Rent vs Buy Calculator

How the rent vs buy calculation actually works

Most rent vs buy calculators get the math half-right because they forget that the down payment has an opportunity cost. The $76,000 you put down on a $380,000 house is $76,000 you didn't invest in stocks, bonds, or a savings account. A fair comparison has to capture that.

Net cost of buying = upfront (down + closing) + cumulative PITI + maintenance − equity recovered at sale − mortgage-interest tax savings
Net cost of renting = cumulative rent paid (compounded by rent inflation) − net investment gain on the opportunity capital (down + closing invested in stocks)

The calculator runs both numbers year-by-year, including: the mortgage amortization schedule (so equity builds over time), home appreciation (which boosts the equity recovered at sale), the standard 6–7% selling-cost drag at the back end, and rent compounding annually at your inputted rent-inflation rate. The opportunity-cost side compounds the would-be down payment at your selected stock return, then applies a 15% long-term capital-gains tax to the gain.

The hold-period is the most important variable

The break-even is almost always somewhere between 4 and 8 years in 2026 rate environments. Below that, transaction costs (3% closing in + 7% selling on the way out = 10% of price) usually overwhelm the appreciation and equity build. Above 7–8 years, the equity-and-appreciation flywheel typically dominates.

Practical implications:

• Job that might transfer you in 2–3 years: renting is almost always financially better, even with high local rents. Don't let "throwing money away on rent" intuition override the math.
• Stable in your city for 7+ years: buying is usually the better financial outcome unless your local price-to-rent ratio is extreme (San Francisco, NYC, Boston).
• 5-year horizon: the answer depends heavily on local appreciation expectations and the price-to-rent ratio. Run the calculator at both 0% and your expected appreciation rate to see how sensitive the result is.

Why the mortgage-interest tax deduction matters less than people think

Post-TCJA (Tax Cuts and Jobs Act, 2017), the standard deduction rose to $14,600 single / $29,200 married for 2026. For the majority of homeowners, mortgage interest alone doesn't exceed the standard deduction, so the marginal benefit of itemizing is the SALT-cap-bounded property tax plus the mortgage interest above the standard deduction threshold. This calculator captures roughly half of cumulative mortgage interest as a tax benefit — a conservative approximation that matches real-world capture for most middle-to-high earners.

If you're a high-income earner in a high-property-tax state (NY, NJ, CA), itemize every year, and have a large mortgage, the actual capture is higher and buying looks even better than the default calculation. For most filers in lower-tax states, the default 50% capture is realistic or even slightly generous.

What this calculator does NOT model

• Section 121 capital gains exclusion ($250K single / $500K married) on primary-residence sale gain. For most buyers under the exclusion threshold, this only matters above ~15-year hold periods at high appreciation. If you're modeling a 20-year hold in a fast-appreciating market, mentally add back the cap gains you'd avoid by owning.
• PMI on down payments below 20%. If you put down less than 20%, expect 0.3–1.5% of the loan amount per year in private mortgage insurance until you reach 20% equity. Add this to your monthly comparison manually.
• Large unexpected repairs (roof, HVAC, foundation). The 1.5%/year maintenance assumption smooths these into a monthly figure but real maintenance is lumpy. Holding 3–6 months of PITI in reserve for owners is the prudent move.
• Lifestyle / personal-finance factors — stability, school district choice, ability to remodel, pet restrictions, control. These often weigh more than the dollar figure for personal-residence decisions.

Worked example: $380K home vs $2,200 rent over 7 years

The defaults model a common 2026 scenario: a $380K home with 20% down ($76K) at 7% mortgage rate, 1.1% property tax, 3.5% appreciation; renting the equivalent space at $2,200/mo with 3.5% annual rent increase. Stock market opportunity cost on the down payment compounds at 7%/yr. After 7 years:

• Monthly PITI + maintenance is roughly $3,000 — meaningfully higher than the starting $2,200 rent, but rent compounds to ~$2,800/mo by year 7.
• Home value at year 7: $483K. After paying off the loan balance and 7% selling costs, equity recovered is ~$152K — about double the original $76K down.
• The same $76K invested in stocks at 7% becomes $122K. After 15% capital gains tax on the gain, net stock value is ~$115K.
• Net cost to own ≈ total PITI + maintenance − equity recovered − tax savings ≈ $145K.
• Net cost to rent ≈ cumulative rent − net stock gain ≈ $180K.
• Buying wins by ~$35K over 7 years. Break-even is around year 5.

