Rent vs buy

Rent vs Buy Calculator

The fair comparison most calculators skip: what your down payment would have earned if you'd invested it instead. Adjust the inputs — see your break-even year.

How the rent vs buy calculator works

Most rent-vs-buy tools compare your monthly mortgage payment to your monthly rent and call it even. That misses the full picture on both sides. The true cost of ownership includes your mortgage principal and interest, property taxes, homeowner's insurance, and ongoing maintenance — which averages 1–2% of the home's value per year. On a $400,000 home, that maintenance line alone is $4,000–$8,000 annually, money that vanishes without building equity.

The renting side has its own hidden advantage: your down payment stays liquid and can compound in the market. A $80,000 down payment (20% on a $400k home) invested at 7% grows to roughly $157,000 in ten years. That foregone growth is a real cost of buying that most calculators ignore. This tool tracks it explicitly as opportunity cost and adds it to the running total for the buy scenario.

Transaction costs make short holding periods punishing for buyers. Buying a home typically costs 2–4% of the purchase price in closing costs; selling costs another 5–6% in agent commissions and fees. That round-trip of 8–10% must be overcome by appreciation and equity accumulation before buying breaks even. This calculator finds the exact year when cumulative buy costs fall below cumulative rent costs given your inputs.

The break-even formula

Break-even year = when:

  Cumulative Buy Cost  =  Cumulative Rent Cost

  Buy cost  = Σ (mortgage P&I + taxes + insurance + maintenance)
            + closing costs at purchase
            + selling costs at exit
            - equity accumulated (principal paid + appreciation)

  Rent cost = Σ (monthly rent, growing at rent inflation)
            + opportunity cost of down payment
              (down payment × (1 + r)^t − down payment)

  r = annual investment return assumption (default 7%)
  t = years elapsed

The opportunity cost term is the key insight. Even if your mortgage payment equals your rent, the renter who invests the down payment is silently compounding wealth. That compounding advantage grows over time, which is why buyers in expensive markets sometimes never break even if they move too soon — appreciation cannot keep up with both the transaction drag and the forgone investment gains.

Worked example

Suppose you currently pay $2,400/month in rent and are considering a $400,000 home with a 20% down payment ($80,000) at a 6.5% 30-year fixed mortgage. You plan to stay 5 years.

Monthly mortgage (P&I):On a $320,000 loan at 6.5% for 30 years, your principal and interest payment is approximately $2,023/month. Add property taxes at 1.2% of value ($400/month) and homeowner's insurance ($200/month) and you reach roughly $2,623/month before maintenance.

Maintenance: At 1.5% annually on $400,000, that is $6,000/year or $500/month. Total monthly carrying cost: ~$3,123 — $723 more than rent each month.

Equity built in 5 years:Of the $121,380 paid in P&I over 5 years, roughly $22,000 goes to principal. With 3% annual appreciation the home grows to about $464,000, adding ~$64,000 in paper equity. Total equity gain: ~$86,000.

Opportunity cost of down payment:$80,000 at 7% for 5 years grows to ~$112,200 — a gain of $32,200 the buyer foregoes. Add $24,000 in closing and selling costs (6% round-trip) and the buyer's true net position after 5 years is meaningfully weaker than the equity gain alone suggests. In this example the break-even lands around year 7–8, meaning renting and investing the difference wins over a 5-year horizon.

When to use this calculator

▸Planning a move. Before you start touring homes, run the numbers with realistic holding-period assumptions to know whether buying makes financial sense at all.
▸Evaluating a new market. Price-to-rent ratios vary dramatically by city. Use local home prices and comparable rents to see whether the market you're moving to favors owning or renting.
▸Deciding how long to stay. Already own? Run the calculator in reverse — set the home price to your current value and see whether selling now or in two years produces a better outcome.
▸After a salary increase. A promotion can shift the math by improving your down payment size, qualifying rate, or alternative investment capacity. Re-run whenever your income changes materially.
▸Before making an offer. Stress-test your assumptions. What if you have to sell in 3 years instead of 10? What if appreciation is 1% instead of 3%? The slider lets you find the scenarios where buying stops making sense.

