Rent vs. Buy Calculator
Compare the net wealth outcome of renting vs. buying a home over your expected stay, using the invest-the-difference method — see the numeric differential and break-even year, not an opinion.
How It's Calculated
Formula
\text{NetWealth}_{\text{buy}} = \text{HomeValue} - \text{MortgageBalance} - \text{SellingCosts}, \quad \text{Differential} = \text{NetWealth}_{\text{buy}} - \text{NetWealth}_{\text{rent}}This calculator uses the 'invest the difference' method: both renting and buying start from the same cash (a buyer's down payment plus closing costs) — the buyer puts it into a home, the renter invests it. Each year after that, whichever option costs less has the difference credited into (or, if renting costs more that year, drawn out of) the renter's investment portfolio, so the comparison always reflects the exact same total cash flow either way. The buyer's annual cost is mortgage interest (reusing this project's amortization engine — principal isn't a 'cost', it becomes home equity) plus property tax, insurance, and maintenance; the renter's annual cost is that year's rent. At the end of each year, the buyer's net wealth is home value minus remaining mortgage balance minus selling costs (as if sold that year), and the renter's net wealth is their investment portfolio. The net wealth differential and the break-even year (the first year buying's net wealth catches up to renting's) are the two BRD-required outputs — this calculator never labels one option 'better', only reports the numeric comparison for the exact assumptions entered.
Worked Examples
All-cash purchase, zero costs, 1-year check (fully worked)
- $100,000 home, 100% down (no mortgage), 5% appreciation → home value after 1 year: $105,000
- Buyer's cash cost this year: $0 (no mortgage, no tax/insurance/maintenance in this simplified example)
- Renter invests the $100,000 they didn't spend at 10%: grows to $110,000, then pays $500/month × 12 = $6,000 rent out of that same pool → $104,000
- Net wealth differential: $105,000 − $104,000 = $1,000 (buying slightly ahead after 1 year, under these exact numbers)
Frequently Asked Questions
Why doesn't this just say 'renting is better' or 'buying is better'?
Because that would be an unsupported opinion — the actual answer depends entirely on the assumptions you enter (appreciation, mortgage rate, how long you stay, investment returns). This calculator reports the numeric net wealth differential and break-even year for YOUR entered assumptions instead.
What does 'no break-even within the selected period' mean?
It means that, under your entered assumptions, buying's net wealth never catches up to renting's within the number of years you plan to stay — not that it never would with a longer horizon, and not a fabricated year.
Why is mortgage principal excluded from 'annual owning cost'?
Principal payments aren't a cost in the net-wealth sense — they convert cash into home equity, which is already captured in the buyer's net wealth (home value minus remaining mortgage balance). Only interest, tax, insurance, and maintenance are treated as pure costs comparable to rent.
Can the renter's portfolio go negative? What does that mean?
Yes, if owning is cheaper than renting almost every year, the model treats the shortfall as a signed counterfactual wealth ledger — the same growth rate compounds a negative balance the same way it compounds a positive one. This is a modeling device to keep the comparison consistent, not a claim that a renter would carry a real brokerage debit balance.
What is the 'investment return rate' actually modeling?
It's the return the renter is assumed to earn on the cash they didn't put into a home purchase, plus any year their actual housing costs are lower than the buyer's. This is the standard 'invest the difference' assumption used by most public rent-vs-buy comparisons, and it can materially change the result — try a range of values.