Rent vs. Buy Calculator
Renting
Return on investing down payment instead
Buying
Key Factors
- Staying 5+ years
- High rent increases
- Low mortgage rates
- Strong appreciation
- Moving within 3 years
- High home prices
- Better investment returns
- Job uncertainty
Related Calculators
Should You Rent or Buy?
The Rent vs. Buy Decision
The rent vs. buy decision is one of the biggest financial choices you'll make. It's not just about monthly payments - it's about total financial impact over time, including opportunity costs, equity building, maintenance, and lifestyle factors.
The Break-Even Rule of Thumb
In most markets, you need to stay in a home for 3-7 years for buying to make financial sense. This accounts for closing costs, selling costs, and the time needed for appreciation to offset transaction costs.
True Cost of Buying
Many people only compare rent to mortgage payment, but homeownership has many hidden costs:
Upfront Costs
- Down payment (3-20% of price)
- Closing costs (2-5% of price)
- Moving expenses
- Initial repairs/upgrades
Ongoing Costs
- Property taxes (1-2%/year)
- Homeowner's insurance
- Maintenance (1-2%/year)
- HOA fees (if applicable)
- PMI (if <20% down)
The Opportunity Cost
A key factor often overlooked is what you could do with the money you would otherwise use for a down payment and the extra costs of ownership:
Example Scenario
If you have $80,000 for a down payment and invest it at 7% instead of buying, after 10 years you'd have about $157,000. This opportunity cost must be weighed against the equity you'd build through homeownership.
Benefits of Each Option
Benefits of Buying
- Building equity over time
- Fixed housing cost (fixed-rate mortgage)
- Potential appreciation
- Tax deductions (mortgage interest, property tax)
- Freedom to customize
- Stability and control
Benefits of Renting
- Flexibility to relocate
- No maintenance responsibilities
- Lower upfront costs
- Invest savings elsewhere
- Predictable monthly costs
- No market risk on property
When Each Option Makes Sense
| Situation | Buy | Rent |
|---|---|---|
| Staying less than 3 years | X | Yes |
| Staying 5+ years | Yes | Maybe |
| Career requires mobility | X | Yes |
| Strong local appreciation | Yes | Maybe |
| High rent-to-price ratio | Yes | X |
| Limited savings for emergencies | X | Yes |
The Price-to-Rent Ratio
Quick Market Assessment
Divide the home price by annual rent to get the price-to-rent ratio:
Beyond the Numbers
While this calculator provides financial analysis, the rent vs. buy decision also involves personal factors: Do you want the responsibility of maintenance? Do you value flexibility or stability more? Is building equity important to you? These non-financial factors should also influence your decision.
Frequently Asked Questions
How long should I plan to stay before buying makes sense?
Generally, you need to stay at least 3-5 years for buying to make financial sense. This accounts for closing costs (2-5% when buying, 8-10% when selling) and gives time for appreciation to offset transaction costs. In expensive markets with slow appreciation, you may need 7+ years. If you might move sooner, renting is usually better.
What is the price-to-rent ratio and how do I use it?
Divide the home price by annual rent to get this ratio. Below 15: buying likely better. 15-20: close call, analyze carefully. Above 20: renting likely better. A $400,000 home that would rent for $2,000/month has a ratio of 16.7 ($400,000 / $24,000), suggesting a moderate market where either could work.
What hidden costs of homeownership should I consider?
Beyond mortgage: property taxes (1-2% of home value annually), homeowner's insurance, maintenance (1-2% annually), HOA fees, PMI if down payment is under 20%, utilities often higher than renting, and unexpected repairs. A $300,000 home can easily cost $6,000-$10,000+ per year beyond the mortgage.
Should I consider the down payment opportunity cost?
Yes. A $60,000 down payment invested at 7% grows to ~$118,000 in 10 years. When buying, that money is tied up in home equity. However, home equity also grows through appreciation and mortgage paydown. The comparison depends on expected investment returns vs. home appreciation in your market.