Rent vs Buy Calculator

How this calculator works

Conventional wisdom says renting is "throwing money away" and buying "builds wealth." Both halves are wrong. Buying carries large hidden costs (property tax, maintenance, transaction costs, opportunity cost on the down payment) that the headline mortgage payment ignores. Renting frees up the down payment to compound in markets, which over a 10-year horizon can match or beat home appreciation. The honest question is "given my specific numbers and my expected holding period, which path leaves me richer at the end?" — and that's what this tool computes.

The model

For each year of the holding period, the tool tracks two parallel paths:

• Buy path. Annual cash out = mortgage (interest + principal) + property tax + insurance + maintenance − tax benefit on mortgage interest. End-of-period wealth = current home value − selling costs − remaining loan balance.
• Rent path. Annual cash out = rent + renter's insurance. The down payment + closing costs would have been invested instead, plus any annual differential (when buy is more expensive than rent that year, the difference also gets invested), growing at your assumed investment return. End-of-period wealth = the resulting portfolio.

Total cost for each path is cash out minus the financial position you end up with. The path with the lower total cost wins. The break-even year is the first year where buy's total cost crosses below rent's.

The five inputs that swing the answer

1. Holding period. Transaction costs (closing + selling, often ~9–10% of price round-trip) amortise over the years you stay. Selling within 3 years almost always loses to renting because you can't earn back the transaction cost. Staying 10+ years usually flips it.
2. Home appreciation rate. Inflation-of-housing-cost over the last 30 years averaged about 4%/year nominal in the US, but it varies wildly by city and decade. Test conservative (2%), neutral (3.5%), and optimistic (5%) scenarios.
3. Investment return on saved capital. The down payment, if not used for a house, would earn something. A diversified equity portfolio has averaged 7% real over long horizons. If you'd just leave the money in cash earning 4%, buying looks much better than if you'd invest at 8%.
4. Rent inflation. If rent goes up 5%/year and your fixed-rate mortgage doesn't, buying gets steadily more attractive. If you live in a rent-controlled market growing 1%/year, less so.
5. Mortgage rate. A 30-year mortgage at 3% (where most US homeowners locked in 2020–2021) is a different deal than 6.5% (today). At 3%, leverage is nearly free. At 6.5%, the cost of carry is real.

Things this tool does NOT model

• PMI / mortgage insurance if you put less than 20% down. Add ~0.5–1.5%/year of loan balance to your annual insurance line to approximate.
• Refinance opportunities. If rates drop materially, you'd refinance and the calculus changes mid-stream. Use today's rate as a worst-case approximation.
• Buying a different-sized home. If your rental is a 2-bedroom apartment and you'd buy a 4-bedroom house, you're not comparing equivalents. Either compare same-size, or treat the upgrade as a lifestyle decision separate from the financial comparison.
• Tax variations. US-style mortgage interest deduction is the simplest model. Other regimes (UK no-deduction for owner-occupiers, Italy's various flat regimes, etc.) need adjustment via the "marginal tax rate" input. For non-deduction regimes, leave that input at 0.
• Forced savings effect. Some homeowners argue that the mortgage forces saving, where rent-and-invest plans get spent instead. The model assumes you DO invest the differential. If you wouldn't, buying may be the right behavioural answer.
• Liquidity and mobility. A house is a hard-to-liquidate asset. If your job has high relocation risk, buying carries an opportunity cost not in the spreadsheet.
• HOA / condo fees on rental. Already netted out by assumption (renter pays them through rent). If your rental has separate condo fees on top, add them to the monthly rent input.

How to use the result

• Sensitivity test. Change appreciation from 3% to 2% — does buying still win? If buying only works at 5%+ appreciation, you're betting on capital gains, not utility.
• Find your minimum hold. Watch the break-even year. If you're not confident you'll stay that long, the rent path is the risk-managed choice.
• Stress the rent-inflation. If your local market has had 7%/year rent growth, model that — it can flip even short hold periods toward buying.
• Don't anchor on the headline payment. A "$2,200/month rent vs $2,500/month mortgage" framing is misleading. The mortgage is part of buy-side cash out; the full comparison must include property tax, maintenance, opportunity cost on the down payment, and the transaction costs both at closing and at exit.

Pairs with

• mortgage-affordability-calculator — sanity-check the mortgage payment against your income.
• compound-interest-calculator — model the rent-path portfolio in more detail.
• inflation-calculator — pressure-test your rent inflation assumption.
• cap-rate — landlord-side perspective on the same property type.

Worked example

A $400,000 home with 20% down, bought and later sold, carries round-trip transaction costs near 9–10% — about $36,000+ in closing and selling fees alone. Sell after 3 years and appreciation rarely earns that back, so renting at $2,200/month (with the down payment invested) usually wins. Stay 10 years and the picture flips: at 3% appreciation the home reaches about $537,000, the transaction cost amortises over a decade, and buying typically pulls ahead. The single biggest swing factor isn't the rate — it's how long you stay.

FAQ

Isn't renting just throwing money away? No more than mortgage interest, property tax, insurance and maintenance are. Those "buying" costs build no equity either. The fair comparison is total cost of each path plus the end wealth, which is exactly what this models.

What horizon usually flips it toward buying? Broadly the 5–10 year range, depending on appreciation and rent inflation. Under 3 years, buying almost always loses to renting on transaction costs alone.

Does it credit the renter for investing the down payment? Yes — that's the point. The rent path assumes the down payment and closing costs are invested and compounding, which is what makes it a genuine comparison rather than a rigged one.

Does it model the mortgage-interest tax deduction? It applies a simple tax benefit on mortgage interest. If you take the standard deduction instead, set that benefit toward zero for an honest read.

How it works

An honest comparison is not rent versus mortgage payment — it is the total cost of each path plus the wealth you end with. Buying carries round-trip transaction costs near 9–10% (closing to buy, agent and fees to sell), plus property tax, insurance and maintenance that build no equity. Renting frees the down payment and closing costs to be invested, so the model compounds that money on the rent side — the opportunity cost that makes the comparison fair rather than rigged. It then finds the break-even year where accumulated ownership costs, net of appreciation and equity, finally drop below the rent-and-invest path. The dominant lever is not the interest rate; it is how many years you stay.

Common mistake

Comparing rent to the mortgage payment alone and concluding renting "throws money away." Mortgage interest, tax, insurance and maintenance build no equity either — and ignoring the invested down payment hands the rent side an unearned loss. Under about three years, transaction costs mean buying almost always loses; the crossover typically sits in the 5–10 year range.

Related

Size the purchase first with the affordability calculator and the loan calculator; if you are weighing a place as an investment rather than a home, the rental yield calculator is the right lens. Full walkthrough: rent vs buy — when ownership stops winning.