How is the rent vs buy comparison calculated?

The comparison tracks two scenarios over your holding period. For the buyer, it accounts for the down payment, monthly mortgage payment (principal and interest), property taxes, insurance, HOA fees, home appreciation, and selling costs at exit. The buyer's net wealth equals the sale proceeds minus the original price and all carrying costs. For the renter, it invests the down payment and the monthly savings (when rent is cheaper than the housing payment) at your assumed investment return rate, with rent rising annually. The scenario with the higher net wealth at the end of the holding period wins.

What is the break-even year and why does it matter?

The break-even year is the first year at which the buyer's net wealth equals or exceeds the renter's net wealth. Before the break-even year, renting leaves you wealthier because the renter's invested savings grow faster than the buyer's equity. After the break-even year, buying pulls ahead as equity builds and appreciation compounds. Most break-even points fall between 5 and 10 years. If the break-even year never arrives within your holding period, renting is the financially superior choice under your assumptions.

Should I rent or buy if I plan to move within 5 years?

For holding periods under 5 years, renting is almost always the better financial choice. Closing costs (2% to 5% of the home price) and selling costs (5% to 8% of the sale price) consume most of the equity you would build in that time. The buyer also has little time to benefit from appreciation or principal pay-down. If there is any chance you will relocate for career, family, or lifestyle reasons within 5 years, renting preserves flexibility and avoids transaction cost erosion.

How does the investment return rate affect the comparison?

The investment return rate represents the opportunity cost of tying up your down payment in a home instead of investing it. A higher rate favors renting because the renter's portfolio grows faster. For example, if you assume a 7% investment return and 3% home appreciation, the renter's invested down payment and monthly savings can outpace the buyer's equity gains. The comparison is most sensitive to this assumption — a 2 percentage point change can flip the winner. Use a realistic post-inflation return (6% to 7% for diversified equities).

What costs are included on the buying side?

The buying side includes the down payment (recovered from sale proceeds), mortgage principal and interest, property taxes (default 1.25% of home value annually), home insurance (default $1,400 per year), HOA fees (default $0), and selling costs (default 6% of sale price). Principal payments are not counted as a cost because they convert to equity at sale. The buyer's net wealth is the sale proceeds (home value minus loan balance minus selling costs) minus the original home price and all interest, tax, insurance, and HOA costs paid over the holding period.

Does the comparison include tax benefits of homeownership?

No, this comparison does not include the mortgage interest tax deduction. The deduction requires itemizing, is capped at $750,000 of acquisition debt, and phases out at higher incomes. Including it typically shifts the analysis toward buying by 5% to 10% over a 10-year horizon. If your marginal tax rate is high enough to itemize, consider the tax benefit as an additional factor favoring buying. Property tax deductions and capital gains exclusions ($250,000 for singles, $500,000 for couples) also favor buying but are not included in this baseline comparison.

Rent vs Buy Comparison

A rent vs buy comparison tool is a free online tool that helps you decide whether to rent or buy a home. It compares net wealth, break-even year, and total housing costs over your holding period. Free, no sign-up required.

Scenario Inputs

Current Monthly Rent?Enter your current monthly rent.

Home Price?The purchase price of the home you're considering buying.

Down Payment?The amount you plan to pay upfront when purchasing the home.

Mortgage Rate?The annual interest rate on the mortgage loan.

Loan Term?The length of your mortgage in years. Common terms are 15 or 30 years.

Holding Period?How many years you plan to own the home before selling it.

Home Appreciation?Expected annual rate of home value increase.

Investment Return?Expected annual return on investments if renting instead of buying.

End of inputs

Renting vs Buying

Metric	Renting Invest down payment + monthly savings at investment return rate	Buying Pay mortgage, taxes, insurance; sell at end of holding period
Final Net Wealth	$171,939.33	-$410,931.01
Total Housing Cost	$183,899.09	$214,700.08
Monthly Cost	$2,000.00	$2,555.95
Break-Even Year	Never	Never

$582,870.34 net wealth difference over 7 years.

Net Wealth Over Time

Key Insights

Renting leaves you $582,870.34 wealthier than buying over 7 years. The opportunity cost of tying up capital in a home — plus higher monthly carrying costs — outweighs the buyer's equity gains. Renting and investing the difference is the financially optimal path in this scenario.

Your assumed investment return (7.00%) exceeds home appreciation (3.00%) by more than 2 percentage points. This tilts the comparison toward renting — the renter's invested down payment and monthly savings grow faster than the home's value. Buying needs a long hold or strong appreciation to overcome this gap.

Your 7-year holding period is in the gray zone. Buying can make sense if appreciation is strong and monthly costs are comparable to rent, but the break-even is tight. If there's a chance you'll move sooner, renting provides a safety margin.

Your 3.00% annual appreciation assumption aligns with long-term U.S. averages. This is a realistic baseline for the comparison. If your local market outperforms, buying will look even better; if it underperforms, renting gains an edge.

Buying never overtakes renting within your 7-year horizon. This typically occurs when monthly housing costs are much higher than rent, appreciation is modest, or investment returns are strong. Renting is the better financial choice under these assumptions.

Guide

How to Use This Calculator

1Set your current monthly rent — what you pay a landlord each month, including any utilities that would be separate if you owned.
2Enter the home price you are considering, along with your planned down payment and the mortgage rate you expect to qualify for.
3Choose the loan term (typically 30 years) and the holding period — how many years you expect to live in the home before selling.
4Adjust the home appreciation rate (3% is the long-term U.S. average; use a lower rate for conservative planning) and the investment return rate (7% is a reasonable diversified equity average).
5Review the side-by-side comparison: net wealth at the end of the holding period, total housing cost, monthly cost, and the break-even year. Read the AI insights for a personalized interpretation of the numbers.

Formula

How It's Calculated

Net Wealth Comparison Formula

The comparison tracks net wealth for both the buyer and the renter over
a holding horizon of N years.

BUYER NET WEALTH at year N:
  homeValue(N) = homePrice x (1 + appreciationRate)^N
  loanBalance(N) = remaining principal after N years of amortization
  sellingCosts = homeValue(N) x sellingCostRate
  saleProceeds = homeValue(N) - loanBalance(N) - sellingCosts
  cumulativeCosts = (monthlyHousingPayment x 12 x N)
                  - principalPaid(N)   [principal converts to equity]
  buyerNetWealth = saleProceeds - homePrice - (cumulativeCosts - principalPaid)

RENTER NET WEALTH at year N:
  portfolio starts at downPayment, invested at investmentReturnRate
  each month:
    portfolio = portfolio x (1 + investmentReturnRate / 12)
    portfolio += (monthlyHousingPayment - currentRent)
  currentRent grows annually at rentIncreaseRate (default 3%)
  renterNetWealth = portfolio

BREAK-EVEN YEAR:
  First year (1-based) where buyerNetWealth >= renterNetWealth

DEFAULT ASSUMPTIONS (non-user-facing fields):
  propertyTaxRate = 1.25% of home value per year
  insurance = $1,400 per year
  hoa = $0 per month
  rentIncreaseRate = 3% per year
  sellingCostRate = 6% of sale price

CANONICAL SCENARIO:
  $2,000 rent, $400K home, $80K down, 6.5% rate, 30y term,
  7-year hold, 3% appreciation, 7% investment return
  -> Renter typically wins over 7 years due to high opportunity cost

Glossary

Key Terms

FAQ

Frequently Asked Questions

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