How this rent vs buy calculator works
Most rent-vs-buy comparisons are biased: they assume the buyer is the only one “doing something” with their money, while the renter just throws rent away. This calculator uses the equal-budget method instead.
Each month, both scenarios spend the same total budget. Whoever spends less that month — buyer or renter — invests the difference at your chosen return rate. The renter also invests the full down payment and closing costs from day one, since those funds are free when you rent. This is the honest, apples-to-apples comparison.
What goes into the buyer’s costs
Every month, the buyer pays: mortgage principal and interest, property tax (calculated on the current appreciated home value, not the original price), maintenance, homeowner’s insurance, and any HOA fees. Buying also requires an upfront down payment and closing costs on day one.
The buyer builds equity two ways: loan paydown each month, and home value appreciation over time. When comparing at any year, we subtract estimated selling costs (agent commissions, etc.) from the home’s appreciated value to get a realistic net equity figure.
What “break-even year” means
The break-even year is the first year where the buyer’s net worth (home equity plus any invested savings) equals or exceeds the renter’s net worth (their invested pot). Before that year, renting + investing is the stronger position. After it, owning is.
If there’s no break-even within your horizon, it means the renter’s invested pot stays ahead for the entire period — common in high price-to-rent markets or short time horizons where upfront costs haven’t been recovered yet.
Frequently asked questions
Is it better to rent or buy a home?
It depends on how long you plan to stay, local home prices relative to rent, and what you'd earn by investing the down payment instead. As a rule of thumb, buying starts to beat renting around year 5–10 for most U.S. markets — but the break-even year varies widely. This calculator shows you the exact crossover for your numbers.
What is the price-to-rent ratio, and what does it mean?
The price-to-rent ratio is the home price divided by annual rent (homePrice ÷ monthlyRent × 12). A ratio below 15 generally favors buying; 15–20 is borderline; above 20 generally favors renting. It's a quick market-level signal — your break-even year from the calculator is more precise.
What is the "equal-budget" method this calculator uses?
Each month, both the buyer and renter spend the same total budget — whichever scenario costs less that month, the difference gets invested. This removes the bias of "invest the difference only sometimes." The renter also invests the down payment and closing costs from day one. Net worth at each year = equity (buyer) or invested pot (renter).
How does the 5% rule for renting vs buying work?
The 5% rule says the unrecoverable annual cost of owning is roughly 5% of the home price: ~1% property tax, ~1% maintenance, and ~3% cost of capital (mortgage interest or opportunity cost). If annual rent is less than 5% of the purchase price, renting is likely cheaper. This calculator uses precise numbers instead of the approximation.
Does buying always build more wealth than renting?
No — renting and investing the difference can match or beat buying over short horizons, or in high price-to-rent markets. Buying typically wins over long holds (10+ years) in markets with moderate home prices, mainly because of leverage and forced savings via equity. The chart above shows your specific crossover year.
Worked examples
Worked example 1
Classic suburban starter home — 7-year horizon
$400,000 home, 20% down, 6.5% rate, $2,000/month rent. Both budgets equalised; renter invests the gap plus down payment at 5% annual return.
Monthly mortgage
$2,023
Verdict
Near tie
Break-even year
Year 7
Break-even arrives at year 7. Buyers who plan to stay 8+ years typically come out ahead; those who might move in 5 years face meaningful selling-cost drag.
Worked example 2
High price-to-rent market — 10-year horizon
$600,000 condo in a high-cost city, $2,000/month equivalent rent. Price-to-rent ratio of 25 signals a renter-favoured market.
Monthly mortgage
$3,034
Verdict
Renting wins
Price-to-rent ratio
25.0
A price-to-rent ratio of 25 combined with HOA fees means the renter leads even at year 10 in this scenario. High PTR markets typically require 12+ year horizons before buying wins.
Worked example 3
Affordable market — rapid break-even
$280,000 home, $1,400/month rent. Price-to-rent ratio of 16.7 sits near the neutral zone where buying and renting are roughly equivalent.
Monthly mortgage
$1,416
Verdict
Buying wins
Break-even year
Year 7
In affordable markets where rent and mortgage payments are similar, break-even arrives at year 7 — earlier than high price-to-rent markets. The long-term wealth advantage of buying is more pronounced in these scenarios.
