A fair way to compare renting and buying
"Rent is throwing money away" ignores that owners also pay money they never get back: mortgage interest, property tax, insurance, maintenance and the cost of buying and selling. A fair comparison starts both households with the same cash and the same monthly housing budget, then asks who has more wealth at the end.
This calculator does that month by month. The buyer pays the down payment and closing costs; the renter invests the same cash instead. Each month, whichever option is cheaper invests the difference at the return you choose. At the end, the buyer sells the home (paying selling costs and the remaining loan) and keeps any investments; the renter keeps the investment account.
Owner's monthly cost = principal & interest + (tax% + maintenance%) × home value ÷ 12 + insurance ÷ 12 + HOA
Buyer's net worth = home value × (1 − selling costs%) − loan balance + buyer's investments
Renter's net worth = (down payment + closing costs) grown at the return + monthly savings invested
Worked example
A $400,000 home with 20% down and a 6.5% 30-year mortgage, against renting a similar home for $2,200 a month. Assumptions: property tax 1.1% and maintenance 1% of value per year, insurance $1,800 a year, closing costs 3%, selling costs 6%, home prices rising 3% a year, rent rising 3% a year and investments returning 5% a year.
- Owning costs $2,872.62 in the first month against $2,200 of rent, so the renter invests the difference, starting with the $92,000 the buyer spent on the down payment and closing costs.
- After 7 years the home is worth about $491,950. The buyer's net worth is about $173,101 and the renter's about $184,454: renting is ahead by about $11,353.
- After only 3 years renting is ahead by about $28,871, mainly because the 3% purchase and 6% sale costs have not been earned back.
- Buying pulls ahead in year 9. After 12 years the buyer leads by about $27,809.
What tips the balance
- How long you stay. Buying and selling costs are paid once, so buying improves the longer you stay.
- Price-to-rent ratio. Where homes cost many times the annual rent, renting tends to win; where rents are high relative to prices, buying wins sooner.
- Mortgage rate and investment return. Higher rates make owning more expensive; a higher return makes the renter's invested cash grow faster.
- Home price growth. Appreciation is leveraged: 3% growth on a $400,000 home is $12,000 a year on an $80,000 down payment. It can also be negative.
What this comparison leaves out
- Income taxes: the mortgage interest deduction (only if you itemize), the capital-gains exclusion on a home sale and taxes on investment returns.
- Non-financial factors: stability, control over the home, flexibility to move and the effort of maintenance.
- Discipline: the renter's advantage only exists if the savings are actually invested.
Testing your assumptions
Because the result depends on several guesses about the future, try a few scenarios rather than relying on one answer. Lower the home price growth to 0% or 1% to see a weak housing market, raise the investment return to 7% for a strong stock market, or change the number of years you plan to stay. If buying comes out ahead in most realistic scenarios, the decision is robust; if it flips with small changes, renting keeps your options open at little cost.
Common mistakes
- Comparing rent with only the mortgage payment. Tax, insurance and maintenance often add 30–50%.
- Forgetting selling costs. Agent commissions and transfer taxes can take 6–10% of the sale price.
- Assuming prices always rise. Try 0% growth to see the downside.
A simplified model for comparison, not financial advice. Results depend heavily on the assumptions you enter.
Frequently asked questions
Is it better to rent or buy a house?
It depends mostly on how long you stay. In the $400,000 example renting is ahead for the first 8 years and buying pulls ahead from year 9.
How many years do you need to stay to make buying worth it?
Often 5–10 years, enough for appreciation and principal payments to cover the closing and selling costs. Run your own numbers.
Is rent throwing money away?
No more than mortgage interest, property tax and maintenance are. A fair comparison counts the unrecoverable costs of both options.
Why does the renter invest the down payment?
Both households start with the same cash. Money not spent on a home can be invested, and its growth is part of the true cost of buying.
Sources
- Consumer Financial Protection Bureau (consumerfinance.gov). Owning a Home: buying versus renting resources.
- US Department of Housing and Urban Development (hud.gov). Buying a home.
- IRS Publication 523: Selling Your Home (capital gains exclusion).
Last reviewed 27 October 2026. Results are estimates; see our disclaimer.