Rent vs Buy Calculator

Use this advanced calculator to help you decide whether purchasing a property is a better investment compared to renting and saving.

Rent vs. Buy Comparison

Your Details
Monthly Rent
Target Home Price
Down Payment
Mortgage Interest Rate
Loan Term
Other Buying a Home Detail
Monthly Property Tax Cost
Monthly Home Insurance Cost
Annual Maintenance Costs
Mortgage Insurance
Additional Monthly Costs
Annual Home Value Increase
Buying Closing Costs
Cost of Selling
Other Renting Detail
Monthly Rent Insurance
Rent Increases Rate
Rent
Buy
Difference
Total Net Costs
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Add: Property Value Growth
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Less: Selling Costs
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Net Cost
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$ 0
$ 0
How long will you stay living in this property?
5 years
Buying
Renting
Your Answer
No any where

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RoadMap

Cost of Renting vs Cost of Buying Breakdown

Cost of Renting for 7 Years

Rent Cost
$ 0
Rent Insurance
$ 0

Cost of Buying for 7 Years

Mortgage Payments
$ 0
Add: Payments on principal balance
$ 0
Mortgage Insurance
$ 0
Lost Interest from down payment
$ 0
Closing costs
$ 0
Property taxes
$ 0
Home Insurance
$ 0
Maintenance costs
$ 0
Total Cost of Renting
$ 0
Total Cost of Buying
$ 0
Add: Property Value Growth
$ 0
Selling Costs
$ 0
Net Cost of Renting
$ 0
Net Cost of Buying
$ 0

Is it better to rent vs buy a home

Renting vs buying a home is an important decision that requires answering a few important questions such as the following:

  • How long do you plan to stay in the home?
  • Do you have a stable, reliable income?
  • Are you ready for homeownership?
  • What other investment opportunities are available to you?

Owning a home is more expensive than renting at the beginning because you have to pay a down payment and closing fees. However, as time goes by, it gets cheaper as your mortgage balance decreases.

The cost of renting, on the other hand, stays fairly consistent with small increases each year for about 3% per year.

So, is it cheaper to rent or to buy? This calculator will show, not only whether it is cheaper to rent or whether it is cheaper to buy; you will also learn at what point the two costs converge.

Major considerations

Owning a home offers stability and security, while renting offers more financial freedom and ability to easily move. Here are the main considerations you’ll need to evaluate before deciding if you want to rent or buy a home.

How long do you plan to stay in the home?

This is an important factor; the longer you plan to stay in a home, the more it makes financial sense to buy. So, if you plan to stay in a home for five years or more, chances are you’re better off owning.

However, some people like to change apartments or neighborhoods every couple of years. If that sounds like you, chances are, you’re better off renting.

How does the mortgage rate compare to the current home appreciation rate?

Buying a property is a long-term game, but you still need to make the best decision based on the information you have today. Homes should appreciate every year by a rate that’s higher than your mortgage rate.

If the home appreciation rate is currently lower than the mortgage rate, it means:

  1. Your mortgage rate is too high, or
  2. The real estate market cycle is in a decline stage.

Home affordability

The higher home prices are, the more it makes sense to rent instead of buy. Most people fail to realize that home prices can decline; especially in markets where home prices have risen to unaffordable levels.

These markets carry a higher inherent risk for market downturns. In this case, renting and reinvesting the savings can result in a superior path towards long-term wealth creation.

Other considerations

Location is the most important of where home is. The place where you chose to live in will play a big role in the rent vs buy decision because location determines both home prices as well as rent prices.

  • Freedom to renovate
  • Pride of ownership
  • No rent increases
  • Growing home equity

When is it better to rent than to buy a home?

Renting is better than buying if renting allows you to build more long-term wealth; so the question here is, are you better off by renting and reinvesting the savings, or by buying and build equity?

According to Ken Johnson, PhD., real estate economist and co-developer of the Beracha, Hardin and Johnson Buy vs. Rent Index, because of the correlation between gains in traditional investments vs property appreciation, renting and reinvesting is a better path to create more wealth.

How long do you plan to stay in a specific location? If you are planning to stay in a home for less than three years, it’s better to rent than to buy.

That’s because buying a home requires a lot of up-front costs like land transfer taxes, mortgage fees, and more. You can only recover those costs if you keep the home for five years or longer.

Typically, renting is more affordable in the short-term (under 3 years), but it’s more expensive long-term (over 3 years).

So, if you’re going to be moving every two to three years, it’s better to rent.

It doesn’t have to be that way if you buy strategically. There are ways to buy a home and make money instantly. That’s where taking our Home Buyer’s online course comes in handy.

Home Buyer’s Online Course

I often hear people say that “renting is like throwing money away”, but this inherently assumes that people won’t reinvest the savings they realize while renting. They also inherently assume that home prices always go up.

What if home prices drop and take five years to recover? That’s risk renters don’t have to tender with. Falling home prices is a risk homeowners have to deal with.

The decision to rent vs buy also depends on income security. For example, if someone buys a home today, but six months later the person is forced to sell because he/she lost their job, that person is most probably going to lose money because homeownership is a long-term commitment.

