Rent vs Buy Calculator

The Rent vs Buy Decision

“Should I rent or buy?” is one of the most significant financial decisions most people face. The conventional wisdom — “buying is always better because you’re building equity” — is an oversimplification. The real answer depends on your local market, how long you’ll stay, interest rates, and what you’d do with the money you save by renting.

This calculator runs both scenarios side by side so you can make the decision with data, not emotion.

Key takeaway: There is no universal answer to “rent or buy.” The right choice depends on your local price-to-rent ratio, your time horizon, and what you’d do with the savings. Run your own numbers before trusting rules of thumb.

The True Cost of Buying

Buying a home involves more costs than most first-time buyers expect:

Adding these up, the true annual cost of homeownership often exceeds the mortgage payment by 30–50%.

Example: On a $350,000 home, the mortgage might be $1,864/month — but property taxes, insurance, maintenance, and PMI can push total monthly costs to $2,650 or more.

The True Cost of Renting

Renting is simpler but not cost-free:

• Monthly rent: Your base cost, typically increasing 3-5% per year
• Renter’s insurance: $150-$300 per year (much less than homeowners insurance)
• No equity building: Your payments go entirely to your landlord, not into an asset you own
• Opportunity cost: If renting is cheaper monthly, you could invest the difference — and historically, the stock market has returned 7-10% per year

The critical question is whether that invested difference grows faster than the equity you’d build by owning.

The Break-Even Point

The break-even point is when the total cost of buying equals the total cost of renting (including the investment gains from the renter’s savings). For most markets, this falls between 5–7 years. Before the break-even point, renting is cheaper. After it, buying wins.

Several factors move the break-even point:

Tip: If you might move within 3 years, renting is almost always cheaper. The upfront closing costs and eventual selling costs make short-term ownership a losing proposition in most markets.

The 5% Rule (Quick Test)

A quick way to estimate: multiply the home’s purchase price by 5%, then divide by 12. If you can rent a comparable place for less than this monthly amount, renting is likely the better financial choice.

For a $400,000 home: 5% × $400,000 = $20,000 / 12 = $1,667/month. If comparable rent is under $1,667, renting likely wins.

This rule isn’t precise, but it’s a useful starting point before running the full calculation.

When to Use This Calculator

Use the rent vs buy calculator when you’re:

• Deciding whether to buy your first home — see the actual break-even point for your specific market
• Considering a move to a new city — compare the cost of buying vs renting in the new location
• Evaluating a short-term stay — if you might move in 3-4 years, see whether buying makes sense
• Comparing the investment alternative — see what happens if you rent and invest the down payment instead

Common Mistakes

1. Only comparing rent to mortgage payment. The mortgage is just one piece — taxes, insurance, maintenance, and PMI add 30-50% more.
2. Assuming home prices always rise. In many markets, home prices have been flat or even declined for years. Don’t assume 5% annual appreciation.
3. Ignoring the opportunity cost of the down payment. A $60,000 down payment invested at 7% would grow to $118,000 in 10 years. That’s real money you’re choosing not to invest.
4. Buying because “rent is throwing money away.” Mortgage interest, property taxes, insurance, and maintenance are also “thrown away” — they don’t build equity.

Key takeaway: In the early years of a mortgage, most of your payment goes to interest — not equity. On a 30-year loan at 7%, only about 30% of your payment reduces the principal in year one.

What to Do Next

Enter your local numbers: home price, down payment, mortgage rate, monthly rent, and how long you plan to stay. The break-even timeline will tell you whether buying or renting makes more financial sense for your specific situation. If you’re within a year or two of the break-even point, personal factors (stability, lifestyle, neighborhood) should tip the decision.