Key concepts

Opportunity cost: The return you give up by using money for a down payment instead of investing it. At 7% annual return, $80,000 doubles in roughly 10 years. This compounding benefit belongs in the renting column of any honest comparison.
Price-to-rent ratio: Home purchase price divided by annual rent for a comparable property. A ratio of 15 or below generally favors buying; 20+ generally favors renting. San Francisco and New York routinely exceed 30; Midwest cities often sit at 12–15.
Equity: Your ownership stake in the property: current market value minus outstanding mortgage balance. Early in a 30-year mortgage, most of each payment is interest — equity builds slowly until roughly year 10. See our amortization guide for how this schedule works.
Break-even period: The year when cumulative total costs of buying fall below cumulative total costs of renting. Before this point, the renter (who invests the difference) is ahead. After this point, the homeowner is ahead. The break-even shifts based on appreciation, interest rates, and how aggressively the renter invests.

Common mistakes

▸Ignoring closing and selling costs. Buying costs 2–4% at purchase; selling costs 5–6% in commissions and fees. The round-trip of 8–10% must be overcome before you break even — on a $400k home that is $32,000–$40,000 before you touch appreciation.
▸Assuming homes always appreciate. U.S. home prices fell 30%+ in many markets between 2007 and 2012. Even normal markets see flat or negative real returns after inflation. Use a conservative 2–3% baseline and stress-test at 0%.
▸Forgetting the opportunity cost of the down payment. This is the single most common error. A $100,000 down payment left in a diversified portfolio at 7% is worth $197,000 in 10 years. That $97,000 gain is a real cost of buying that simple mortgage-vs-rent comparisons miss entirely.
▸Underestimating maintenance. Budgeting 0.5% per year is wishful thinking. The widely cited 1–2% rule reflects real spending on roofs ($10,000–$20,000), HVAC systems ($5,000–$12,000), water heaters, appliances, and the countless smaller repairs that renters never see.
▸Not modeling a realistic selling timeline. Life changes — job relocations, family size, health. Run the calculator at your planned horizon and then at half that number. If buying only makes sense if you stay 10 years but your job might relocate you in 5, renting is the lower-risk choice.

Frequently asked questions

How long do I need to stay for buying to make sense?

Most buyers need at least 5–7 years to break even after accounting for round-trip transaction costs of 8–10%. In high-appreciation markets you might break even in 3–4 years; in flat or declining markets it can take 10+. Use the Years slider in the calculator to find your exact threshold given local prices and rates.

What is the price-to-rent ratio?

The price-to-rent ratio is the purchase price divided by annual rent for a comparable home. A ratio below 15 suggests buying is the better long-term deal; above 20 the math often favors renting and investing. Coastal cities like San Francisco (ratio ~30+) strongly favor renting on a pure financial basis; many Midwestern markets (ratio 10–15) favor buying sooner.

Does buying always beat renting long-term?

No. U.S. home prices have appreciated about 4% per year nominally since 1975 — roughly 1% above inflation — but that return is on the full property value, not just your equity. After subtracting maintenance, taxes, insurance, and transaction costs, real after-cost returns are often 1–2%. A diversified equity portfolio has historically returned 7–10% nominally over the same period. Renting and investing disciplinarily can match or exceed homeownership wealth-building, particularly in expensive markets.

What investment return should I use for the renting scenario?

Use 7% as the baseline — it approximates long-run U.S. equity real returns after inflation. Drop to 4–5% if you would invest conservatively in bonds or keep the money in a high-yield savings account; lower this rate and buying looks relatively better. Use 8–10% if you invest aggressively in equities and have a long time horizon. The calculator's sensitivity to this input is why disciplined investing habits matter as much as the rate you enter.

What are the tax benefits of homeownership in 2026?

Homeowners can deduct mortgage interest and up to $10,000 in property taxes if they itemize deductions. However, the 2017 Tax Cuts and Jobs Act raised the standard deduction to $15,000 (single) and $30,000 (married filing jointly) for 2026, meaning fewer than 10% of filers benefit from itemizing. The $250,000/$500,000 primary residence capital-gains exclusion on sale remains valuable for long-term owners. Consult a tax professional for your situation.

How does the appreciation assumption change the result?

Appreciation compounds on the full property value, so small changes have large effects over time. On a $400,000 home, the difference between 2% and 4% annual appreciation is roughly $88,000 after 10 years — enough to shift the break-even by 2–3 years. Always run a conservative scenario (2%) alongside your base case (3%) to understand your downside before committing.

Related calculators

This tool is for educational purposes only and does not constitute financial, tax, or legal advice. All calculations use simplified models and estimates. Consult a qualified financial advisor before making any home purchase or investment decision.