Rent vs buy calculator: the answer depends on how long you stay

Rent versus buy is not a question with a permanent answer. It is a question about a holding period. The same house, rent and rates can favor renting over three years and buying over fifteen, because the costs of buying are front-loaded and the benefits accumulate slowly.

This calculator settles the comparison by making both households spend exactly the same money. The buyer's outlay sets the budget: mortgage principal and interest, plus property tax, maintenance and insurance. The renter pays rent out of that budget and invests the rest, starting from a portfolio seeded with the down payment and closing costs the buyer hands over on day one. After the years you enter, the buyer holds equity and the renter holds a portfolio, and the headline is the difference between them.

The model assumes a 30-year mortgage, 3% closing costs when buying and 7% when selling. Every rate on this page is an assumption you supply, not a market figure.

#What the model computes

Each month the calculator charges interest to the mortgage balance and subtracts the payment, charges the buyer for carrying the house, and moves the renter's surplus into the portfolio.

Formula: Buyer's monthly outlay = mortgage payment + home value x (property tax rate + maintenance rate) / 12 + annual insurance / 12 where the home value grows at the appreciation rate you set, so tax and maintenance drift up with it while the loan payment never moves.

Formula: Portfolio next month = portfolio x (1 + return / 12) + (buyer's monthly outlay - that month's rent) starting from down payment + 3% closing costs. Rent rises once a year at the increase rate you set.

At the end of the period each side is valued once:

Formula: Buyer's net equity = home value at year N - 7% selling costs - remaining loan balance, and the headline is wealth difference = net equity - portfolio.

The payment comes from the standard amortization formula on a 30-year term, and the balance is tracked month by month, exactly as in the mortgage calculator.

#A worked example, done by hand

Defaults: staying 7 years, rent $1,900 growing 3% a year, price $380,000, 20% down, an assumed 6.5% mortgage rate, 1.1% property tax, $1,800 insurance, 1.0% maintenance, 3% appreciation, 6% return on the renter's portfolio.

1. Down payment: 380,000 x 0.20 = $76,000. Loan: $304,000. Closing costs: 380,000 x 0.03 = $11,400. The renter's portfolio opens at $87,400.
2. Mortgage payment on 304,000 at 6.5% over 360 months: $1,921.49.
3. First-year carrying cost: 380,000 x (0.011 + 0.010) / 12 + 1,800 / 12 = 665.00 + 150.00 = $815.00 a month, so the buyer's outlay is $2,736.49. Rent is $1,900, so the renter invests $836.49 that month.
4. Over 84 months, including the $87,400 paid on day one, both households spend $322,551.34.
5. Buying: the balance falls to $274,865.38. The house is worth 380,000 x 1.03^7 = $467,352.07, selling costs at 7% take $32,714.64, so net equity is $159,772.04.
6. Renting: rent paid totals $174,704.14, leaving $60,447.20 of surplus deposited. With $60,916.32 of growth, the portfolio ends at $208,763.52.

Worked example: Both paths spend $322,551.34. The buyer ends with $159,772.04 of net equity and the renter with a $208,763.52 portfolio, so renting leaves you ahead by $48,991.48 after seven years -- driven mainly by an assumed 6% return against 3% appreciation.

#Why a symmetric comparison is the honest framing

The obvious way to run this comparison is to total what each path costs and subtract whatever asset is left at the end. It does not work, because the two paths do not spend the same money: the buyer commits $87,400 at closing and $2,736.49 a month, the renter $1,900 a month. Any net-cost figure then depends on a bookkeeping choice -- whether the renter's seed money counts as an outlay, an asset, or both -- and different choices produce different answers to the identical scenario. A result that moves with an accounting convention is not telling you about houses.

Holding the cash flows identical removes the choice. Both households put $87,400 in on day one and spend the buyer's outlay every month after that; the only difference is what they spend it on. One buys a house and pays it down, the other pays rent and puts the remainder in a portfolio. Nothing is left over on either side, so there is nothing to net out, and the comparison reduces to one question: at the end of the period, who is holding more?

That framing also disposes of the oldest confusion in this argument, which is whether principal repayment counts as a cost. Here it never has to be classified: the whole payment is cash spent, and the equity it builds is counted at the end.

#When rent is higher than the buyer's outlay

Nothing in the model requires the renter to have a surplus. If rent exceeds the buyer's monthly outlay, the difference is negative, and the portfolio is drawn down instead of added to. Run that long enough and the portfolio falls below zero, which the calculator flags in a note because it looks like an error and is not.

Take the defaults with rent at $4,000 rather than $1,900. The buyer's outlay is unchanged at $2,736.49 in year one, so the renter is short by more than $1,200 a month and covers it from the $87,400 seed. Rent paid over seven years reaches $367,798, the portfolio ends at -$28,791, and buying leaves you ahead by $188,563 -- the model saying the renter funded a more expensive housing choice out of savings.

