How We Compare Rent vs Buy
We simulate both paths month‑by‑month: fixed‑rate mortgage amortization and appreciation for buying; invested down payment plus invested savings vs owning for renting. We compare net worth annually and show a detailed split.
- Buy Net = Home value × (1 − sell %) − Remaining mortgage − Closing.
- Rent Net = Invested down payment + invested savings vs owning.
- Tax benefit reduces owner cost (interest + property tax × marginal rate).
Quick Example
Assume a $500k home, $100k down, 6.5% for 30 years, 3% appreciation, rent $2,500/mo rising 3%/yr, and 7% investment return. Over 10–15 years, buying often overtakes renting if appreciation holds and transaction costs are spread out. Over 1–3 years, renting can win due to closing/selling friction.
Use the “Detailed Split” tab to see rent’s down‑payment vs contribution growth and buy’s cost context (interest, taxes, insurance, maintenance, tax benefit). The Year‑by‑Year table matches the chart.
Included in the Split
- Rent: DP growth + Contribution growth
- Buy: cumulative Interest, Property tax, Insurance, Maintenance
- Tax benefit shown as a context series
Tips
- Try different time horizons (3–10–30 years)
- Check sensitivities: rent increases, appreciation, returns
- Include selling costs to model realistic exits
Limitations & Assumptions
- We don’t model tax brackets, standard deduction, or itemization caps; treat tax benefit as a rough estimate.
- Maintenance, insurance, and property tax vary greatly by market; adjust inputs to match your reality.
- Returns and appreciation are uncertain. Use a range of scenarios to stress‑test outcomes.
Frequently Asked Questions
How do you handle the down payment?
If renting, the down payment (and closing if not spent) is invested and compounds. If buying, it becomes equity immediately.
Where does tax benefit show up?
It reduces monthly owner costs (interest + property tax × marginal rate), indirectly improving buy net over time.
Why don’t buy components sum to buy net?
Buy net is an equity calculation at sale; the component areas are lifetime cost context (not a strict stack to equity).
Do you include selling costs?
Yes, sell % is applied at exit; closing costs are also subtracted from buy net.