Rent vs Buy Calculator
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The choice between renting and buying is rarely just about the monthly payment. It's a comparison of Net Worth growth over time. This calculator simulates two financial paths using the same starting capital.
The Buying Path
Buying is an investment in an appreciating asset. Your net worth grows through:
- Principal reduction (paying off the loan)
- Property value appreciation
However, you lose money to "sunk costs" like mortgage interest, property taxes, insurance, and maintenance.
The Renting Path
Renting offers lower fixed liability and flexibility. Your net worth grows through:
- Investing the cash you would have used for a deposit
- Compounding returns on that investment
Your primary sunk cost is rent, which typically increases annually due to inflation.
Key Assumptions
To find the "Break-Even Year," our logic assumes that the cash used for a home deposit would otherwise be invested in a diversified portfolio (e.g., an index fund). If the home value grows slower than your stock portfolio, or if the "sunk costs" of ownership exceed the cost of rent, renting can remain the better financial choice for many years.
Logic & Formulas
We perform a year-by-year simulation. For each year, we calculate the buyer's equity and the renter's investment balance. The buyer's position is penalized by the sum of interest, taxes, and maintenance. The renter's position is penalized by the total rent paid. The result is the difference in Total Net Position at the end of your chosen holding period.