How the comparison works
The calculator follows both choices month by month and compares your net worth at the end of each year.
- If you buy, you pay the down payment and closing costs upfront. Each month you pay the mortgage, property tax, insurance, maintenance and HOA.
- If you rent, the cash you would have spent on the down payment and closing costs is invested instead. Each month you pay rent.
- Investing the difference: whichever choice costs less that month invests the difference at the return you set. That keeps the comparison fair.
Buy: net worth = home value × (1 − selling costs) − loan balance + invested savings
Rent: net worth = upfront cash + monthly savings, all grown at the investment return
Rent: net worth = upfront cash + monthly savings, all grown at the investment return
Assumptions, stated plainly
- Rent, insurance and HOA rise each year by the rent growth rate.
- Property tax and maintenance are a percent of the home's value, which grows by the appreciation rate each year.
- Investment returns compound monthly, at the monthly equivalent of the yearly rate.
- The buyer sells at the end of each year shown, paying the selling costs. Those costs are why buying usually loses in the first few years.
- Not included: income taxes (mortgage interest deduction, tax on investment gains, the home-sale exclusion), renter's insurance, moving costs and PMI. Add PMI to the HOA box if you'll pay it.
Worked example
With the starting numbers ($2,400 rent rising 3% a year against a $400,000 home with 20% down at 6.5%, 3% appreciation and 6% investment returns), owning costs about $2,870 a month at first, more than rent. Renting stays ahead for the first 7 years. Buying pulls ahead in year 8, and after 10 years the buyer is about $25,287 ahead.
Small changes matter. At $2,200 rent, renting is still ahead after 10 years; at $2,500 rent, buying pulls ahead in year 6.
Limitations
- Nobody knows future home prices, rents or investment returns. Try a pessimistic and an optimistic case. FHFA's house price index shows how much prices have varied by region.
- The renter only comes out ahead if they actually invest the difference every month.
- Owning has benefits money can't show, like stability and control, and costs it can't either, like being less free to move.