Rent vs. Buy Calculator
Determine the financial impact of buying a home versus renting over time.
Total Cost to Buy
Includes mortgage, taxes, maintenance, minus equity gain.
Total Cost to Rent
Includes rent payments and opportunity cost of down payment.
Understanding the Rent vs. Buy Decision
Deciding whether to buy a home or continue renting is one of the most significant financial decisions you will make. While buying is often viewed as "building equity," it comes with substantial upfront costs and ongoing maintenance responsibilities. Renting, on the other hand, offers flexibility and lower immediate liability but provides no long-term asset growth.
The Hidden Costs of Homeownership
When you buy a home, your monthly mortgage payment is just the beginning. You must also account for:
- Property Taxes: Usually 1% to 2% of the home's value annually.
- Maintenance: A common rule of thumb is setting aside 1% of the home's value per year for repairs.
- Closing Costs: Expect to pay 2% to 5% of the purchase price when buying.
- Insurance: Homeowners insurance is typically higher than renters insurance.
The Real Cost of Renting
Renting seems cheaper monthly, but you must consider the Annual Rent Increase. Over 10 years, a $2,000 rent payment that increases by 4% annually becomes nearly $3,000. Furthermore, renting carries an "opportunity cost"—the money you spend on rent is gone, whereas mortgage principal payments act as a forced savings account.
Example Calculation
Imagine a $400,000 home versus a $2,500 monthly rent. If you buy with 20% down ($80,000) at 6% interest, your mortgage is roughly $1,918. Add $400 for taxes and $200 for maintenance, and your monthly "out-of-pocket" is $2,518. After 10 years, if the home appreciates at 3%, it's worth $537,566. After selling and paying off the loan, you walk away with significant cash, whereas the renter has spent over $340,000 in total rent with zero return.
When is Renting Better?
Renting is often mathematically superior if you plan to stay in the home for less than 3 to 5 years. This is because the high transaction costs of buying (closing costs) and selling (6% agent commissions) haven't been offset by home price appreciation yet.