FINANCIAL CALCULATOR
Rent vs. Buy Calculator
Compare the long-term cost of renting with buying a home. Adjust mortgage costs, rent growth, home appreciation, maintenance, selling costs, and investment assumptions to see how the comparison changes over time.
Buying costs
Estimate the upfront and ongoing cost of owning a home.
Renting costs
Include rent growth and common recurring renter expenses.
Comparison settings
These assumptions help compare the long-term opportunity cost.
Based on the assumptions entered, the estimated net cost is $217,871 for the lower-cost option over the comparison period.
Break-even is an estimate based on the assumptions above. Changing appreciation, rent growth, financing, maintenance, or investment return can materially change the result.
Estimated net cost comparison
| Year | Renting net cost | Buying net cost | Home equity |
|---|---|---|---|
| 1 | -$61,796 | $55,867 | $95,577 |
| 2 | -$31,162 | $75,415 | $111,753 |
| 3 | -$109 | $94,627 | $128,556 |
| 4 | $31,349 | $113,482 | $146,013 |
| 5 | $63,198 | $131,960 | $164,155 |
| 6 | $95,423 | $150,039 | $183,012 |
| 7 | $128,004 | $167,695 | $202,618 |
| 8 | $160,923 | $184,904 | $223,007 |
| 9 | $194,157 | $201,638 | $244,216 |
| 10 | $227,681 | $217,871 | $266,283 |
How the Rent vs. Buy Calculator Works
The rent vs. buy calculator compares two different housing scenarios over the number of years you choose. The buying scenario considers mortgage payments, property taxes, insurance, maintenance, HOA fees, transaction costs, home appreciation, and the equity you build in the property.
The renting scenario estimates your rental payments, rent increases, renter's insurance, and the potential investment growth of money that could otherwise be used for a down payment and other homeownership costs.
Because housing and investment costs can change significantly over time, the calculator lets you adjust the assumptions rather than relying on a single fixed scenario.
Renting vs. Buying: What Is Included?
Buying a home
The buying calculation can include the home purchase price, down payment, mortgage interest, property taxes, homeowners insurance, maintenance, HOA fees, closing costs, home appreciation, and estimated selling costs.
Mortgage payments are separated into principal and interest. The principal portion increases the homeowner's equity, while interest represents a financing cost.
Renting a home
The renting calculation includes the starting monthly rent and projected annual rent increases. It can also account for renter's insurance and other rental-related costs entered into the calculator.
The comparison also considers the potential investment growth of money that is not used for a home purchase. This is important because renting and buying can require different amounts of upfront capital.
How the Comparison Is Calculated
Each scenario is projected year by year using the assumptions entered in the calculator. The calculation estimates the total cash costs of each option while also accounting for assets that remain at the end of the selected period.
For the buying scenario, the remaining mortgage balance is compared with the estimated value of the home. Selling costs are then considered when estimating the amount of equity that could actually be recovered if the property were sold.
For the renting scenario, money that is not committed to the home purchase can potentially remain invested. The calculator projects that investment using the selected annual return assumption.
Rent vs. Buy Formula
There is no single formula that applies to every rent-versus-buy decision because the comparison depends on many variables. At a high level, the estimated net cost of buying can be represented as:
The estimated net cost of renting can similarly be viewed as:
These simplified formulas describe the basic comparison. The actual calculator uses the individual assumptions entered by the user to project mortgage payments, equity, housing costs, rent increases, and investment growth over time.
What Is the Break-Even Point?
The break-even point is the approximate point in time when the projected financial cost of buying becomes lower than the projected financial cost of renting under the selected assumptions.
A break-even result should not be interpreted as a guarantee. A change in home prices, rent growth, mortgage rates, maintenance expenses, investment returns, taxes, insurance, or transaction costs can change the comparison.
Why the Length of Time Matters
Buying a home typically involves substantial upfront costs, including a down payment and closing costs. Selling a home can also involve transaction costs.
A longer ownership period gives the homeowner more time to pay down the mortgage and potentially benefit from home appreciation. Renting can provide flexibility and may allow more capital to remain available for investment or other purposes.
For this reason, the number of years you expect to remain in the home can have a significant effect on the comparison.
Worked Example
Consider a home priced at $400,000 with a 20% down payment and a 6.5% mortgage interest rate. Suppose comparable rent starts at $2,200 per month.
The calculator can project both scenarios over a selected period, such as 5, 10, or 20 years. The buying scenario can account for mortgage payments, property taxes, insurance, maintenance, appreciation, and selling costs. The renting scenario can account for annual rent increases and potential investment growth.
Changing any of these assumptions can materially affect the projected result. For example, higher rent growth can increase the long-term cost of renting, while higher maintenance expenses or lower home appreciation can increase the projected cost of owning.
Factors That Can Affect the Result
- Home purchase price
- Down payment
- Mortgage interest rate
- Mortgage term
- Monthly rent
- Annual rent growth
- Home appreciation
- Property taxes
- Homeowners insurance
- Maintenance costs
- HOA fees
- Closing costs
- Selling costs
- Investment return assumptions
- Expected length of ownership
Important Assumptions and Limitations
- Results are estimates based on the assumptions and values entered into the calculator.
- Home appreciation and rent increases are modeled using annual assumptions.
- Investment returns are estimates and do not guarantee future investment performance.
- Mortgage rates, taxes, insurance, maintenance, and transaction costs vary by location and individual circumstances.
- Actual home prices and rents can increase or decrease over time.
- The calculator does not account for every possible tax, legal, financial, or personal consideration.
- The results should be used as a comparison tool rather than as personalized financial advice.
Frequently Asked Questions
Is renting always cheaper than buying?
No. The result depends on factors such as home prices, rent, mortgage rates, appreciation, maintenance, transaction costs, investment returns, and how long you remain in the property.
How much does the down payment affect the comparison?
A larger down payment generally reduces the mortgage balance and interest costs, but it also requires more money to be committed to the home instead of remaining available for investment or other uses.
Why are selling costs included?
Selling a home can involve transaction costs. Including estimated selling costs provides a more realistic estimate of the equity that could be converted to cash when the property is sold.
Does buying always build equity?
Mortgage principal payments increase equity when the mortgage balance decreases. However, the overall equity position can also be affected by changes in the home's market value and transaction costs.
What investment return should I use?
Use an assumption that fits the planning scenario you want to evaluate. Because future investment returns are uncertain, it can be useful to compare the results under multiple assumptions.
What happens if rent increases faster than expected?
Higher rent growth increases the projected cost of renting over time. The effect becomes more significant over longer periods because annual increases compound.
How long should I plan to stay before buying?
There is no universal number of years that applies to everyone. The appropriate comparison depends on the purchase price, financing costs, transaction costs, expected appreciation, rent, and your expected time in the home.
What is the most important input?
No single input determines the result in every situation. The comparison can be particularly sensitive to the expected time in the home, purchase price, mortgage rate, rent growth, home appreciation, maintenance costs, transaction costs, and investment return.