Buy vs. Rent Calculator
This calculator compares the future value of the unrecoverable costs of buying a home against the future value of renting. For buying, unrecoverable cost includes mortgage interest, property taxes, maintenance, selling costs, and the foregone investment growth on money committed to the home, offset by home appreciation. It calculates an Equivalent Initial Monthly Rent: if you can rent a similar home for less than this amount, renting is projected to build more wealth over your chosen timeframe.
The Property
Assumes a standard 30-year fixed mortgage.
Home Expenses
Broker fees, staging, closing costs when you sell at the end of your stay.
Market Assumptions
Expected annual return on funds that could otherwise remain invested instead of being used for the down payment and ongoing homeowner cash outflows.
Projection Chart
Note: The "Net Unrecoverable Cost" line tracks differently than the bar tops because the Out of Pocket bars include mortgage principal (which builds equity) and the line nets out home appreciation.
Cost Projection Data
| Year | Home Value | Out of Pocket | Foregone Portfolio Growth | Net Unrecoverable Cost |
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Detailed Unrecoverable Cost Breakdown
| Year | Interest | Taxes | Maint | Ins/HOA | Foregone Growth | Selling Cost | - Appreciation | Net Unrecoverable Cost |
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How It's Calculated
- Out of Pocket: Annual cash paid by the homeowner, including mortgage payments, property taxes, maintenance, insurance, and HOA dues.
- Foregone Portfolio Growth: Calculated using a hypothetical alternative portfolio. It begins with the down payment and, each year, adds that year’s homeowner cash outflows. The model then applies the assumed investment return, capturing the compounded growth those dollars could have earned if they had remained invested instead of being committed to homeownership.
- Net Unrecoverable Cost: Mortgage interest, property taxes, maintenance, insurance, HOA dues, and foregone portfolio growth, minus the benefit of home appreciation. Selling costs are added in the final year when the home is assumed to be sold.
- Equivalent Initial Monthly Rent: The break-even year-1 monthly rent. If actual rent starts below this amount, and then rises annually at the assumed rent inflation rate, renting is projected to produce greater ending wealth over the holding period.
Equivalent Initial Monthly Rent Formula:
The calculator solves for the year-1 monthly rent whose future value, after applying annual rent inflation and compounding at the assumed investment return, equals the future value of the buy-side unrecoverable costs over the same holding period.
Monthly Rent = Total Buy Unrecoverable Cost ÷ [ 12 × ∑ (1 + RentInflation)t-1 × (1 + InvReturn)N-t ]
Legend:
- N = Total years staying in the home
- t = Specific year being calculated (from 1 to N)
- RentInflation = Annual Rent Inflation rate
- InvReturn = Annual investment return used to measure foregone growth on funds committed to buying rather than investing
Model Assumptions & Limitations
- Omitted Costs: The model does not include Private Mortgage Insurance (PMI) or purchase (buy-side) closing costs.
- Taxes are Simplified: The model does not include mortgage interest deductions, property tax deductions, taxes on investment returns, or taxes on home-sale gains.
- Constant Rates: Mortgage rate, appreciation, maintenance, insurance/HOA, rent inflation, and investment return are assumed constant over the projection period.
- Future-Value Framework: The model compares ending wealth by future-valuing the cash flows associated with buying and renting, rather than discounting all cash flows to present value.
- Selling Costs: Broker fees and closing costs are applied in the final year, when the home is assumed to be sold.
- Equivalent Rent & Reinvestment: The displayed amount is the break-even year-1 monthly rent, assuming it includes all rent-side costs (like renter's insurance and fees). Crucially, it assumes disciplined reinvestment: to achieve the projected wealth, a renter must invest the exact difference between the total costs of homeownership and their rent every single year.