Rent vs buy calculator
This panel does not model the cost of buying or the cost of selling, and leaving them out moves the answer a long way. On the figures above it reports buying ahead by $107,026.21 over seven years, and it reports buying ahead at every horizon down to one year, which is not a conclusion anyone should act on. Put 3% of the price back for purchase, 6% of the sale value for the exit and a 5% return on the $80,000 deposit that a renter would still have invested, and the seven-year advantage falls from $107,026.21 to $32,941.20 and the crossover moves to between year four and year five. At zero price growth with the same three adjustments, buying does not get ahead until year eighteen. The verdict row is the arithmetic of the fields above it, not a recommendation.
Highly assumption-dependent. Purchase and sale costs are not modelled, tax treatment differs by country, and the answer swings sharply on price growth, which nobody can forecast. Treat it as a way to test assumptions, not as an answer.
Buying beats renting once the equity built and the price growth outweigh the interest, the running costs and the fees at both ends. This panel counts the first three and not the fees, so its verdict runs ahead of the real one. On the defaults it puts buying $107,026.21 ahead over seven years; with purchase costs, sale costs and the forgone return on the deposit put back, that becomes $32,941.20 and the crossover lands between years four and five.
How to compare renting and buying
Price growth is the assumption that dominates and the one nobody can know. Run the defaults at 3% and buying is $107,026.21 ahead over seven years; at 1% it is $43,930.80 and at zero it is $15,076.66. Every one of those still says buying, because of what the panel leaves out. Run it at several rates rather than one, and treat a conclusion that only survives at an optimistic growth assumption as no conclusion at all.
Three costs this panel does not carry
Purchase costs come first: transfer tax or stamp duty, legal fees, survey and lender charges, commonly two to five per cent of the price. Sale costs come second, and they are larger, because agent commission is charged on the higher price you are selling at rather than the lower one you bought at. Third is the deposit. A renter who does not put $80,000 into a house still has $80,000, and at 5% it is worth $32,568.03 more after seven years. None of those three appears in the difference row.
Put all three back at 3% purchase, 6% sale and a 5% return on the deposit and the picture changes shape rather than just size. At one year buying is behind by $29,412.41, at three years by $13,115.26, at four by $3,337.91, and at five it moves ahead by $7,572.44. The familiar rule that buying needs about five years to pay for itself is what falls out of the same model once the fees are in it. At zero price growth the same adjustments push the crossover to year eighteen, which states the same warning in years rather than in adjectives.
Two asymmetries inside the model
The rent side grows every year at the rate you set. The running-cost side does not grow at all: it charges the percentage against the original purchase price for the whole holding, so seven years at 1.2% of $400,000 is $33,600. Charge the same 1.2% against a property appreciating at 3% and it is $37,883.21, a further $4,283.21 the buy side never pays. The comparison therefore inflates the renter's costs and freezes the owner's, and both errors point the same way.
The last factor no calculator captures is flexibility. A tenancy can usually be ended within a month or two. A sale takes months, cannot be timed, and costs several per cent whenever it happens. Someone who might need to move for work inside three years is not choosing between two total-cost figures, they are choosing between a reversible decision and an expensive one.
What people use it for
- Deciding whether to buy now or keep renting
- Testing how sensitive the answer is to price growth
- Working out the minimum time to make buying worthwhile
- Comparing a specific property against a specific rent
- Adding your own purchase and sale costs to the panel’s difference
- Checking what the deposit would have earned elsewhere
Questions
It depends almost entirely on how long you stay. With purchase costs, sale costs and the deposit’s forgone return put back, the defaults here cross over between year four and year five.
Because it does not model the cost of buying or selling. The difference row is interest, running costs and equity only, and at one year the missing fees are far larger than the advantage it reports.
Subtract your purchase costs, your expected sale costs and the return the deposit would have earned from the difference row. On the defaults those come to $12,000, $29,516.97 and $32,568.03 over seven years, turning $107,026.21 into $32,941.20.
Run it at several rates including zero. The defaults give $107,026.21 at 3%, $43,930.80 at 1% and $15,076.66 at zero before fees, and only the first survives the fees comfortably.
With the three missing costs added back, buying does not get ahead until about year eighteen. Flat prices are not a disaster scenario, they are a plausible decade.
Maintenance, property tax, buildings insurance and service charges, commonly 1 to 1.5% of value a year. The field here applies your percentage to the original purchase price and never uprates it.
Yes, if the property appreciates. Seven years at 1.2% of $400,000 is $33,600; the same rate against a property growing at 3% is $37,883.21.
No. Add two to five per cent for purchase and another two to six for sale, including agent commission, which is charged on the higher price you sell at.
No, and it is one of the largest omissions. Eighty thousand dollars at 5% is worth $32,568.03 more after seven years than it was at the start.
The property value at the end minus the mortgage still owed: $491,949.55 less $284,210.84, so $207,738.71 on the defaults. It is credited against the cost of buying, and it is not cash until the property is sold.
Because an amortising mortgage front-loads interest. Seven years of payments on a thirty-year term retire $35,789.16 of the $320,000 borrowed, leaving $284,210.84.
No more than paying mortgage interest is. In the early years of a mortgage most of the payment is interest, and interest buys no equity either.
No. Mortgage interest relief, capital gains treatment on a main residence, property taxes and the tax on whatever a renter invests instead all differ by country, and none of them are here.
Not modelled. Reduce the deposit percentage and the payment rises, but no insurance premium is added, so a low-deposit purchase is flattered further.
It should include whatever a tenant pays and an owner would not, and exclude anything both pay. Utilities usually fall on both sides and can be left out of both.
Something close to long-run inflation unless you have local evidence otherwise. Setting rent growth high while leaving running-cost growth at zero, which this panel forces, exaggerates the case for buying.
It is a leveraged position in one asset in one location that you also have to live in. The calculator treats price growth as an input rather than a return, and treating it any other way would be a forecast dressed as arithmetic.
Then this is the wrong comparison. Rental yield, void periods, letting costs and a different tax treatment all enter, and none of them are modelled here.
No. Use it to find which assumptions the answer actually depends on, then check whether you believe them. A decision that flips between a 1% and a 3% growth assumption was never a numerical decision.