Property tax is included in ownership costs. Income and capital-gains taxes are excluded, and no mortgage-interest deduction is modeled.
After 30 years, buying leaves you $974,573.41 and renting while investing the difference leaves $960,352.25, so buying is ahead by $14,221.16. Buying first pulls ahead in year 29.
The owner's net worth counts the home as if sold, after selling costs.
About the rent vs buy calculator
The comparison follows two households with the same money. The buyer pays the down payment and buying costs, then the mortgage, property tax, maintenance and insurance; the renter invests the down payment and buying costs instead and pays rent. Each month, whichever side spends less invests the difference at the same return. At the end, the buyer's net worth is the home's value after selling costs, minus the loan balance, plus those investments.
With the defaults, a 400,000 home bought with 20% down at 6.5%, against rent of 2,000 rising 3% a year, 3% home price growth and a 6% investment return, buying is ahead by 14,221.16 after 30 years but only pulls ahead in year 29. Over 5 years the same inputs favor renting by 40,932.19, because the 3% buying costs and 6% selling costs have not been recovered.
Income and capital gains taxes are left out, including any mortgage-interest deduction. Small changes in rent, home price growth or investment return move the answer a long way, so test several.
Is it better to rent or buy a home?
Compare net worth on the day you expect to move: the buyer's home equity after selling costs plus savings, against the renter's invested down payment and savings. A 400,000 home bought with 20% down at 6.5%, against 2,000 rent, leaves the buyer 14,221.16 ahead after 30 years but 40,932.19 behind after 5.
How the comparison works
The buyer pays the down payment (80,000) and buying costs of 3% of the price (12,000). Each month they pay the mortgage plus property tax, maintenance and insurance.
The renter invests the same 92,000 on day one and pays rent each month.
Whichever household spends less in a month invests the difference. Both portfolios earn the same return, compounded monthly: at 6% a year, 1.06^(1/12) − 1 a month.
Rent, property tax, maintenance and insurance rise at the start of each year. The mortgage payment stays fixed until the loan is repaid.
At the end the buyer sells, paying selling costs of 6% of the sale price, and repays the remaining loan.
In year one, owning costs 2,847.62 a month: 2,022.62 of principal and interest, 366.67 of property tax (1.1% of 400,000 ÷ 12), 333.33 of maintenance (1%) and 125 of insurance. The renter pays 2,000 and invests the other 847.62.
Rent vs buy over 5 and 30 years
Horizon (years)
Buy net worth
Rent net worth
Buy minus rent
5
136331.92
177264.11
-40932.19
30
974573.41
960352.25
14221.16
Renting stays ahead in between, by 43,577.15 at 10 years, 34,821.41 at 20 and 17,623.85 at 25. Buying first catches up in year 29.
Why short stays favor renting
Transaction costs do most of the damage early. The buyer pays 12,000 to buy and, selling after 5 years at 463,709.63, another 27,822.58 to sell. Without those two costs, the 5-year result flips to buying 2,949.10 ahead.
The two percentages apply to different amounts: 3% of the purchase price, 6% of the future sale price. After 30 years of 3% growth the home sells for 970,904.99, so selling costs reach 58,254.30. They do not add up to 9% of the original price.
What tips the answer
Each change below keeps the other inputs fixed and looks 30 years ahead:
Mortgage rate. At 5.5% buying leads by 214,671.54 and pulls ahead in year 11; at 7.5% renting leads by 195,171.22.
Rent for a comparable home. 400,000 ÷ (2,000 × 12) is a price-to-rent ratio of 16.7. At 2,500 rent buying pulls ahead in year 6; at 1,800 renting never falls behind.
Investment return. A higher return helps the renter's portfolio: at 4% buying leads by 399,915.86, at 7% renting leads by 267,399.66.
Home price growth. At 4% a year buying pulls ahead in year 10; at 2% it never does within 30 years.
Maintenance. At 2% of the home's value instead of 1%, renting leads by 439,974.25.
Paying cash for the home
With 100% down there is no mortgage, but the renter now invests the whole price plus buying costs. With the other inputs unchanged, buying comes out 147,371.15 ahead after 30 years and pulls ahead in year 15.
Common mistakes
Comparing rent with the mortgage payment alone. Owning costs 2,847.62 a month in year one, not 2,022.62.
Forgetting what the down payment could earn. The renter's 92,000 grows from day one.
Comparing different homes. Use the rent of a home like the one you would buy.
Looking at one horizon. Check the year you are actually likely to move, since the lead can change sign.
