Rent vs Buy Calculator
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Compare total cost of renting vs buying over your chosen time horizon. Accounts for appreciation, opportunity cost, and all expenses.
🏠 BUYING
🏢 RENTING
Better Financial Choice
Buying cost is net of home equity gained. Renting cost is net of investment growth on down payment. Many non-financial factors (stability, flexibility) also matter.
📐 Formula
Net Buy Cost = Mortgage Payments + Maintenance + Down Payment − Home Equity. Net Rent Cost = Total Rent − Investment Growth on Down Payment
How to Use the Rent vs Buy Calculator
Enter home price and down payment
Input the purchase price of the home you are considering and your available down payment. The down payment determines loan size, monthly payment, and whether PMI applies.
Enter current rent
Input your current monthly rent or the rent you would pay for a comparable property. This is the primary alternative cost compared against buying.
Set the time horizon
How long you plan to stay is the most important variable. The breakeven point — where buying becomes cheaper than renting — typically falls between 4 and 8 years depending on market and assumptions.
Enter appreciation and investment return rates
Home appreciation and investment return assumptions drive long-term outcomes. Historical US home appreciation averages 3–4% annually; stock market returns average 7–10%. Adjust these for your local market and risk tolerance.
The Rent vs Buy Decision: What the Numbers Show
The rent vs buy decision is one of the most analysed questions in personal finance — and the answer consistently depends on three factors: how long you plan to stay, local price-to-rent ratios, and what you do with the savings if you rent. The common assumption that buying is always better than renting is not supported by the data in high price-to-rent markets or short time horizons.
The price-to-rent ratio is a useful first filter: divide the home's purchase price by the annual rent for a comparable property. A ratio below 15 generally favours buying; 15–20 is neutral; above 20 favours renting. In San Francisco, ratios often exceed 40, meaning you pay $40 in purchase price for every $1 of annual rent — mathematically, renting and investing the difference outperforms buying across most scenarios at that ratio. In cities like Detroit or Memphis with ratios of 10–12, buying is almost always superior.
The Five-Year Rule of Thumb
Buying a home incurs transaction costs of 8–10% of the purchase price: 2.5–3% buyer's agent commission (now negotiated separately post-NAR settlement), title insurance (~0.5%), lender fees (0.5–1%), prepaid items, and on the sale side another 2.5–3% seller's commission plus transfer taxes. On a $400,000 home, this totals $32,000–$40,000 in round-trip transaction costs. These must be recovered through equity accumulation and appreciation before the home's financial performance exceeds renting. For most markets and price points, this breakeven occurs between 4–7 years — hence the common five-year rule: if you are not confident you will stay for five years, renting is likely the lower-risk financial choice.
The Equity Build vs Opportunity Cost Trade-off
Homeownership builds equity through two mechanisms: principal paydown (initially slow — early mortgage payments are mostly interest) and property appreciation. The down payment and monthly principal payments represent capital that could alternatively be invested. In a 7% mortgage rate environment, the risk-free comparison is clear: paying off a 7% mortgage is equivalent to earning 7% guaranteed on that capital, which is competitive with most investment alternatives. At 3% rates (as seen in 2020–2022), the calculus shifts — investing the down payment in equities earning 7–10% could outperform the 3% mortgage paydown, making a smaller down payment financially rational.
Weighing up renting versus buying in South Africa? The SA property market has its own distinct cost structure — transfer duty, conveyancing attorney fees, and bond registration costs are all paid upfront by the buyer, significantly affecting the breakeven horizon. Price-to-rent ratios in Cape Town, Johannesburg, and Durban also differ substantially from US norms. SA Property Tools provides South African rent-vs-buy analysis alongside transfer duty, bond repayment, and rental yield calculators built for the SA property market.
How to Compare Renting vs Buying by Hand: Worked Example
Compare renting at $2,200/month against buying a $380,000 home with 20% down ($76,000), financing $304,000 at 6.5% over 30 years.
Monthly cost of buying: P&I payment of $1,921 (using the standard amortization formula) plus property tax (~$348), insurance (~$111), and maintenance reserve (~$317, at roughly 1% of value annually) = $2,697/month — $497 more than renting at $2,200.
But renting builds no equity. Over 5 years, the buyer pays down roughly $19,423 in principal and, assuming a conservative 3% annual appreciation, gains about $60,524 in home value — a combined equity gain of about $79,947. Selling after 5 years typically costs around 7% of the sale price in agent commission and closing costs — roughly $30,837 on the appreciated value — netting the buyer about $49,000 ahead of the renter's position, before accounting for what the renter could have earned investing the $497/month difference elsewhere.
What does the renter's alternative investment look like?
If the renter invests the $497/month gap at a 7% return for 5 years, that stream grows to roughly $35,700 — meaningful, but still short of the buyer's roughly $49,000 net equity advantage in this example. The comparison is highly sensitive to appreciation and holding period assumptions, which is why the calculator lets you adjust both directly rather than relying on a single rule of thumb.
Is There a Reliable "Break-Even" Point Between Renting and Buying?
What is the five-year rule of thumb, and why five years?
The common guideline holds that buying rarely beats renting on a purely financial basis before roughly five years of ownership, because closing costs (both buying and selling) and slow early-mortgage equity buildup take that long to overcome. Selling after just 1–2 years frequently loses money once the roughly 2–3% buying costs and 5–7% selling costs are combined — even in a rising market.
How much does the local rent-to-price ratio matter?
A market where rent is unusually cheap relative to home prices (a low rent-to-price ratio) tilts the math toward renting, even over a long horizon; a market with high rent relative to home prices tilts toward buying. The $2,200-rent-vs-$380,000-home example above (rent-to-price of roughly 0.58%) sits near a commonly cited threshold where the decision genuinely depends on appreciation assumptions rather than being clearly one-sided.
Does the calculator account for the tax treatment of each option?
Mortgage interest and property tax may be deductible for itemizing filers, which effectively lowers the true cost of buying below the raw monthly PITI figure — though the 2017 tax law's larger standard deduction means fewer homeowners itemize than in the past. Renters receive no comparable deduction, which is a real (if often modest) factor worth including for higher-income buyers who do itemize.
Frequently Asked Questions
Sources & Methodology
Calculations are based on the most current publicly available data from authoritative government and industry sources: