A fair comparison of renting and buying
"Rent is throwing money away" is a popular saying, but it ignores the costs owners pay that never build equity: mortgage interest, property taxes, insurance, maintenance, and transaction costs when buying and selling. A fair comparison also has to consider what a renter could do with the money that would otherwise go into a down payment. This calculator compares two people in identical financial situations: one buys, and one rents and invests the difference.
How it works
The buyer makes the down payment, pays closing costs, and then pays the mortgage, property taxes, insurance or HOA dues, and maintenance each month. The renter invests the down payment and closing costs on day one and, each month, invests whatever the owner spends beyond the rent. If rent ever exceeds owner costs, the renter withdraws from the portfolio. At the end of your chosen time horizon, the buyer sells the home (paying selling costs) and pays off the remaining loan; we compare that equity with the renter's portfolio.
The inputs that matter most
- Time horizon: buying has large upfront and exit costs, so it usually needs several years to beat renting. Try changing the "years you plan to stay" input first.
- Home appreciation vs. investment return: these two assumptions often decide the result. Be conservative and consistent.
- Price-to-rent ratio: in markets where homes are expensive relative to rents, renting often wins; where rents are high relative to prices, buying often wins.
- Maintenance: a common planning rule is about 1% of the home value per year, though older homes may need more.
Things this calculator does not capture
Money is only part of the decision. Owning offers stability, control over your space, and protection from rent increases once the mortgage is fixed. Renting offers flexibility, fewer surprise repair bills, and easier relocation for work. The model also leaves out taxes: some owners benefit from the mortgage interest and property tax deductions if they itemize, homeowners may exclude a large portion of home-sale gains from tax, and a renter's investment gains may be taxed. These can shift the outcome in either direction.
Using the result
Treat the output as a scenario, not a forecast. Run several combinations, such as lower appreciation, higher maintenance, or a shorter stay, and see whether the answer is robust. If buying wins only under optimistic assumptions, renting may be the safer choice for now. If buying wins across most scenarios and you expect to stay put, buying may make sense.
Limitations
All rates are assumed constant. The model ignores income taxes, PMI, HOA increases, renter's insurance, and the risk that home prices or investments fall. It assumes the renter actually invests the difference consistently, which takes discipline.
Formula used
Owner cost per month = mortgage P&I + property tax + insurance/HOA + maintenance. Renter starts with the down payment and buying closing costs invested, and each month invests (owner cost − rent), growing at the investment return.
Buyer net wealth = home value × (1 − selling costs %) − remaining loan balance. The result compares that with the renter’s portfolio after the same number of years.
Frequently asked questions
Why does buying often lose over short horizons?
Closing and selling costs plus early-year interest mean equity builds slowly at first.
What investment return should I use?
Use a realistic long-run figure for your actual portfolio and test several values.
Does this include tax benefits?
No. Mortgage interest deductions, home-sale exclusions, and taxes on investment gains are not modeled.
Is renting really “throwing money away”?
No. Rent buys housing, just as interest, taxes, and maintenance do for an owner.
Keep planning
- Mortgage Calculator — estimate your mortgage payment.
- Savings Goal Calculator — plan your down payment savings.
- Inflation Calculator — test different inflation assumptions.