Read: 7 Reasons why renting is better than buying a house

Other benefits of renting 

  • Flexibility to move or relocate to other places without losing money
  • Don’t need to pay property taxes
  • If something breaks it’s the responsibility of the landlord
  • No need to come up with a down payment

Other drawbacks of renting 

  • Your rent money will pay your landlords mortgage.
  • There is no freedom to make renovations in the home
  • Your landlord may increase the rent each year
  • The landlord may decide to evict you if he or she wants to sell the property.

When is it be better to buy instead of rent?

If you’re planning to stay in a home for four years or more, chances are you’re better off buying instead of renting. When you buy a home, you build wealth in the following two ways:

  1. By building equity in the home as you pay down the mortgage
  2. If the home value goes up

When you rent, you can only build wealth if your rent payment is significantly lower than what you’d pay each month if you were to buy. Then, you invest those savings each month, and that comes with its own set of risks.

Buying a home allows you to use other people’s money to make more money

For example, let’s assume you buy a property for $600,000 and get a mortgage for $500,000, which means you gave a down payment of $100,000. So the only thing that’s yours is the $100,000 down payment.

If you invest your $100,000, you can realize a return on those funds, but when you buy a property, the home price can increase or decrease based on the full value of the property. Thus, you’re using other people’s money to make more money.

For example, if you live in an area where home prices increase by 5% each year that means you’re making $30,000 per year on price appreciation, plus the amount of equity you build with each mortgage payment.

One important aspect is to make sure the interest rate you pay on the mortgage is lower than the rate of inflation or the rate by which home prices are increasing by.

Questions to determine if you are ready to buy a house:

  1. Are you ready to settle down in a home for at least four years?
  • Yes – Keep going to the next question.
  • No – You’re better off renting to keep the flexibility to move in the short term.
  1. Do you have enough money to pay a 20% down payment?
  • Yes – Great! Go to question 4.
  • No – You’ll have to pay mortgage insurance. Go to question 3.
  1. Do you have enough money to pay at least a 5% down payment?
  • Yes – Go to question 4.
  • No – Keep renting. You’ll need to keep saving until you have enough savings to pay a down payment of at least 5% of the home price.
  1. Do you have extra savings to pay the closing costs?
  • Yes – Go to question 5.
  • No – Keep renting and saving until you can afford to buy.
  1. Do you want to become a homeowner?

Yes – You are ready to buy

Read: How Much House Can I Afford

 Other benefits of buying instead of renting 

  • You’ll have full control and freedom to do upgrades in the home.
  • With each mortgage payment, you are building equity in the home.
  • If you choose a fixed-rate mortgage you’ll have a stable monthly payment.
  • Homeownership provides a sense of pride a greater community involvement.

Other drawbacks of buying instead of renting 

  • Significant upfront costs.
  • You could lose money if you buy the wrong home.
  • The high cost of homeownership leaves many buyers cash poor.
  • You don’t have the flexibility to easily move.

About this answer – Rent vs buy comparison

Our rent vs buy calculator helps you summarize the costs of buying in comparison to the costs of renting. You can try different scenarios and see the full impact of making each decision including the timing for each choice.

How we calculate the costs of buying

Once you enter your target home price, down payment, interest rate, and other required information, we calculate your upfront costs and monthly mortgage payment.

Then, depending on how long you want to stay in the property, we estimate the cost of homeownership for the entire term including how much equity you’d build in the home as well as property price growth and selling costs. This way, we present the net amount you spend after accounting for the money you make from owning and selling the property.

How we calculate the costs of renting

To calculate the total costs of renting we take the amount of monthly rent you enter and multiple times the number of months you will stay in the property. This calculation includes rent increases, home insurance, and other related rent costs.

If you’re wondering how much monthly rent you can afford, take your monthly income before taxes and divide that number by three; the result is the maximum amount you can afford to pay in rent-related costs.

Read: Rent Affordability Calculator

Summary – Rent vs buy comparison

Our rent vs buy calculator helps you summarize the costs of buying in comparison to the costs of renting. You can try different scenarios and see the full impact of making each decision including the timing for each choice.

How we calculate the costs of buying

Buying a home might be a better choice compared to renting for those people who take the time to understand the home-buying process without overstretching what they can afford to buy.

Here is where taking a Home Buyer’s Online Course can help you in a big way. Think about it – when you buy a property you end up with a huge loan that will take a lifetime to pay off. So, it is critical you get the right mortgage, the right property, in the right neighborhood, and at the right price.

On the other hand, with renting there is no need to worry about real estate market cycles, mortgage rates, or declining home prices; all you need to worry about is to monthly rent payment, and if that’s an amount you can easily afford, you’ll have enough money left to save and reinvest. That’s financial flexibility.

However, many renters end up spending their disposable income anyway; thus buying can serve as a method that forces homeowners to save by paying the mortgage and building equity in the property.

Lastly, homeowners view homeownership as a way to invest in their family’s long-term stability, happiness, and security. If you plan to stay in the property for at least four years and buy a property that you can easily afford, buying is a better choice compared to renting.

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