Is renting throwing money away?

No. When you buy a home, mortgage interest, property tax, insurance, maintenance, and closing costs are all non-recoverable costs too. The real question is whether the equity you build by buying exceeds what you'd earn by investing the difference while renting.

How long do I need to stay for buying to make sense?

Typically 5-7 years minimum. Closing costs (2-5% when buying) and agent fees (5-6% when selling) mean you start in a significant hole. In expensive markets like NYC or San Francisco, the breakeven period can be 10+ years.

What is the price-to-rent ratio?

Divide the home price by the annual rent for a comparable property. A ratio under 15 generally favors buying, over 20 favors renting, and 15-20 is a gray area that depends on your specific financial situation.

Does this calculator account for tax deductions?

Yes. It models your marginal tax bracket, compares standard vs itemized deductions, accounts for the $10,000 SALT cap, and calculates the capital gains exclusion ($250k single, $500k married) when you sell.

What investment return rate should I use?

The default is 7%, which reflects the S&P 500's historical real (inflation-adjusted) average annual return. If you prefer a more conservative estimate, try 5-6%. The calculator lets you adjust this to match your own risk profile.

How is opportunity cost calculated?

If you rent, the money you would have spent on a down payment and closing costs gets invested instead. Each month, if buying costs more than renting (after tax savings), the difference is also invested. The portfolio compounds monthly at your chosen return rate.

Rent vs Buy Calculator — The Most Comprehensive Analysis

The Framework

We compare two parallel futures over your chosen time horizon. In both, you start with the same amount of money.

Path A: Buy

You spend your savings on a down payment and closing costs. You pay a monthly mortgage, property tax, maintenance, insurance, HOA, and PMI. You build equity. When you sell, you pay agent commissions and possibly capital gains tax.

Path B: Rent

You invest the money you would have spent on a down payment and closing costs. Each month, if buying would cost more than renting (after the buyer's tax savings), you invest the difference. Your portfolio compounds.

At each year, we calculate the net worth of each path and compare them. The path with higher net worth wins.

Mortgage & Amortization

We use the standard fixed-rate mortgage amortization formula:

Monthly paymentM = P * [r(1+r)^n] / [(1+r)^n - 1]

Where P = loan principal, r = monthly interest rate (annual / 12), n = total months (years x 12).

Each monthly payment splits into interest (charged on remaining balance) and principal (reduces the balance). Early payments are almost entirely interest; this reverses over time.

How refinancing works

If you enable refinancing, the calculator runs the original amortization schedule until the refinance year, takes the remaining balance, adds 2% closing costs (rolled into the new loan), then builds a new amortization schedule at the new rate for the remaining term.

New loan balance at refiNew Balance = Remaining Balance x 1.02

This means refinancing isn't free. The closing costs increase your total interest paid, so refinancing only helps if the rate drop is large enough to offset them.

How PMI works

Private Mortgage Insurance is required when your down payment is less than 20%. We calculate it as 0.7% of the original loan amount per year, charged monthly. PMI automatically drops off once your equity (from both payments and appreciation) reaches 20%.

Monthly PMIPMI = Original Loan Amount x 0.007 / 12

Industry average PMI rate: 0.5% - 1.5% of loan amount. We use 0.7% as a mid-range estimate.

Ownership Costs

Beyond your mortgage, owning a home has significant recurring costs that most calculators undercount.

Property Tax

Calculated as a percentage of the home's current market value (after appreciation), not the purchase price. Varies from 0.27% in Hawaii to 2.22% in New Jersey.

Annual Tax = Home Value in Year N x Property Tax Rate

Rates: Census Bureau ACS 2024, WalletHub 2026

Maintenance

Calculated as a percentage of current home value. Covers repairs, appliance replacement, landscaping, and general upkeep. The default 1% is a common rule of thumb.

Annual Maintenance = Home Value in Year N x Maintenance Rate

HOA Fees

Monthly fees adjusted for general inflation each year. Common for condos and planned communities.

Year N HOA = Monthly HOA x 12 x (1 + Inflation)^(N-1)

Insurance

Homeowner's insurance, inflated annually at the general inflation rate.

Year N Insurance = Base Insurance x (1 + Inflation)^(N-1)

Buying & selling transaction costs

Buying closing costs (default 3%) cover appraisal, title insurance, origination fees, and prepaid items. Paid upfront at purchase.

Selling closing costs (default 6%) cover agent commissions (typically 5-6%), staging, and transfer taxes. These are deducted from the seller's proceeds and are a major reason why short holding periods favor renting.

Renting Costs

Renting is simpler but still has costs most people overlook.

Rent Growth

Rent compounds annually at the rent inflation rate. A $2,500/mo rent at 3% annual growth becomes $3,360/mo after 10 years.

