure cost - they fund services but build nothing. Maintenance is the one that surprises almost everyone.

What is actually happening

Felix introduced what he calls the 5% rule - a rough framework for calculating the break-even rent where owning and renting are financially equivalent. The components are: roughly 1% of the home's value per year in property taxes, roughly 1% in maintenance, and roughly 3% representing the opportunity cost of capital - the returns you forgo by having money sitting in a house rather than invested in the stock market.

Add those up and you get 5%. Multiply the home price by 5%, divide by 12, and you have the monthly rent threshold. For a $300,000 house, that number is $1,250. If comparable accommodation rents for less than that, renting is the better financial decision. If it rents for more, buying starts to make mathematical sense.

Felix is the first to acknowledge the rule is conservative. The maintenance estimate of 1% is probably low - academic literature suggests it could exceed 2%, and his own experience as a homeowner confirms the suspicion. The 3% opportunity cost figure, benchmarked against expected stock market returns, is also on the cautious side. PWL Capital's own calculator allows users to input their actual numbers, because the rule of thumb will shift depending on tax status, investment allocation, and local conditions.

The maintenance point is where the conversation gets visceral. The host, who owns a property in another country, described his first week back each visit as a tour of new breakages - the pool pump, a crack in the patio, the heating system. Felix nodded. He described spending hours on the phone coordinating contractors, waiting for them to arrive, waiting again when they were late. There is a time cost that never appears in any homeownership spreadsheet, and for people with demanding jobs or high hourly rates, it is not trivial. That time could be outsourced - but outsourcing it costs money too, which loops straight back into the unrecoverable cost column.

Emergency repairs compound the problem in a particular way. A roof replacement or a foundation crack does not arrive on a payment schedule. It arrives on a Tuesday. That means homeowners need liquidity - cash or near-cash assets readily available - to fund large unexpected costs. Money held as liquidity is money not invested. Which is, again, opportunity cost. The house extracts a fee for the privilege of owning it even when nothing is breaking.

Renovation spending is the cost Felix says he did not fully appreciate until he owned. When something breaks and gets fixed, it rarely gets fixed back to exactly what it was. It gets fixed slightly better. A new kitchen rather than a repaired one. A bathroom update alongside a plumbing job. Renters do not face this dynamic. The incremental upgrade spending is invisible in any pre-purchase estimate, and it accumulates.

Canada is currently living through a useful case study in what happens when the story runs ahead of the math. Home prices nationally are down 18% in nominal terms from their peak in early 2022 to late 2025 - the largest decline among major economies tracked by the Bank for International Settlements, outpacing even China. The national benchmark home price sat at $664,400 in March 2026, roughly 21% below the $841,300 peak recorded in March 2022. The condo market in Toronto, which Felix specifically mentioned, has seen some of the steepest corrections.

The money trail

The financial logic of homeownership rests on leverage - the ability to control a large asset with a relatively small upfront payment. A 20% deposit on a $500,000 home gives the buyer exposure to the full price movement of a $500,000 asset. If the house rises to $700,000, the buyer has doubled their initial $100,000 investment. This is genuinely powerful, and it explains why real estate has been such an effective wealth-building tool in markets that experienced sustained price growth.

The problem is that leverage cuts both ways. It amplifies losses as readily as gains. And unlike stocks, a house cannot be sold in pieces - the transaction costs of buying and selling (agent fees, land transfer taxes, legal fees, mortgage penalties) typically run to 5-10% of the purchase price. A stock investor can rebalance or exit without that friction.

The opportunity cost argument is the one that does not get enough airtime. Felix gave a personal example: he had the chance to buy equity in his company years ago. At the time, he had recently purchased a house. A repair - a well pump, as it happened - meant he had to reduce the amount of equity he could buy. The returns on that company equity would have vastly outpaced any real estate appreciation. Most people will not have that specific opportunity, but the principle holds broadly: money locked in a house is money unavailable for anything else. At a long-term stock market return of roughly 7% annually, the compounding cost of that immobility is not nothing.

Who does homeownership actually favor? Felix's answer is specific. People who are highly risk-averse and want certainty of tenure. People with large families who are confident they will stay in one place for many years. And - most precisely - taxable investors with high tax rates, because in Canada gains on a primary residence are tax-free, while investment returns are taxed. In the US, there is a partial exemption. This tax advantage narrows the opportunity cost gap for high earners in ways that the simple 5% rule does not capture. For a young person with low savings and high mobility, the calculus looks different.

