Rent vs Buy Calculator

"Rent is throwing money away" is the most expensive sentence in personal finance. So is "buying is always a good investment." Both are wrong. The decision is a math problem with about ten inputs, and the answer flips depending on local market dynamics, how long you stay, what your alternative use of capital is, and how much of the "buy" column you remember to count. This page covers the inputs that move the answer most, the time-horizon threshold that usually decides it, and the few cases where the math should be overridden.

The 5-year (sometimes 7) rule, where it comes from

Multiple analyses — most notably the New York Times' long-running rent vs. buy calculator and several Federal Reserve papers — converge on the same rough threshold: buying typically beats renting if you stay 5 to 7 years, and reliably loses to renting if you stay under 3.

The reason is transaction costs. A typical purchase involves 2–5% closing costs on the way in and 5–8% selling costs on the way out (mostly agent commissions). That 7–13% needs to be recovered through equity build-up and appreciation before you're ahead of a rent-and-invest alternative. In a flat market that takes years; in an appreciating market, less; in a declining market, possibly never.

If your honest tenure expectation is under 3 years, the math heavily favours renting. Job mobility, family changes, and market timing all argue for keeping optionality during the years when you genuinely don't know where you'll be.

The price-to-rent ratio as a quick screen

Price-to-rent = home price ÷ annual rent for an equivalent property. A $500,000 home with a $2,500/month rental comparison has a P/R of 16.7. The rules of thumb:

• •Under 15: buying is typically much cheaper than renting. Mid-sized US cities mostly sit here.
• •15–20: roughly neutral, depends heavily on horizon and appreciation.
• •Above 20: renting usually wins, especially over short horizons. Coastal US metros (SF, NYC, LA, Seattle, Boston) routinely run 25–40.

Trulia and Zillow publish metro-level P/R data quarterly. It's a 30-second sanity check on whether you're even in the "buying makes sense" range before running detailed calculations.

The opportunity cost of the down payment

$80,000 down on a $400,000 home is not just a cash outlay — it's capital that could have been invested. At a 7% real return over 10 years, that $80,000 would grow to ~$157,000 if left in a diversified portfolio. The home over the same 10 years might appreciate from $400,000 to $537,000 (3.5% annually, near historical average) — a $137,000 gain, leveraged across the full purchase price.

Both numbers exist. Most rent vs. buy comparisons count the home appreciation but ignore the foregone investment return on the down payment. A complete analysis includes both. In high price-to-rent markets, the foregone investment alone can flip the conclusion.

The hidden cost line items in "owning"

A mortgage payment is the easy comparison. The full annual cost of owning a $400,000 home runs higher than most calculators show:

• •Property tax: $4,000–$8,000/year (1–2% of value, varies massively by state).
• •Homeowner's insurance: $1,200–$3,000/year.
• •Maintenance: 1–3% of home value/year ($4,000–$12,000). Roof, HVAC, plumbing, appliances all need replacement eventually.
• •HOA fees in condos and planned communities: $2,400–$8,400/year.
• •Capital improvements (kitchens, bathrooms, additions): variable but the average homeowner spends 1–2% of value annually here too over the long run.

On a $400,000 home, this stacks to roughly $10,000–$20,000 of non-mortgage carrying cost per year. Renters experience these as "the rent" — they're bundled in. Owners experience them as surprises.

The tax math that used to favour buying, less than it does

Before the 2017 Tax Cuts and Jobs Act, mortgage interest and property tax deductions were widely valuable: roughly 40% of US filers itemised. The TCJA doubled the standard deduction and capped state-and-local-tax deductions at $10,000, which dropped itemisation to under 10%. For most middle-income buyers today, the standard deduction beats itemising even with a mortgage — meaning the much-cited tax benefit of homeownership is largely gone outside of high-cost / high-tax states.

The one remaining tax advantage that survived intact: when you sell your primary residence, the first $250,000 of capital gain ($500,000 married filing jointly) is tax-free if you've lived in it 2 of the last 5 years. That alone can be worth $50,000–$100,000 of tax savings on a long-held appreciated home.

The non-financial part you shouldn't ignore

Renting buys mobility — no transaction cost to move, no exposure to local home price swings, no roof replacements at 11pm. Buying buys stability — rent doesn't go up at the landlord's discretion, you control the property, the mortgage payment is fixed even if local rents triple. These are real benefits, not financial ones, and putting a number on them is genuine.

The case where math should be overridden: when you've found a place you would genuinely want to live in for 15+ years, in a city you intend to stay in, and the numbers say renting wins by 10–20% — buy anyway. The compounding stability and the protection from being priced out are worth something the calculator can't price. The case where math should win: when buying "just feels right" but you're likely to move in 3 years and the local P/R is above 25 — the math is telling you something the feeling isn't.