Rent vs Buy Calculator

How the calculator works

The model runs two parallel cash flows over your chosen time horizon. The buying scenario tracks the mortgage amortization, property tax, maintenance, HOA, and insurance against a home that appreciates at the rate you set. At the end of the horizon it values the home, subtracts selling costs and any remaining loan balance, and reports the resulting equity.

The renting scenario assumes the renter starts with the same cash the buyer would have put down (down payment plus closing costs) and invests it at your chosen investment return. Each month, whichever party has the lower housing payment invests the difference at the same rate. Rent grows annually at your specified rate.

We then compare the two ending balances on a like-for-like basis so the verdict reflects total wealth, not just monthly cash flow. The break-even year is the first year in which the buyer’s net wealth catches and exceeds the renter’s.

Key inputs explained

• Time horizon: the single most decisive lever. Closing and selling costs are large upfront expenses that only amortize away over many years — short horizons almost always favor renting.
• Mortgage rate vs investment return spread: if expected stock returns sit well above the mortgage rate, the renter who invests the cash difference can pull ahead. If the spread is small or negative, the buyer’s leveraged real-estate exposure usually wins.
• Maintenance is often underestimated: 1% of home value per year is a common rule of thumb but older homes routinely run 2–3%. Roofs, HVAC, and water heaters fail on a schedule.
• Closing and selling costs: roughly 3% in and 6% out is typical in the US. Together that is a 9% drag that you only recoup through appreciation, equity build-up, or a long enough stay.
• Rent growth: small annual increases compound dramatically over a decade. A 3% rent growth means you pay roughly 34% more per month after 10 years.

Rules of thumb

• Stay 5+ years: shorter horizons rarely overcome closing and selling costs unless appreciation is unusually high.
• 28/36 ratio: keep total housing costs under 28% of gross income and total debt service under 36%. Lenders will let you go higher; your future self may not thank you.
• Emergency fund stays separate: keep 3–6 months of expenses liquid in addition to your down payment. A new home produces surprise repairs in year one with uncomfortable regularity.
• Price-to-rent ratio: dividing local home price by annual rent gives a quick sanity check. Ratios under 15 lean toward buying, over 21 lean toward renting, and 15–21 is a coin flip that this calculator can resolve for your specific numbers.
• Don’t buy for tax savings alone: the standard deduction now eclipses itemized mortgage interest for most US households, so the historic tax case for buying has weakened.

Caveat — directional, not definitive

This model is intentionally simplified. It ignores private mortgage insurance (PMI) when you put less than 20% down, refinancing, federal and state tax brackets beyond a flat marginal rate, capital gains on the home sale, transaction timing, and the lifestyle considerations that often dominate the decision (school districts, flexibility, repairs you actually want to do). Treat the output as a directional guide and stress test the inputs you are least sure about.