Everyone has an opinion on whether it is better to rent or to buy, but the right answer depends on numbers specific to you: the price, the rent, your deposit, the loan rate and how long you will stay. This guide shows how to compare the two fairly instead of relying on slogans.

The monthly cost of renting

Renting is simple: rent, plus utilities that you would pay anyway, and a refundable deposit. The costs to add are the yearly rent increase, the cost of moving and the lost return on your deposit. A tenant has no repair bills for the structure, and can move when circumstances change.

The monthly cost of buying

Buying has more parts:

  1. Deposit and closing costs. A deposit of 10 to 20 percent is typical, plus legal fees, valuation and stamp duty, which is a percentage of the value: 4% in urban areas. See stamp duty on property transfers and costs of buying property.
  2. Loan repayments. Use the loan affordability checker to see the monthly instalment at your interest rate and term.
  3. Insurance, land rates and service charge. See land rates and county property charges.
  4. Repairs and maintenance. A common allowance is one percent of the value a year.
  5. The lost return on your deposit, which could earn interest elsewhere.

The tax angles

Owner-occupiers get one major relief: the interest on a loan used to buy or build the home is deductible up to a yearly cap, which lowers your PAYE. The details are in mortgage interest relief for homeowners; the cap is KES 30,000 a month, or KES 360,000 a year. When you eventually sell, the sale of a private residence you have lived in is treated differently from investment property, so check the current rules, and use the capital gains tax calculator. If you let the home, the rent is taxable under MRI or annual tax: MRI or annual tax.

A worked comparison

Suppose a house costs KES 8,000,000 and rents for KES 45,000 a month. A buyer puts down KES 1,600,000, borrows KES 6,400,000 and pays a rate that gives a monthly instalment of roughly KES 85,000 over twenty years, plus about KES 10,000 a month for rates, insurance and repairs. The buyer's monthly outlay is about KES 95,000 against the tenant's KES 45,000. The KES 50,000 difference buys equity, but it only pays off if the property's value grows or the rent rises. At a price-to-annual-rent ratio of 8,000,000 divided by 540,000, or nearly fifteen, buying is expensive relative to renting; a ratio below about twelve favours buying. Test your own case in the rental property investment analyser.

Break-even time

Buying costs a lot upfront, so you need to stay long enough to recover it. Add the closing costs and the selling costs, and compare them with the monthly saving or equity growth. Many analyses find that three to five years is the minimum, and shorter than that renting wins.

Non-financial factors

  • Stability. Owning protects you from rent increases and landlords' decisions.
  • Flexibility. Renting lets you change jobs or cities.
  • Control. Owners choose renovations; tenants cannot.
  • Risk. A property's value can fall, and a variable-rate loan can rise.

Options in between

Some people save for a deposit while renting, buy land first and build in stages, or use a Sacco or employer scheme. Others buy a small unit and let it out to cover the loan, treating it as an investment: see rental yield explained.

A decision checklist

  1. Can you pay the deposit and costs without emptying your emergency fund?
  2. Would the monthly total stay below about 35 percent of your net pay? Use the PAYE and net pay calculator.
  3. Will you stay at least five years?
  4. Have you compared the net cost, not only the instalment?
  5. Do you have a contingency for repairs and rate rises?

Frequently asked questions

Is paying rent 'throwing money away'? Not entirely. Rent buys housing and flexibility. Mortgage interest is also money you do not get back, so compare the full costs.

How much deposit do banks require? Many ask for 10 to 20 percent. Requirements and rates vary by lender and borrower.

Does the government support first-time buyers? There are programmes such as the affordable housing scheme and mortgage refinancing. Check current eligibility with the relevant agency.

Should I buy land before a house? Land can be a cheaper start, but it adds due-diligence and holding costs. See the land due diligence checklist.