Assuming taxes are counted. Property tax is included in owning costs. Income and capital-gains taxes are excluded, and no mortgage-interest deduction is modeled.
Before relying on a result, replace the percentage assumptions with figures from real loan and closing disclosures; the CFPB's homebuying guide explains what to compare.
Checked against: Monthly simulation written separately: loan payment, costs, and both portfolios growing at 1.06^(1/12) − 1 per month
Cash purchase with every rate zero, one year
Home price
120,000
Down payment
100%
Mortgage rate (per year)
0%
Mortgage term
30 years
Compare over
1 year
Monthly rent
1000
Rent increase (per year)
0%
Home price growth (per year)
0%
Investment return (per year)
0%
Property tax (% of home value per year)
0%
Maintenance (% of home value per year)
0%
Home insurance per year
0
Buying costs (% of price)
0%
Selling costs (% of sale price)
0%
Buying minus renting
12,000.00
Net worth if you buy
132,000.00
Net worth if you rent
120,000.00
Buying pulls ahead in year
1
Checked against: Hand calculation: the renter holds the 120,000 in cash; the owner keeps the home and banks 12 × 1,000 of rent not paid
Same home over 5 years
Home price
400,000
Down payment
20%
Mortgage rate (per year)
6.5%
Mortgage term
30 years
Compare over
5 years
Monthly rent
2000
Rent increase (per year)
3%
Home price growth (per year)
3%
Investment return (per year)
6%
Property tax (% of home value per year)
1.1%
Maintenance (% of home value per year)
1%
Home insurance per year
1500
Buying costs (% of price)
3%
Selling costs (% of sale price)
6%
Buying minus renting
-40,932.19
Verdict
Renting comes out ahead
Checked against: Monthly simulation: owner 136,331.92 vs renter 177,264.11 after buying and selling costs
15-year mortgage compared over 20 years
Home price
300,000
Down payment
10%
Mortgage rate (per year)
6%
Mortgage term
15 years
Compare over
20 years
Monthly rent
1800
Rent increase (per year)
3.5%
Home price growth (per year)
4%
Investment return (per year)
7%
Property tax (% of home value per year)
1%
Maintenance (% of home value per year)
1%
Home insurance per year
1200
Buying costs (% of price)
2%
Selling costs (% of sale price)
5%
Buying minus renting
272,307.00
Buying pulls ahead in year
3
Mortgage payment per month
2,278.41
Checked against: Monthly simulation; the loan is paid off after year 15 and the owner invests the full rent saving afterwards
Questions
Is it better to rent or buy a house?
It depends mostly on how long you stay and how rent compares with the price. With the default 400,000 home and 2,000 rent, renting and investing the difference comes out ahead at 5, 10, 20 and 25 years, and buying wins only at 30 years, by 14,221.16. If the same home would rent for 2,200, buying pulls ahead in year 12 and leads by 286,738.41 after 30 years.
How long do you need to own a home for buying to beat renting?
The result depends on the entered horizon, housing costs, price growth and investment return. The defaults charge buying costs at 3% of the purchase price and selling costs at 6% of the future sale price; those use different amounts and should not be combined as 9% of the original price after appreciation. In the default scenario, buying first reaches the renter's modeled net worth in year 29. At 4% home growth it first does so in year 10; at 2% it does not within 30 years. These are model comparisons, not forecasts.
What is the price-to-rent ratio?
It is the home price divided by a year's rent for a comparable home. The default 400,000 home renting at 2,000 a month has a ratio of 400,000 ÷ 24,000 = 16.7. A lower ratio favors buying: at 2,500 a month (ratio 13.3) buying pulls ahead in year 6, while at 1,800 (ratio 18.5) renting stays ahead for all 30 years.
What does it cost to own a home each month?
More than the mortgage payment. In the default case, owning costs 2,847.62 a month in year 1: a 2,022.62 mortgage payment plus 1.1% property tax, maintenance at 1% of the home's value and 1,500 a year of insurance. Tax, maintenance and insurance then grow with the home's value, while the mortgage payment stays fixed.
How does the investment return change the rent vs buy result?
A higher return favors renting, because the renter's down payment and monthly savings grow faster. With the other defaults fixed, buying leads by 399,915.86 after 30 years at a 4% return and by 14,221.16 at 6%, while renting leads by 267,399.66 at 7% and by 631,038.81 at 8%.
For planning only. Lenders, tax authorities and markets apply their own rounding, fees and rules; confirm figures with them before you commit.
Checked against references
This calculator includes 4 worked examples with independently sourced answers. They run in the test suite, and you can run them here too.
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