Rent vs Buy Calculator
Compare the true cost of renting versus buying a home over time.
=buy_costs - rent_costs How It Works
The rent vs. buy decision involves comparing total costs over time, including opportunity costs. Buying has upfront costs and builds equity; renting has flexibility and lower initial commitment.
Basic Comparison
Monthly Rent Cost:
=rent + renters_insuranceMonthly Buy Cost:
=mortgage + taxes + insurance + maintenance + HOA - tax_benefit - equity_buildupThe 5% Rule (Quick Check)
A simple rule of thumb: multiply home price by 5% and divide by 12. If rent is less than this, renting may be better.
=home_price * 0.05 / 12Example: $400,000 home
=$400,000 * 0.05 / 12 = $1,667/monthIf you can rent a similar place for less than $1,667, renting might make more financial sense.
Building a Rent vs. Buy Calculator
Input Section
| Renting Inputs | Value |
|---|---|
| Monthly Rent | $2,000 |
| Renters Insurance (Annual) | $200 |
| Expected Rent Increase/Year | 3% |
| Buying Inputs | Value |
|---|---|
| Home Price | $400,000 |
| Down Payment | $80,000 |
| Interest Rate | 7% |
| Loan Term | 30 years |
| Property Tax Rate | 1.2% |
| Homeowners Insurance | $2,000/year |
| Maintenance | 1%/year |
| HOA (if any) | $0 |
| Expected Appreciation | 3%/year |
| Investment Assumptions | Value |
|---|---|
| Investment Return | 7% |
| Years to Compare | 10 |
Calculated Values
| Output | Formula |
|---|---|
| Loan Amount | =B4-B5 |
| Monthly P&I | =PMT(B6/12, B7*12, -B15) |
| Monthly Taxes | =B4*B8/12 |
| Monthly Insurance | =B9/12 |
| Monthly Maintenance | =B4*B10/12 |
| Monthly HOA | =B11 |
| Total Monthly (Buy) | =SUM(B16:B21) |
Year-by-Year Comparison
Year 1
Renting:
=rent * 12 + renters_insuranceBuying (Out of Pocket):
=down_payment + closing_costs + (monthly_payment * 12) + taxes + insurance + maintenanceBuying (Net, After Equity):
=buying_costs - principal_paid - appreciationMulti-Year Table
| Year | Rent Total | Buy Out-of-Pocket | Equity Built | Net Buy Cost |
|---|---|---|---|---|
| 1 | $24,200 | $35,800 | $7,500 | $28,300 |
| 5 | $128,700 | $179,000 | $52,000 | $127,000 |
| 10 | $276,000 | $358,000 | $135,000 | $223,000 |
Break-Even Analysis
When does buying become cheaper than renting?
=MATCH(TRUE, cumulative_rent > cumulative_net_buy_cost, 0)Or solve for years:
- Calculate cumulative rent (with increases)
- Calculate cumulative net cost of owning
- Find where buying becomes cheaper
Typical break-even: 5-7 years (varies significantly by market and rates).
Opportunity Cost of Down Payment
If you rent, your down payment could be invested:
=FV(investment_return, years, 0, -down_payment)Example: $80,000 invested at 7% for 10 years:
=FV(7%, 10, 0, -80000) = $157,353Add this opportunity cost to the renting scenario for fair comparison.
True Cost Components
Renting Costs
| Cost | Monthly | Notes |
|---|---|---|
| Rent | $2,000 | Increases 3-5%/year |
| Renters Insurance | $17 | ~$200/year |
| Utilities | Varies | Sometimes included |
| Total | ~$2,017 |
Buying Costs
| Cost | Monthly | Notes |
|---|---|---|
| Principal & Interest | $2,129 | $320K loan at 7% |
| Property Taxes | $400 | 1.2% of home value |
| Insurance | $167 | ~$2,000/year |
| Maintenance | $333 | 1% of home value |
| PMI (if applicable) | $0-$267 | If <20% down |
| HOA | $0-$500 | Varies |
| Total | ~$3,029+ | Before tax benefits |
Buying Benefits
| Benefit | Value | Notes |
|---|---|---|
| Principal Paydown | ~$400/mo | Builds equity |
| Appreciation | ~$1,000/mo | At 3%/year on $400K |
| Tax Deduction | Varies | If you itemize |
Market Condition Factors
Favors Buying
- Low interest rates (<5%)
- High rent-to-price ratio
- Strong appreciation expected
- Plan to stay 7+ years
- Stable income
Favors Renting
- High interest rates (>7%)
- Expensive market (coastal cities)
- Uncertain job/location
- Plan to move within 5 years
- Want flexibility
Price-to-Rent Ratio
=home_price / annual_rent| Ratio | Interpretation |
|---|---|
| <15 | Buying likely better |
| 15-20 | Borderline - do detailed analysis |
| >20 | Renting likely better |
Example: $400,000 home, $24,000/year rent
=$400,000 / $24,000 = 16.7Borderline - detailed analysis needed.
Hidden Costs Often Missed
Buying
- Closing costs (2-5% of price)
- Moving costs
- Immediate repairs/updates
- Furniture for larger space
- Lawn care/snow removal
- Transaction costs when selling (6-10%)
Renting
- Security deposit
- Pet deposits/fees
- Moving costs (more frequent)
- Rent increases
- No control over space
Scenario Analysis
Conservative (Favors Renting)
- Home appreciation: 2%
- Investment returns: 8%
- Stay: 5 years
- Interest rate: 7%+
Optimistic (Favors Buying)
- Home appreciation: 5%
- Investment returns: 5%
- Stay: 10+ years
- Interest rate: <6%
Run both scenarios to see the range of outcomes.
Monthly Cash Flow Comparison
Even if buying is cheaper long-term, cash flow matters:
| Renting | Buying | |
|---|---|---|
| Monthly Cost | $2,000 | $3,200 |
| Emergency Fund Needed | $6,000 | $15,000+ |
| Flexibility | High | Low |
Higher buying costs mean less monthly savings capacity.
Pro Tips
-
Use realistic appreciation - 3% is reasonable long-term; don’t assume 10%
-
Include selling costs - plan to lose 8-10% when you sell (agents, repairs, staging)
-
Factor in your tax situation - mortgage interest deduction only helps if you itemize
-
Consider lifestyle value - stability, customization, and pride of ownership have worth
-
Run multiple scenarios - test different stay durations and appreciation rates
Common Errors
- Ignoring opportunity cost: Your down payment could earn returns elsewhere
- Using asking rent: Compare to what similar homes actually rent for
- Forgetting transaction costs: Buying and selling have significant fees
- Assuming constant rent: Rent increases compound over time
- Only looking at monthly payment: Total cost includes much more