🏡 Rent vs Buy Real Estate Calculator
Find the year buying beats renting, counting selling costs and the investment return you give up on the down payment. Includes the 5% rule check.
Buying overtakes renting in year 21. Below that, selling costs outweigh the equity you build.
“Net cost” counts every outflow, then credits what you get back — sale proceeds after 6% selling costs for the buyer, investment growth on the down payment for the renter. The 5% rule compares the annual unrecoverable cost of owning ($2,775/mo) against your rent.
What Rent vs Buy Real Estate Calculator Does
Renting and buying are usually compared on the monthly payment, which is the least informative number available. The payment tells you nothing about what you get back at the end, and that recovery is the entire question.
A useful comparison has to net off what each path returns. The buyer recovers sale proceeds after selling costs, minus whatever mortgage is left. The renter recovers investment growth on the down payment they never had to hand over. Leave the second one out — as most calculators do — and buying looks better than it is.
The decisive variable is how long you stay. Buying carries roughly 8% in round-trip transaction costs: about 2% to purchase and about 6% to sell. You have to own long enough for equity and appreciation to outrun that, which is why every honest version of this calculation produces a break-even year rather than a verdict.
How to Use Rent vs Buy Real Estate Calculator
- Enter home purchase price, down payment, and mortgage interest rate
- Input comparable monthly rent and your expected stay duration in years
- Review which option saves more money over your time horizon
Formula Used by Rent vs Buy Real Estate Calculator
Net cost of buying over N years
buy_net = (deposit + closing + Σ payments + Σ tax, insurance, maintenance) − sale_proceeds
- sale_proceeds
- Home value at year N × (1 − selling costs) − remaining mortgage balance
- selling costs
- Modeled at 6% — agent commission plus closing
Worked example
A $450,000 home, 20% down, 6.5% mortgage, held 7 years, 3.5% appreciation.
- Total outflow including deposit and closing: $737,000
- Home value in year 7: $573,000
- Sale proceeds after 6% costs, less the $310,000 balance owing: $229,000
- Net: 737,000 − 229,000 (rounded from the full model)
Result: A net cost of $168,481 over the seven years.
Net cost of renting over N years
rent_net = Σ rent − investment_gain_on_the_deposit
- Σ rent
- Rent compounded at the annual increase, not a flat multiple
- investment_gain
- What the deposit and closing costs would have earned if invested instead
Worked example
The same seven years: $2,400 a month rising 3% a year, with $99,000 (deposit plus closing) invested at 6%.
- Rent paid over 7 years, compounding at 3%: about $221,000
- Investment growth on the deposit over the same period: about $125,000
Result: A net cost of $96,157 — $72,324 less than buying at this horizon.
The 5% rule
annual_unrecoverable ≈ property_tax + maintenance + cost_of_capital
- property tax
- Modeled here at 1.2% of value a year, near the US average
- maintenance
- About 1% of value a year
- cost of capital
- Mortgage interest on borrowed money, plus the return forgone on your own equity — about 3% when rates are low
Worked example
The same $450,000 home with a $360,000 mortgage at 6.5%.
- Tax and maintenance: 450,000 × 2.2% = $9,900
- Interest on the mortgage: 360,000 × 6.5% = $23,400
- Total unrecoverable: $33,300 a year
Result: $2,775 a month against $2,400 rent. Owning costs more in pure unrecoverable terms — and note the total is 7.4% of value, not 5%, because the mortgage rate is well above the 3% the rule assumes.
Net Cost by Year — $450,000 Home vs $2,400 Rent
20% down, 6.5% mortgage, 3.5% appreciation, 3% rent growth, 6% investment return. Lower is better. Break-even is year 21 at these assumptions.
| After | Net cost of buying | Net cost of renting | Cheaper |
|---|---|---|---|
| 1 year | $56,177 | $12,655 | Renting |
| 3 years | $95,373 | $39,020 | Renting |
| 5 years | $132,876 | $66,837 | Renting |
| 7 years | $168,481 | $96,157 | Renting |
| 10 years | $217,821 | $143,057 | Renting |
| 20 years | $334,693 | $325,480 | Renting |
| 30 years | $334,872 | $488,886 | Buying |
What Actually Moves the Break-Even Year
Ranked by how much each assumption shifts the answer. The first three matter far more than the mortgage rate people fixate on.