Break-even year by appreciation rate and investment return
Break-even year by appreciation rate and investment return
| Home appreciation (%/yr) ↓ / Invest return (%/yr) → | 4% | 5% | 6% | 7% |
|---|---|---|---|---|
| 2% | Yr 17 | Yr 23 | >30 | >30 |
| 3% | Yr 10 | Yr 14 | Yr 26 | >30 |
| 4% | Yr 6 | Yr 7 | Yr 10 | >30 |
| 5% | Yr 4 | Yr 5 | Yr 5 | Yr 7 |
| 6% | Yr 3 | Yr 3 | Yr 4 | Yr 4 |
$400,000 home, 20% down, 6.5% rate, $2,000/month rent, 7-year horizon. Lower break-even = buying wins sooner.
Cells show first year buyer net worth ≥ renter net worth. ">" means break-even beyond 30 years.
What affects the result
Time horizon
The single biggest lever. Selling costs of 5–8% create a large initial hole for the buyer. A short horizon (under 5 years) rarely gives the buyer enough time to recoup those costs through appreciation and equity build-up.
Price-to-rent ratio
Markets with PTR above 20 require significantly longer horizons before buying wins. PTR below 15 makes buying look attractive even at 5-year horizons in many scenarios.
Home appreciation rate
Each 1% increase in annual appreciation shaves roughly 1–2 years off the break-even. In markets where appreciation runs below 3%, the investment alternative often keeps pace with or beats home equity gains.
Investment return on renter portfolio
Higher stock market returns benefit the renter who invests the down payment and monthly gap. At 7%+ returns, renting is competitive in many markets even at long horizons. This is why opportunity cost matters.
Mortgage interest rate
Higher rates increase the monthly payment, widening the gap the buyer must overcome. A 1% rate increase on a $400k loan adds roughly $250/month to the buyer's unrecoverable interest cost.
Down payment size
A larger down payment reduces monthly mortgage costs but increases the opportunity cost (more cash out of the market). The optimal down payment depends on the spread between your mortgage rate and expected investment return.
Property tax and maintenance
These recurring ownership costs are often underestimated. Property tax of 1.1% plus maintenance of 1% equals 2.1% of home value annually — for a $400k home, that's $8,400/year that renters avoid.
Rent growth rate
Faster rent growth helps buyers by increasing the monthly payment the renter must make. At 3–4% annual rent growth, the renter's advantage erodes over time, which benefits the buying scenario.
Common mistakes to avoid
- ✗Comparing mortgage payment to rent directly. The fair comparison includes property tax, insurance, maintenance, HOA, and opportunity cost on the down payment — which often adds 30–50% to the mortgage payment's true cost.
- ✗Ignoring selling costs. At 5–8% of sale price, real estate commissions and transfer taxes are the largest single drag on buyer returns. A $400k home with 6% selling costs means $24,000 off the top before any profit.
- ✗Treating home appreciation as guaranteed. Long-run US home appreciation averages 3–4% nominally, but local markets vary wildly. Using 6–7% appreciation to justify buying in a normal market overstates the buyer's return.
- ✗Forgetting the renter's investment alternative. A renter who invests the down payment and monthly savings gap often builds comparable or greater wealth — especially in high-PTR markets with strong stock returns.
- ✗Using too short a planning horizon. Most people underestimate how long they'll stay. But if your life has a realistic chance of requiring a move in 3–4 years, the math usually favours renting — transaction costs are simply too high.
Practical takeaways
- ✓Run the calculator with your actual local numbers. National averages mask huge variation: a PTR of 12 in Memphis and 30 in San Francisco create completely different break-even timelines.
- ✓The break-even year is your north star. If it exceeds your expected time in the home by 2+ years, renting and investing the difference is typically the better financial move.
- ✓Don't let the rent-vs-buy question crowd out the lifestyle question. Job stability, family plans, school districts, and the desire for permanence are legitimate reasons to buy even when the math slightly favours renting.
- ✓If you buy, overpay your mortgage or make lump-sum payments to accelerate equity. Every dollar of extra principal dramatically shortens your effective break-even.