Year N Rent = Monthly Rent x 12 x (1 + Rent Inflation)^(N-1)

Renter's Insurance

Inflated at the general inflation rate. Typically much cheaper than homeowner's insurance.

Security Deposit

Modeled as capital locked up earning 0% return. This money can't be invested, but it's returned at the end of the timeline. Typically 1-2 months' rent.

Tax Benefits of Buying

This is where most calculators get it wrong. We model the actual tax code, not a simplified version.

Standard vs. itemized deductions

Homeowners can deduct mortgage interest and property taxes on their federal return, but only if they itemize. The real tax benefit is only the amount their itemized deductions exceed the standard deduction they'd get anyway.

Actual tax savingsSavings = max(0, Itemized - Standard Deduction) x Marginal Tax Rate

For 2025/2026, the standard deduction is approximately $15,000 (single) or $30,000 (married filing jointly). Many homeowners with moderate mortgages don't benefit from itemizing at all.

Mortgage interest deduction cap ($750k)

Under TCJA (Tax Cuts and Jobs Act), you can only deduct interest on the first $750,000 of acquisition debt ($375,000 if married filing separately). For a $900,000 loan, only 83.3% of your interest is deductible.

Deductible fractionFraction = min(1, $750,000 / Loan Amount)

IRC Section 163(h)(3), as amended by TCJA Section 11043

SALT cap (State and Local Tax)

Property tax deductions are subject to the SALT cap. For 2026 (post-TCJA update), the cap is $40,000 for most filers, phasing down to $10,000 for those with MAGI above $500,000.

SALT deductionSALT Deduction = min(Property Tax, SALT Cap)

Note: We currently only include property tax in SALT, not state income tax. In high-income-tax states (CA, NY, NJ), actual SALT deductions would include state income tax, potentially hitting the cap sooner. This is a known limitation that slightly understates the buyer's tax benefit in those states.

Capital gains exclusion on home sale

When you sell your primary residence, the first $250,000 of profit is tax-free ($500,000 for married filing jointly), provided you've lived there at least 2 of the last 5 years. Any gain above this exclusion is taxed at the long-term capital gains rate (we use 15%).

Tax on home saleTax = max(0, Appreciation - Exclusion) x 15%

IRC Section 121

The Renter's Investment Portfolio

This is the most important — and most commonly ignored — part of the calculation. A renter doesn't just throw away their down payment money. They invest it.

Initial investment

The renter starts by investing the money they would have spent on a down payment and buying closing costs, minus their security deposit (which is locked up).

Starting portfolioInitial = Down Payment + Buying Closing Costs - Security Deposit

Monthly contributions

Each month, we compare the buyer's effective out-of-pocket cost (total costs minus tax savings) to the renter's cost. If buying costs more, the renter invests the difference. If renting costs more, the renter withdraws from the portfolio.

Monthly savingsSavings = (Buying Cost - Tax Savings - Renting Cost) / 12

This is a critical detail. The buyer's tax savings reduce their effective cost, which means the renter has less surplus to invest. Most calculators either ignore the tax benefit entirely or add it as a lump sum to the buyer — we integrate it directly into the cash flow comparison.

Compounding

The portfolio compounds monthly at the chosen investment return rate (default 7%, reflecting a post-inflation S&P 500 average).

Monthly compoundingPortfolio = Portfolio x (1 + Annual Return / 12) + Monthly Savings

Capital gains tax on liquidation

At the end of the timeline, the renter's portfolio gains are taxed at the long-term capital gains rate (15%). We track cumulative contributions to calculate the cost basis accurately at each year.

After-tax portfolioAfter Tax = Portfolio - max(0, Portfolio - Cost Basis) x 15%

The Verdict

At each year, we compare:

Buyer Net Worth

Home Equity - Selling Costs - Capital Gains Tax on Sale

Where equity = current home value minus remaining mortgage balance.

Renter Net Worth

Investment Portfolio - Capital Gains Tax on Liquidation

Portfolio includes all monthly contributions and compound growth.

The break-even year is the first year where buying's net worth exceeds renting's. The final verdict uses the numbers at the end of your chosen time horizon.

Data Sources

Home Prices & Appreciation

Zillow Home Value Index (ZHVI), zip-code level. Single-family and condo, smoothed and seasonally adjusted. CAGR calculated over 1, 5, 10, and 20-year windows.

Property Tax Rates

Average of WalletHub (Feb 2026) and Census Bureau ACS 2024 effective rates. Covers all 50 states + DC.

Tax Rules

IRC Sections 121 (home sale exclusion), 163(h)(3) (mortgage interest deduction), 164 (SALT deduction). Standard deductions estimated for 2025/2026.

Investment Returns

Default 7% reflects the S&P 500's historical real (inflation-adjusted) average annual return. Nominal average is approximately 10%.

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