The mobility point is one Felix returns to repeatedly. A 25-year-old who buys a house in a city is making a bet not just on the property but on remaining in that city - in that life - for long enough to recover the transaction costs and outperform the renting alternative. In the Rational Reminder podcast's analysis of renting versus owning across 12 Canadian cities from 2005 to 2024, renting came out ahead in seven of the twelve markets once all costs were properly accounted for. The cities where owning won - Toronto, Vancouver, Calgary, Edmonton, Waterloo - were precisely those that experienced extraordinary, arguably unrepeatable, price appreciation.

Whether that appreciation repeats is the key question. Felix is not predicting permanent decline. But the conditions that drove Canadian prices - record immigration levels relative to housing supply, interest rates falling from decade to decade, and a cultural conviction that prices only move in one direction - have either reversed or normalized. Canada's population actually contracted in 2024 as outflows of temporary residents exceeded 660,000. The tailwinds have shifted.

What people are doing about it

Some renters, armed with exactly this kind of analysis, are choosing to stay renters and route the capital elsewhere. The calculation is straightforward enough to run on a phone: take any property listing, multiply by 5%, divide by 12, and compare to the asking rent in the same neighborhood. In expensive urban markets - London, Sydney, Toronto, New York - the result frequently favors renting by a significant margin, which is part of why rental yields in those cities are so compressed.

Others are approaching the decision with more deliberate lease strategies. Felix described signing multi-year leases with professional landlords as a way to secure stability without the capital commitment of ownership - a practical workaround for the security argument that most people cite as the reason they bought.

In Canada, the market correction itself has changed behavior. Home sales in the first four months of 2025 fell nearly 6% year-over-year according to the Canadian Real Estate Association, with tariff uncertainty and economic anxiety keeping buyers on the sidelines. TD Economics revised its 2026 forecast downward, now expecting both sales and prices to fall. Affordability, measured as the share of median household income required to cover average housing costs, sat at 52.4% nationally in Q4 2025 - historically elevated even after improving from a 63% peak in late 2023.

In Florida, some homeowners are actively exiting. As one viewer of the original video noted, state-specific factors - rising insurance costs, recent legislation making it easier for insurers to deny claims, and falling home values - have made renting in purpose-built apartment complexes more attractive than owning. The local arithmetic has flipped.

For young people specifically, the mobility argument may be the most underrated. Felix described watching job applicants at his company reveal, mid-interview, that they had just bought a house in a particular city. The psychology was visible: they had mentally committed to a place. Opportunities elsewhere - better pay, faster career growth - became psychologically harder to pursue even when they were financially superior. The house was not just a financial decision. It was a constraint on future decisions they had not yet imagined.

The bottom line

The standard pitch for homeownership compares a mortgage payment to a rent bill and stops there. Ben Felix's contribution is to insist that this comparison is incomplete to the point of being misleading. The true cost of owning - mortgage interest, property taxes, maintenance, emergency reserves, renovation drift, and the opportunity cost of capital that could be invested elsewhere - runs to roughly 5% of the home's value annually. In most markets, that reframes the decision entirely. A house may still be the right choice, for reasons of stability, tax efficiency, or genuine preference. But those are honest reasons. The idea that buying is always and automatically the financially superior move is not analysis. It is a story that survived a specific era of falling rates and rising prices - one that, in several major markets, has now ended.

Timeline

Summary

Who: Ben Felix, Portfolio Manager and Chief Investment Officer at PWL Capital, speaking on The Diary of a CEO Clips

What: A detailed breakdown of the true unrecoverable costs of homeownership - mortgage interest, property taxes, maintenance, renovation spending, and the opportunity cost of capital - structured around the 5% rule, a formula for calculating the rent level at which buying and renting are financially equivalent

When: Published May 5, 2026; the underlying analysis draws on research developed from 2019 onward

Where: Canada is the primary case study, with the analysis broadly applicable to housing markets globally; the Canadian market is currently experiencing its largest inflation-adjusted price correction since 1975

Why: Most people make the rent-versus-buy decision by comparing a mortgage payment to a rent bill - a comparison that ignores the majority of the actual costs of ownership. The 5% rule offers a more complete framework, one that often shifts the conclusion in favor of renting and investing the difference

Luís Rijo

Luís Rijo

Luis Rijo has spent over a decade watching money move through digital markets - where it goes, who follows it, and who gets left behind when the flow changes direction. [email protected]