| Assumption | Effect of raising it | Why it dominates |
|---|---|---|
| How long you stay | Strongly favors buying | 8% round-trip transaction costs are fixed and must be amortized over the hold |
| Investment return if renting | Strongly favors renting | Compounds on the whole deposit from day one |
| Home appreciation | Strongly favors buying | Compounds on the full property value, not just your equity |
| Rent growth | Favors buying | A mortgage payment is fixed; rent is not |
| Mortgage rate | Favors renting | Raises the unrecoverable interest, but is partly offset by a smaller loan later |
The Round-Trip Cost of Owning
Money that leaves and does not come back, regardless of what the market does.
| Cost | Typical amount | When |
|---|---|---|
| Closing costs to buy | 2–5% of price | Up front |
| Agent commission and closing to sell | 5–6% of price | On exit |
| Property tax | 0.3–2.2% of value per year | Ongoing |
| Maintenance | ~1% of value per year | Ongoing, lumpy |
| Mortgage interest | Most of the payment early on | Ongoing |
| Insurance | ~0.4% of value per year | Ongoing |
How to Read Your Result
"Rent is throwing money away" is the wrong frame
Rent is unrecoverable, and so is a large share of owning: mortgage interest, property tax, maintenance, insurance and both sets of transaction costs. The honest comparison is unrecoverable cost against unrecoverable cost. In the example above, owning burns $2,775 a month before a dollar of principal is repaid, against $2,400 of rent. Only the principal portion of a mortgage payment is genuinely saved rather than spent.
The opportunity cost is the part everyone omits
A 20% deposit on a $450,000 home is $90,000. If you rent, that money is invested. Over seven years at 6% it grows substantially, and that growth is a real return on the renting path. Calculators that ignore it are comparing a full accounting of ownership against a partial accounting of renting, which is why they so consistently conclude that buying wins.
Why the break-even is later than the usual "five years"
The five-year rule of thumb was formed when mortgage rates were far lower. At 6.5% the unrecoverable interest is large, and a 6% alternative investment return is a high bar for appreciation to beat. Change the mortgage rate to 4% or the investment return to 3% and the break-even moves years earlier. Test your own assumptions rather than trusting any single output — including this one.
The financial answer is not the whole answer
Buying buys stability, control over the property, and a hedge against rent increases. Renting buys mobility, no exposure to a repair bill, and no concentration of your net worth in one undiversified asset in one city. Those are real and they do not appear in any of the numbers above. If the financial gap is small, decide on the non-financial grounds.
Limitations & Accuracy Notes
- Results are extremely sensitive to the assumptions you enter. Appreciation and investment return in particular are guesses about the future, and small changes move the break-even year by several years.
- Tax treatment is not modeled. The mortgage interest and property tax deductions only help if you itemize, which most US filers do not since the standard deduction rose. The capital gains exclusion on a primary residence is also excluded.
- PMI is not modeled. A deposit below 20% usually adds mortgage insurance until you reach around 20% equity, which worsens the buying case in the early years.
- Costs are modeled as national averages. Property tax varies from about 0.3% to 2.2% of value by state, HOA dues can add hundreds a month, and maintenance is lumpy rather than smooth.
- The renter is assumed to actually invest the deposit and any monthly saving. If that money is spent instead, the renting path looks much worse — and in practice this is the most common way the comparison breaks down.
- This is a financial model, not advice. It cannot price the security, flexibility or life circumstances that usually decide the question.
Frequently Asked Questions
How does the Rent vs Buy calculator determine the better option?
What hidden costs of homeownership are factored in?
What costs of owning do people forget?
What is the break-even horizon?
Is rent really money thrown away?
Does this account for the opportunity cost of a deposit?
Is this financial advice?
References & Further Reading
- Freddie Mac — Primary Mortgage Market Survey — Weekly average US mortgage rates for a realistic rate assumption
- US Bureau of Labor Statistics — Consumer Price Index — Includes the rent and owners' equivalent rent series behind rent-growth assumptions
- IRS Topic no. 701 — Sale of your home — The $250,000/$500,000 gain exclusion that applies when a primary residence is sold