Why “rent is throwing money away” isn't the whole story
Owning has its own money you never get back: mortgage interest, property tax, insurance, upkeep, and the costs of buying and selling. Renting has rent. The fair comparison is which path leaves you with more net worth after the years you'll actually stay.
This calculator gives the renter the same money the buyer spends upfront (down payment plus closing costs) and invests it. Each month, whichever option is cheaper invests the difference. After your chosen number of years, it compares the buyer's home equity plus savings with the renter's savings.
What tips the scales
- How long you stay: the biggest factor. Buying and selling costs, often 8% to 10% combined, need years to spread out.
- Price-to-rent ratio: divide the home price by a year's rent. Above about 20, renting often wins; below about 15, buying often wins.
- Home price growth vs investment returns: small changes in either one swing the result. Try a few scenarios.
- Upkeep: roofs, water heaters and appliances add up. 1% of the home's value a year is a common planning figure.
Did you know?
Part of every mortgage payment builds equity automatically. The math assumes renters invest their savings every month; in real life, buyers often come out ahead partly because the house makes them save.
Example
Compare buying a $400,000 home with 20% down at 6.5% against renting a similar place for $2,200 a month. With 3% yearly home price and rent growth, 1% upkeep and a 6% return on invested savings, renting comes out about $22,050 ahead after 7 years. Buying pulls ahead after 13 years, which is why how long you'll stay matters so much.
Frequently asked questions
Does this include taxes?
No. The mortgage interest deduction only helps if you itemize, and home sale profits up to $250,000 ($500,000 for married couples) are usually tax-free. Investment gains for renters may be taxed. These can shift the result a little in either direction.
What home price growth should I use?
US home prices have historically risen roughly in line with or a bit above inflation over long periods, but local markets vary a lot. Try a low, middle and high case.
Why does buying lose in the first few years?
Buying and selling costs hit right away, and early mortgage payments are mostly interest. Equity and appreciation need time to catch up.