Rent vs Buy Calculator

The tool follows two households month by month for the years you stay. One buys the home. The other rents a similar home and invests the cash the buyer spent. At the end it asks who is richer.

The buyer pays the down payment and closing costs on day one. Each month they pay the mortgage, property tax, insurance, upkeep and any HOA dues. When they leave, they sell, pay selling costs and pay off the loan. Their wealth is what is left:

• $V$ is the home's value at the end, grown each year by the home price growth you set.
• $s$ is the selling cost as a share of the sale price, 6% by default.
• $B$ is the loan balance still owed when you sell.
• $S_{\text{buy}}$ is money the buyer invested in any month when owning cost less than renting.

The renter starts by investing the same cash the buyer put down, plus closing costs. Each month that owning costs more than rent, the renter invests the difference. Their wealth is that pot of savings, $S_{\text{rent}}$, grown at your investment return.

Yearly rates become monthly ones with the twelfth root, so 3% a year compounds to exactly 3% over 12 months:

The mortgage payment uses the standard fixed-rate formula. On the default $400,000 home with 20% down, owning costs $2,873 in the first month, against $2,200 of rent. Rent rises once a year by the rent growth you set.

Dana and Chris plan to stay seven years

They like a $400,000 house with 1.1% property tax. A similar place rents for $2,200 a month. With 20% down at 6.5%, buying needs $92,000 in cash.

After seven years the buyer has $173,101 and the renter $195,470, so renting is ahead by $22,370. Break-even comes in year 12. If they left after three years, renting is ahead by $32,307. If prices stayed flat for the seven years, renting is ahead by $101,426. Open this example in the tool

Priya looks at a city condo

The condo costs $850,000, with 0.7% tax and $450 a month in HOA dues. A similar unit rents for $3,400, and renter's insurance is $200 a year. She expects to move in five years.

Owning costs $6,102 in the first month, far more than the rent. After five years renting is ahead by $150,848. The price-to-rent ratio is 20.8, and buying never catches up within 40 years. Open this example in the tool

Marcus in a lower-cost town

Marcus can buy a $260,000 house with 1.4% tax, or rent one for $1,750 a month. He plans to stay ten years.

Owning costs $1,985 in the first month, only a little more than rent. After ten years buying is ahead by $31,632, and break-even comes in year 6. A low price next to the rent is what tips it. Open this example in the tool

The big number is the gap in wealth at the end of your stay. It counts the home's sale, the loan you paid down, and every dollar each household could invest. It does not count the rent itself as "lost": the buyer also pays interest, tax and upkeep that build nothing.

The break-even year matters more than the gap. If you might move before it, renting is the safer bet. In the default case break-even is year 12, 5 years past the planned stay.

The price-to-rent ratio is the price divided by a year of rent. Trulia's Rent vs. Buy Index, launched in 2010, read 1 to 15 as favoring buying, 16 to 20 as often favoring renting, and 21 or more as strongly favoring renting (reported by Inman). Treat it as a first filter only. Dana's ratio of 15.2 sits right at the edge, which is why stay length decides her case.

Three inputs move the result most. Home price growth is the big one: Dana's gap swings by $79,056 between 3% growth and none. Then come the years you stay and the mortgage rate. For local price trends, the FHFA House Price Index tracks prices by state and metro area.

• Comparing rent with the mortgage payment alone. Tax, insurance and upkeep add a lot. On Dana's house they come to $850 in the first month, on top of the loan payment.
• Forgetting the cost of selling. Agent fees and transfer costs come off the sale price. On a short stay they can wipe out years of equity.
• Assuming the renter spends the savings. Renting only wins in this model if the renter really invests the down payment and the monthly difference. If that money would be spent, use a lower return.
• Using a past boom as the growth rate. A few years of fast price rises do not repeat on cue. Try 2% and 4% too, and check the what-if table.
• Counting tax breaks you will not get. The mortgage interest deduction only helps if you itemize. The tool leaves it out, so add it in your head only if you know you itemize.