Rent vs. Buy Calculator
Compare total cost of renting vs. buying over your time horizon, including equity and opportunity cost.
Inputs
Rule of thumb: 1–2% of home value per year.
Typically 5–6% for agent commissions plus transfer taxes.
Expected annual return if the down payment were invested instead.
Better Financial Choice
Buying
Cost Difference
$182,042
Net Cost of Buying
$211,382
Net Cost of Renting
$393,424
Monthly Mortgage Payment
$2,022.62
Equity at End of Horizon
$234,029
Estimated Sale Price
$537,567
Total Rent Paid
$304,446
Opportunity Cost of Down Payment
$88,978
Investment gain foregone by putting the down payment into a home instead.
Step by step
Down payment + closing costs (initial cash out)
$80,000 + $12,000
= $92,000
Equity at end of horizon (appreciated value − loan balance − selling costs)
$537,567 − $271,284 − $32,254
= $234,029
Net cost of buying (total outflows − equity recouped)
= $211,382
Total rent + insurance paid
= $304,446
Opportunity cost ($92,000 at 7% for 10yr)
= $88,978
Net cost of renting (rent + opportunity cost)
= $393,424
Verdict
= Buying is cheaper by $182,042
How it works
This calculator computes the true total cost of each path over your chosen horizon. Buying costs include mortgage payments, taxes, insurance, maintenance, closing costs and selling costs, offset by the equity you build and the home's appreciation. Renting costs include all rent payments plus the opportunity cost of the down payment — the investment return you forgo by not investing it. This opportunity cost is real money that most simplified comparisons ignore.
Formulas
Net buying cost
Net Buying = (All mortgage payments + taxes + insurance + maintenance + closing costs) − Equity at sale
Net renting cost
Net Renting = Total rent paid + Opportunity cost of down payment
Opportunity cost
OC = (Down Payment + Closing Costs) × (1 + investment return)ⁿ − initial capital
- DP
- Down payment
- CC
- Closing costs
- r
- Annual investment return
- n
- Horizon in years
This comparison model simplifies a complex decision. It excludes income tax effects, leverage risk, lifestyle factors and market volatility. Use it as a directional guide, not a definitive answer.
Frequently Asked Questions
Why does the down payment matter for the renting calculation?
The down payment is capital that you could alternatively invest. By using it as a down payment you forgo those investment gains. This opportunity cost is one of the largest and most frequently omitted factors in rent vs. buy comparisons.
What investment return should I assume?
US large-cap equities have returned roughly 7% real (inflation-adjusted) annually over long horizons. A conservative assumption (5–6%) is appropriate for mixed portfolios. Using a high return (10%+) makes renting look better; using a low return makes buying look better. Try several scenarios.
Which choice is financially better?
It depends heavily on your horizon, local rent/price ratio, and how long you plan to stay. Shorter horizons (under 5 years) typically favour renting because buying costs are front-loaded. Longer horizons increasingly favour buying if home values keep up with or exceed inflation.
Does the calculator account for the mortgage interest tax deduction?
No. The deduction only applies if you itemize, and since the 2018 TCJA roughly doubled the standard deduction, fewer than 10% of filers now itemize. Including it would require knowing your marginal rate and deduction situation. For most buyers, the deduction's benefit is modest or zero.