At the default price and terms the switch comes at about $2,333 of starting rent: below it renting wins over seven years, above it buying does.

#The two hurdles buying has to clear

#Transaction costs

Buying at 3% and selling at 7% is a 10% round trip. Before a buyer is level, the property has to appreciate enough to cover the sale commission on the new, higher value plus the original closing costs.

At an assumed 3% appreciation that takes about 3.5 years: you need 1.03^y x 0.93 to exceed 1.03, which happens at y = 3.46. Nothing else about ownership matters until that hurdle is cleared, which is why short stays are expensive however the monthly numbers compare.

#The opportunity cost of the down payment

The $87,400 committed at closing is not free, and the symmetric model prices it openly: it is the renter's opening balance. At an assumed 6% compounded monthly it reaches $132,880 in seven years with no further deposit, so $45,480 of the portfolio is growth on money the buyer put into a house instead. The surplus supplies the rest: $60,447 of deposits and $15,436 of growth on them.

This is why the answer is so sensitive to the gap between the assumed return and the assumed appreciation rate. Appreciation compounds on the whole property value, so a buyer with 20% down is exposed to price moves at roughly five times the cash committed, while the renter's return compounds on every dollar that never went into the house.

#How the holding period changes the answer

Holding everything else at the defaults and varying only the number of years:

At these assumptions renting stays ahead throughout, but the shape matters more than the winner. The gap widens until about year 15 and then closes, because the mortgage payment is fixed while rent compounds at 3%: the renter's surplus shrinks every year and turns negative around year 19, after which the portfolio funds rent instead of receiving deposits. Lower the assumed return by a point and buying takes the lead. The reading is not "renting wins" but "at a 6% return against 3% appreciation, renting wins over these horizons".

#Why appreciation assumptions dominate

Varying only the appreciation rate over the default 7-year hold changes the buyer's ending value, and changes the renter's portfolio slightly too, because tax and maintenance are charged on the rising home value and so lift the shared budget:

Each additional point of assumed appreciation moves the seven-year wealth difference by between $23,500 and $33,800 in the buyer's favor, and the effect grows as the rate rises. The answer flips at about 4.7% appreciation, against an assumed 6% return. An answer that reverses when one assumption moves by a point and a half is not a strong answer.

#The monthly comparison, year by year

Buying starts more expensive and gets relatively cheaper, because the mortgage payment is fixed while rent is not. The table shows the buyer's outlay -- payment plus tax, insurance and maintenance -- against rent growing at 3%. The difference is what the renter invests that month.

The outlay drifts up only because tax and maintenance are tied to the rising home value; the loan payment never moves. Part of it also repays principal, which is why the buyer's wealth grows while the cash spent stays identical on both sides.

#Where each input comes from

Years you expect to stay. The most decisive input. Use a realistic figure, not an aspiration.

Rent and rent increase. Your current rent, and a growth rate drawn from your own renewal history rather than a national figure.

Price, down payment, mortgage rate. From the listing and a written quote. The rate is applied to a 30-year term.

Property tax rate. The assessor's rate applied to value, entered per year, so a $380,000 home at 1.1% carries $4,180 in year one.

Insurance and maintenance. Insurance from a quote; maintenance as a percentage of value per year, commonly modeled between 1% and 2%.

Appreciation and investment return. Two assumptions with no correct value. The spread between them drives the result more than either alone -- test a range.

#What this model leaves out

• Tax treatment. No deduction for mortgage interest or property tax, no capital gains exclusion on sale, no tax on investment returns. These move the comparison in both directions.
• HOA dues and special assessments. Not modeled at all.
• Moving and transaction friction. No moving costs, vacancy, deposits or rent-free months on either side.
• Rent control and lease terms. Rent grows smoothly at one rate; real leases step, and some are capped.
• The value of flexibility. Renting can be exited in weeks; selling takes months and costs 7% in this model.
• Maintenance timing. Spread evenly, when in reality it arrives as a roof, a furnace or nothing for years.
• Investing behavior. The renter invests every surplus dollar on schedule and covers every shortfall from the portfolio, without exception.
• Refinancing, extra payments, ARMs, and buying with a term other than 30 years.

#Common mistakes

Comparing rent to a mortgage payment. The payment omits tax, insurance and maintenance, and includes principal, which is not consumed. The buyer's outlay on this page is the figure to hold rent against.

Treating the down payment as free. Money in a house is not available for anything else. The compound interest calculator shows what the same sum does elsewhere.

Assuming a short stay is fine because the payment fits. The 10% round trip in transaction costs takes about three and a half years of 3% appreciation to earn back.

Entering an optimistic appreciation rate and a pessimistic return, or the reverse. The two assumptions should be equally aggressive or the comparison is rigged before it starts.

Ignoring the sensitivity of the answer. Run the page across a range of holding periods and appreciation rates. If the winner changes inside a plausible range, the two paths are close and the decision rests on things this model cannot price. The loan calculator and the full calculator index cover the financing details underneath it.