Rent vs Buy Calculator
How This Calculator Works
Buyer Net Wealth = Home Equity - Total Buying Costs
Renter Net Wealth = Investment Portfolio - Total Rent Paid
Monthly Mortgage (M) = P [ r(1+r)^n ] / [ (1+r)^n - 1 ]
Monthly Buying Cost = M + Property Tax + Insurance + Maintenance + HOA
Home Equity = Appreciated Home Value - Remaining Loan Balance
Renter Portfolio grows at the investment return rate on (down payment + monthly savings)The rent vs buy decision is one of the most consequential financial choices you will face. This calculator models both scenarios over your chosen time horizon, accounting for dozens of variables that affect the true cost of each option. Rather than relying on oversimplified rules of thumb, it provides a comprehensive side-by-side comparison of cumulative costs, wealth accumulation, and the breakeven point where buying overtakes renting.
How the Model Works
On the renting side, the calculator starts with your current monthly rent and escalates it each year by your expected annual rent increase. It then assumes you invest the money you would have otherwise spent on a down payment, plus any monthly savings (the difference between what a buyer pays and what you pay in rent), at your expected investment return rate. This captures the opportunity cost of tying capital up in real estate.
On the buying side, the calculator computes your monthly mortgage payment using the standard amortization formula, then adds property taxes, homeowner's insurance, maintenance costs, and HOA fees. It tracks your loan balance month by month, deducting principal payments, while simultaneously appreciating the home's value at the rate you specify. At the end of each year, your home equity equals the appreciated home value minus the remaining loan balance.
Understanding the Results
The cumulative cost chart shows total dollars spent under each scenario over time. The wealth comparison at the end of your time horizon considers the buyer's home equity minus total costs versus the renter's investment portfolio minus total rent paid. The breakeven year is the first year in which the buyer's net wealth exceeds the renter's net wealth.
Keep in mind that buying typically involves additional transaction costs not modeled here, such as closing costs (2-5% of the purchase price) and selling costs (5-6% in agent commissions). Including these would push the breakeven point further into the future. Additionally, the renter's investment return is subject to market volatility, while home appreciation varies significantly by market.
Key Factors to Consider
Time horizon is the single most important variable. Buying almost always wins over 15-plus years because you benefit from decades of appreciation and loan paydown. Renting tends to win over shorter periods because you avoid the large upfront costs of buying and can invest the difference. Other critical factors include your local rent-to-price ratio, expected home appreciation in your specific market, and your discipline in actually investing the difference rather than spending it.
Frequently Asked Questions
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What You Should Know
The Rent vs Buy Decision: What the Numbers Really Tell You
The American homeownership ideal has deep roots, but the financial reality is more nuanced than "renting is throwing money away." In fact, renting provides flexibility, avoids large transaction costs, and frees up capital for potentially higher-returning investments. Buying, on the other hand, provides forced savings through equity buildup, protection against rising rents, and potential tax advantages.
The Hidden Costs of Buying
Most first-time buyers underestimate the true cost of homeownership. Beyond the mortgage payment, homeowners spend an average of $3,000-$4,000 per year on maintenance and repairs, according to data from the Census Bureau's American Housing Survey. Property taxes, insurance, and HOA fees add thousands more. In the first few years of a 30-year mortgage, 70-80% of your payment goes to interest rather than equity. When you factor in closing costs and selling commissions, the total transaction cost of buying and later selling a home can exceed 8-10% of its value.
When Renting Makes More Financial Sense
Renting tends to win financially when you plan to stay fewer than 5-7 years, when the local price-to-rent ratio exceeds 20 (meaning the home costs more than 20 times the annual rent), when you can earn high returns by investing the difference, or when you value the flexibility to relocate for career opportunities. Many high-cost cities like San Francisco, New York, and Seattle have price-to-rent ratios well above 20, making renting the mathematically superior choice for many residents.
When Buying Wins
Buying becomes increasingly favorable with longer time horizons, in markets with strong appreciation and reasonable price-to-rent ratios, when interest rates are low relative to expected appreciation, and when the buyer is disciplined about maintaining the home and avoiding excessive refinancing that resets the amortization clock. The psychological benefit of a fixed housing cost while rents rise 3-5% annually is substantial and difficult to quantify in a calculator.