About the Rent vs Buy Calculator
Renting looks expensive and buying looks “paying down equity” — yet both claims leave out lumps. Owning carries taxes, insurance, maintenance (budget 1% of home value annually) and a long runway before principal builds; renting means the money could have been invested, and rents compound upward every year.
This tool runs a clear, side-by-side total for your inputs: the true cost of ownership (payments + taxes + insurance + 1%-of-value maintenance) less the equity you would actually walk away with after selling costs, versus the total rent over the same horizon. The result flips based almost entirely on how long you stay.
The formula behind it
Both sides are summed over the horizon, then compared.
Own: payments + taxes + insurance + maintenance − (Equity at sale − selling costs − down payment opportunity cost) • Rent: Σ rent×12×(1+g)^tThe mortgage uses 30-year amortization at the input rate; maintenance is set at 1% of home price per year (a standard planning figure); selling costs are estimated at 6% of the appreciated value; the opportunity cost is applied to your down payment (an assumed 4.5% annual after-tax return in a savings account is used). Rent grows annually at the input rate.
Worked example
Defaults — a $350,000 home with $70,000 down compared with renting for $1,900:
- Mortgage loan = $280,000 at 6.3% over 30 years → payment ≈ $1,733/month.
- Five-year owning total (payments, tax, insurance, 1% maintenance) ≈ $149,000.
- The home’s value at 3% appreciation ≈ $406,000; after 6% selling costs and loan payoff, equity walked away with ≈ $120,000, less $17,200 opportunity cost on the down payment.
Takeaway: Owning nets ≈ $46,000 over the 5 years after equity and opportunity cost; renting totals ≈ $123,500. Buying wins here by roughly $77,000 — mostly because of appreciation plus equity. At 3 years or an expected flat housing market, the answer reverses, which is why the tool lets you change every assumption.
What moves the result
- Length of stay — the single biggest factor; buying almost always wins at 7+ years, renting often wins at 2.
- Rate environment — each point of mortgage rate shifts ownership costs by ~10%.
- Local price-to-rent ratio — markets where rents are high relative to purchase prices tilt toward buying; the inverse also holds.
- Appreciation assumption — this tool uses 3%/yr; change it if your market is hotter or visibly cooling.
- Maintenance surprises — the 1%/yr figure is an average, not a guarantee; big-ticket systems do not arrive politely on schedule.
Practical tips
- Run the same inputs at 3, 5, 7 and 10 years before deciding — the break-even year is usually the real answer.
- If your rent is below market (chance of a long fixed term), renting has a hidden annual subsidy worth quantifying before chasing.
- Budget the down payment as if it were lost money; anything a property passively earns (appreciation and equity) is the bonus.
- Property tax reassessments can raise costs the year after purchase — verify with last year’s actual bill, not Zillow.
- Sell costs (6% here) are the reason waiting at least until the break-even year is usually wise.
Frequently asked questions
How accurate is a 5-year rent-vs-buy comparison?
Depends on market assumptions — appreciation, rent growth and rate. This tool makes each input explicit, so the honest answer is “as accurate as your inputs,” which is exactly the point.
What about property appreciation — where does that show?
It is built into the equity-at-sale leg of the owning side (value grows at the appreciation rate the tool uses, with 6% costs deducted at sale).
Does buying really lose to renting after 7 years?
Broadly, yes: at 7+ years, equity growth, fixed-rate protection against rent increases, and appreciation usually finish ahead. That is a tendency, not a law — extreme cases exist on either side.