How to use this calculator
Enter the details of the home you are considering buying and the rent you would pay as an alternative. The calculator compares the total cost of each option and shows which one leaves you with more wealth over your chosen time horizon.
The key insight is that buying builds equity through mortgage payments and home appreciation, while renting allows you to invest the down payment and any monthly savings in the stock market. The winner depends on your specific numbers and how long you plan to stay.
Key factors that affect the rent vs buy decision
| Factor | Favors Buying | Favors Renting |
|---|---|---|
| Time horizon | 7+ years | Under 5 years |
| Mortgage rates | Below 5% | Above 7% |
| Home appreciation | Above 3%/yr | Below 2%/yr |
| Price-to-rent ratio | Below 15 | Above 20 |
| Down payment size | 20%+ available | Under 10% |
| Job stability | Settled career | May relocate soon |
| Local market | Growing suburbs | Expensive urban core |
Frequently asked questions
Is it cheaper to rent or buy a home?
It depends on your local market, how long you plan to stay, mortgage rates, and what you would do with the down payment money otherwise. Buying generally becomes more cost-effective the longer you stay (typically 5-7+ years), while renting can be cheaper short-term and in high cost-of-living areas where price-to-rent ratios are high.
What is the 5% rule for rent vs buy?
Multiply the home value by 5% and divide by 12 to get a monthly breakeven cost of owning. The 5% covers roughly 1% property tax, 1% maintenance, and 3% cost of capital. If your rent is below that monthly number, renting may be the better financial choice.
How long do you need to own before buying is worth it?
Most experts suggest at least 5 to 7 years. Upfront closing costs (2-5%) and eventual selling costs (5-6% in commissions) need time to be offset by equity gains and appreciation. In strong markets the breakeven can be shorter.
What is the opportunity cost of a down payment?
It is the investment return you forgo by putting that money into a home instead of the stock market. A $70,000 down payment invested at 7% annually would grow to roughly $137,000 in 10 years. This calculator accounts for this by having the renter invest the equivalent down payment.
Does renting mean throwing money away?
No. Renters pay for housing without the extra costs of property taxes, maintenance, insurance, and mortgage interest. Renters also keep their capital liquid and can invest savings in potentially higher-returning assets. The real question is which option produces more net wealth over time.