Rent vs Buy Calculator

The hidden costs of buying (and renting)

The rent-vs-buy decision is rarely as simple as "renting is throwing money away." Both options have substantial costs that don't appear on the surface — and the right answer depends heavily on how long you'll stay.

Costs of buying most people forget

• Closing costs: 2–5% of price on purchase, 6–10% on sale (real estate commissions).
• Property taxes: 0.5%–2.5% of value annually, forever.
• Maintenance: 1–2% of home value annually, on average.
• Interest: On a 30-year mortgage at 6.8%, total interest exceeds the original principal.
• Opportunity cost: Your down payment could have been invested in the stock market.

Costs of renting most people forget

• Rent growth: Rent typically rises 3% per year — your landlord is hedging inflation, you're paying for it.
• No equity buildup: You never get the down payment back.
• Opportunity cost on the difference: If buying would cost more monthly, the savings should be invested.

The break-even horizon

Most financial planners suggest buying only makes sense if you'll stay 5+ years — long enough to amortize the transaction costs. In high-cost cities, the break-even can stretch to 10+ years. In low-cost areas, it can be as short as 3 years.

The biggest financial mistake first-time buyers make is comparing a monthly mortgage payment to monthly rent. The comparison should be total cost of ownership (including taxes, insurance, maintenance, and transaction costs) versus total cost of renting (including the opportunity cost of not investing the down payment).

Frequently asked questions

How long do I need to stay for buying to make sense?

The traditional rule of thumb is 5 years — long enough to amortize transaction costs (closing costs on purchase, real estate commissions on sale). In high-cost cities, the break-even can stretch to 10+ years. In low-cost areas, it can be as short as 2-3 years. This calculator gives you a personalized break-even.

Does the calculator include opportunity cost?

Yes. The down payment you use to buy a house could have been invested in the stock market instead. The calculator factors in this opportunity cost (using your expected investment return). For 30-year periods, the S&P 500 has averaged ~10% nominal returns.

What about tax benefits of homeownership?

The mortgage interest deduction and SALT deduction (capped at $10,000 since 2018) provide some tax benefit, but only if you itemize. With the 2017 tax law changes, ~90% of taxpayers take the standard deduction and get no tax benefit from homeownership. The calculator uses simplified assumptions — consult a CPA for specifics.

Should I buy if I plan to move in 3 years?

Almost never. Transaction costs (3-6% on purchase, 6-10% on sale) plus the slow start of equity buildup mean buying for short periods usually loses money. Rent instead and invest the difference — you'll likely come out ahead.

What if home prices fall?

Real estate markets can and do decline — the 2008 crash saw 30%+ drops in many markets. If you need to sell during a downturn, you could lose your entire down payment (or more, in a 'short sale' scenario). Long holding periods (10+ years) significantly reduce this risk.

Does renting really build no wealth?

Not directly — rent payments go to a landlord, not equity. But renting can build wealth if you invest the difference between rent and total cost of ownership. A renter paying $2,000/month vs. an owner paying $3,500/month (PITI + maintenance) can invest $1,500/month — over 30 years at 7%, that's $1.8M.

Should I buy a house as an investment?

Generally no — primary residences are consumption, not investment. They appreciate slowly (3-4% historically, barely above inflation), require ongoing maintenance (1-2% of value/year), and concentrate your net worth in a single illiquid asset. If you want real estate exposure, buy rental properties or REITs separately.

Glossary of key terms

Break-Even Horizon

The number of years you need to own for buying to cost less than renting, accounting for all costs and opportunity costs.

Closing Costs

Fees paid at closing — typically 2-5% of purchase price for buyers, 6-10% for sellers (including commissions).

Opportunity Cost

What you could have earned by investing your down payment elsewhere (e.g., stock market).

Total Cost of Ownership

All costs of owning: mortgage interest, property taxes, insurance, maintenance, plus transaction costs.

Price-to-Rent Ratio

Home price ÷ annual rent. Above 20, renting usually wins. Below 15, buying usually wins.

Common mistakes to avoid

• Comparing mortgage payment to rent — total cost of ownership is much higher than P&I
• Forgetting closing costs (3-6% on purchase) and commissions (5-6% on sale)
• Ignoring opportunity cost — your down payment could be invested instead
• Assuming home prices only go up — they don't, especially short-term
• Underestimating maintenance costs — budget 1-2% of home value annually

Pro tips

• If you'll move within 5 years, rent. If you'll stay 10+ years, buy. Between 5-10 years, run the numbers carefully.
• Invest the difference between renting and owning — most renters don't, which is why owners build more wealth on average.
• In high-cost cities (price-to-rent ratio above 20), renting often wins even over long horizons.
• Factor in lifestyle preferences — owning gives you stability and customization; renting gives you flexibility and zero maintenance responsibility.
• Buy a home you can afford on one income if you're a dual-income couple — protects against job loss.

Results are estimates for educational purposes only and not financial advice. Consult a licensed professional for advice specific to your situation.