- ✓Revisit the calculation annually. Interest rates, local appreciation trends, and your personal horizon all shift — the right answer today may change in 18 months.
Key terms
- Break-even year
- The first year in which the buyer's net worth surpasses the renter's net worth under the equal-budget method. Before this crossover point the renter leads; after it the buyer leads.
- Price-to-rent ratio (PTR)
- Annual home price divided by annual rent for a comparable home. PTR below 15 favours buying; 15–20 is neutral; above 20 generally favours renting.
- Equal-budget method
- Both the buyer and renter spend the same total amount each month. The lesser spender invests the monthly gap into an index fund. The renter also invests the down payment and closing costs from day one.
- Opportunity cost of the down payment
- The investment return the buyer foregoes by putting cash into a down payment rather than a diversified portfolio. Captured in the equal-budget method by seeding the renter's portfolio with those funds at month zero.
- Home equity
- Current market value of the home minus the outstanding mortgage balance. Equity builds through amortisation (principal pay-down) and home-price appreciation.
- 5% rule
- A rule of thumb: multiply the home's value by 5% and divide by 12 to find your monthly "unrecoverable cost" benchmark. If your monthly rent is below this figure, renting is likely cheaper on a cash-flow basis.
- Selling costs
- Fees paid when selling a home — typically agent commissions, transfer taxes, and closing costs. At 5–8% of sale price, they are the largest single friction in the buying scenario.
- Net worth (in this calculator)
- For the buyer: home market value minus outstanding loan balance plus any invested savings. For the renter: the invested portfolio value (down payment + monthly gap invested). The calculator compares these two figures year by year.
More questions answered
How does the calculator decide whether buying or renting wins?
It uses the equal-budget method: both the buyer and renter spend the same total amount each month. The person who spends less invests the difference in a diversified portfolio. At your planning horizon, it compares their net worths — home equity plus savings for the buyer, investment portfolio for the renter. The winner is whoever has more wealth at that point, not just who paid less monthly.
What is the price-to-rent ratio and why does it matter?
The price-to-rent ratio (PTR) is the home price divided by the annual rent for a comparable property. A PTR below 15 generally signals a buying market; 15–20 is a neutral zone; above 20 typically favours renting. It matters because high-PTR markets mean you're paying a premium for ownership relative to what renting costs — and that premium takes longer to recoup through appreciation.
Does the calculator account for tax deductions on mortgage interest?
No. Since the 2017 Tax Cuts and Jobs Act doubled the standard deduction, fewer than 10% of taxpayers now itemise. Most homeowners receive no effective tax benefit from mortgage interest. If you know you will itemise, your accountant can quantify the saving — but for most people it should not drive the rent-vs-buy decision.
What appreciation rate should I use?
Long-run US home price appreciation averages about 3–4% nominally (roughly flat in real terms after inflation). If your local market has been outperforming recently, it is safer to model 3–4% rather than extrapolating recent gains — appreciation tends to mean-revert over long horizons. Use the calculator's sensitivity table to see how your break-even changes across a range of appreciation assumptions.
Model assumptions & disclosures
Equal-budget method. Both buyer and renter are assumed to spend the same total amount each month. The person with the lower required outlay invests the monthly difference into a diversified portfolio at the specified annual return. The renter also invests the down payment and estimated closing costs at the start of the comparison period.
Nominal figures. All rates — home appreciation, rent growth, and investment return — are nominal (not inflation-adjusted). Comparisons are internally consistent on a nominal basis.
No tax effects. Mortgage interest deductibility, capital gains exclusion on home sales ($250k/$500k), and investment account tax treatment are not modelled. Since the 2017 Tax Cuts and Jobs Act, fewer than 10% of taxpayers itemise, so the mortgage interest deduction is omitted as a default. Consult a tax professional for your specific situation.
Selling costs applied at horizon end. When computing buyer net worth at your planning horizon, the calculator deducts the specified selling-cost percentage from the home’s projected market value, reflecting the realistic proceeds from a sale.
Not financial advice. This calculator provides illustrative projections based on your inputs. It does not account for personal circumstances such as job security, credit score, local market conditions, or individual tax situations. Consult a qualified financial advisor or real estate professional before making housing decisions.