Rent vs. Buy Calculator
Quickly compare the true cost of renting versus buying a home over your selected time horizon. This professional-grade tool models mortgage amortization, property taxes, insurance, maintenance, appreciation, rent inflation, and transaction costs to help households, investors, and advisors make a confident, data-backed decision.
Calculator
Results
| Loan amount | $0 |
|---|---|
| Monthly mortgage payment | $0 |
| Net proceeds at sale | $0 |
| Remaining balance at sale | $0 |
| Avg monthly cost (nominal) | $0 |
| First month rent | $0 |
|---|---|
| Avg monthly rent (horizon) | $0 |
| Invested cash at end | $0 |
| Horizon (months) | 0 |
| Break-even (PV monthly) | $0 |
Data Source and Methodology
Authoritative Data Source: OpenStax, “Business Math,” Chapter: Installment Loans and Amortization, 2018. Direct link: https://openstax.org/details/books/business-math. All calculations are strictly based on the formulas and data provided by this source.
This calculator applies standard fixed-rate amortization and time-value-of-money techniques to model cash flows for buying and renting, then discounts future cash flows at your specified alternative investment return to compute present-value totals.
The Formula Explained
Glossary of Variables
- Home price: Purchase price of the property.
- Down payment: Upfront cash paid (as % of price or absolute amount).
- Mortgage rate (APR): Annual interest rate for the loan.
- Loan term: Years to repay the mortgage.
- Property tax rate: Annual tax as a % of assessed value (assumed to follow appreciation).
- Homeowner’s insurance: Annual premium paid by owner.
- HOA dues: Monthly homeowners association dues.
- Maintenance reserve: Annual allowance for upkeep, as % of current home value.
- Home appreciation: Expected annual value growth.
- Purchase closing costs: One-time costs at purchase, % of price.
- Selling costs: Costs when selling, % of future value.
- Monthly rent: Current rent at start of horizon.
- Rent increase: Annual growth of rent.
- Renter’s insurance: Monthly premium for renters.
- Annual return: Alternative investment return, also used as discount rate.
- Present-value total: Sum of discounted cash flows over the horizon.
- Nominal total: Raw, undiscounted sum of cash flows over the horizon.
- Net proceeds at sale: Future value minus remaining balance and selling costs.
How It Works: A Step-by-Step Example
Scenario: Home price $400,000; 20% down; 6.75% APR; 30-year term; property tax 1.2%; insurance $1,600/yr; maintenance 1% of value/yr; HOA $0; appreciation 3%/yr; closing 2.5%; selling 6%; horizon 7 years; rent $2,300/mo with 3% annual increases; renter’s insurance $15/mo; investment return 4%/yr.
- Compute loan amount: P = 400,000 × (1 − 0.20) = 320,000.
- Monthly payment via M = P·r / (1 − (1+r)^−n), with r = 0.0675/12, n = 360 → M ≈ $2,074.59.
- Over 84 months, sum monthly costs: mortgage payments, taxes, insurance, maintenance (each month using appreciated value), plus selling costs at the end, minus net sale proceeds.
- Compute rent cash flows with monthly growth from 3%/yr and add renter’s insurance.
- Discount all monthly cash flows at i = 4%/yr to get present-value totals. For rent, subtract the PV of invested cash (equivalent to subtracting the initial down payment + closing costs).
- Compare PV totals: the lower value identifies the financially cheaper option over 7 years.
Frequently Asked Questions (FAQ)
What costs are included for owners?
Mortgage payments, property taxes, homeowner’s insurance, maintenance, HOA (if any), closing costs at purchase, and selling costs at exit. Net proceeds from the sale are subtracted.
How do you handle the opportunity cost of the down payment?
We model the renter’s alternative: the down payment and closing costs are assumed invested at your specified annual return, and the ending investment value is subtracted from the rent scenario.
Why use present-value (PV) totals?
PV accounts for the time value of money, allowing fair comparison of monthly expenses and future proceeds by discounting them at your chosen rate.
Can I include tax deductions?
Tax situations vary widely. To keep results broadly applicable and conservative, mortgage-interest and property-tax deductions aren’t included by default.
What appreciation and rent growth should I choose?
Consider local historical trends and forecasts. A range of 2–4% for both appreciation and rent growth is commonly used for long-run planning.
Is this calculator suitable for investors?
Yes. It captures principal drivers of cash flows and allows discounting at your hurdle rate. For rental property income or tax-specific modeling, use a dedicated rental ROI calculator.