This is illustrative — change any of the inputs (especially appreciation, rent inflation, and stock return) and the answer can flip. The exercise is most useful as a sensitivity analysis: run it at conservative and aggressive assumptions and see whether the answer is robust.

When rent vs buy intersects with real estate investing

Most rent vs buy decisions are personal-residence decisions, but the framework directly applies to investor questions: should I sell my owner-occupied home, rent something cheaper, and put the equity into rental properties? Should I buy the property I'm renting and rent it back out? In both cases, the calculator gives you a starting framework — just substitute net rental cash flow for the "rent" side when modeling rental-property scenarios.

For full investment-property analysis (including leverage on a non-owner-occupied loan), pair this with the cap rate calculator and cash-on-cash return calculator. For the broader rent-vs-buy-vs-invest framing, see our real estate vs stocks comparison.

Frequently asked questions

How accurate is a rent vs buy calculator?

As accurate as your inputs. The math is deterministic — given inputs, the answer is exact. The uncertainty is entirely in the assumptions you make about home appreciation, rent inflation, stock market returns, and how long you'll stay. Run the calculator at multiple scenarios (e.g. 2% appreciation vs 5% appreciation) to see how sensitive the answer is to assumptions.

What appreciation rate should I assume?

3–4% per year is the long-run Case-Shiller US average. Use 2–3% for low-growth markets (Rust Belt, parts of the Midwest), 4–5% for stable mid-tier metros, and 5–7% only for verified high-growth Sun Belt or coastal markets. Always run at 0% appreciation as a stress test.

Should I use 7% or 10% for stock returns?

The headline S&P 500 historical return is ~10%, but that's nominal — before inflation. Real return averages ~7% nominal after a long-run inflation drag and ~5% inflation-adjusted. For a fair comparison with nominal home appreciation, 7% is the right starting point. Use 5% for conservative scenarios, 9% if you're bullish on equities over the comparison horizon.

What's the typical break-even point for buying vs renting?

In 2026 with rates around 7%, the break-even is typically 5–8 years in stable markets. Below 5 years, transaction costs (closing in + selling out = ~10% of price) usually overwhelm the equity build. Above 8 years, the appreciation-and-paydown flywheel almost always wins. The exact break-even depends heavily on price-to-rent ratio in your specific city.

Does this calculator account for tax benefits of owning?

Yes — the mortgage-interest tax deduction is captured at your marginal bracket × 50% of cumulative interest. The 50% factor reflects that post-TCJA, most homeowners' mortgage interest doesn't fully exceed the standard deduction. For high-income, high-property-tax states (NY, NJ, CA, IL), actual capture is higher. We do not model the Section 121 capital-gains exclusion ($250K/$500K) on sale gain — for hold periods under 15 years in normal-appreciation markets, that exclusion almost always covers the entire gain anyway.

Is renting really cheaper if I'm planning to stay long-term?

Almost never, in markets with normal price-to-rent ratios (15–20). In high price-to-rent markets (SF, NYC, Boston with ratios above 25), renting can stay cheaper even over 15+ year holds because the up-front purchase math is so unfavorable. Check your market's price-to-rent ratio first — if it's below 18, buying is likely better for 7+ year holds.

Sources

• Case-Shiller US National Home Price Index — long-run nominal appreciation series
• S&P 500 Total Return Index — historical equity-return benchmarks
• IRS Publication 936 (Home Mortgage Interest Deduction) and 523 (Selling Your Home) — Section 121 exclusion rules
• Zillow Home Value Index (ZHVI) and Zillow Observed Rent Index (ZORI) — current price + rent benchmarks
• Tax Cuts and Jobs Act of 2017 — post-2017 standard deduction + SALT cap framework

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