What this comparison actually measures
Most rent-versus-buy arguments compare a mortgage payment against a rent cheque, which is the wrong comparison — it ignores that a buyer's money is partly building equity and that a renter's down payment is free to be invested somewhere else. This page compares net worth instead. It runs both paths forward year by year and asks which person is wealthier at the end.
The buyer's position is the home's value less the remaining loan and less the cost of selling. The renter starts with the down payment and closing costs invested rather than spent, adds or subtracts the difference in annual housing cost, and compounds the result at the return you specify. The output is the gap between those two numbers, and the year the lines cross.
Reading the example this page loads with
The defaults describe a fairly typical decision. These figures are illustrative — a teaching example, not market data for any particular city.
| Input | Value |
|---|
| Purchase price · closing costs | $400,000 · $8,000 |
| Down · rate · term | 20% · 6.75% · 30 yrs |
| Taxes · insurance (annual) | $4,800 · $1,800 |
| Maintenance · appreciation · selling cost | 1% · 3.5% · 7% |
| Rent · rent growth | $2,400 · 3% |
| Investment return · horizon | 7% · 10 years |
The buyer puts down $80,000, borrows $320,000 at 6.75%, and pays $2,076 a month in principal and interest. Once taxes, insurance and maintenance are added, year one costs about $2,971 a month against the renter's $2,400 — buying is $571 a month more expensive at the start, and the renter invests both that difference and the $88,000 never handed over at closing.
After ten years the home is worth $564,240, the loan balance is $272,963, and selling costs take $39,497, leaving the buyer with $251,780. The renter's portfolio has grown to $225,516. Buying wins — by $26,264, on a $400,000 house, after a decade.
The breakeven year is the real answer
That $26,264 is the least interesting number on the page. What matters is year seven, which is when the buyer's position first overtakes the renter's. Before that, renting is ahead — at year five the renter is still up by about $13,000.
This is the shape of nearly every honest rent-versus-buy calculation. Buying starts behind because of the transaction costs at both ends, the heavy interest weighting of early payments, and the opportunity cost of the down payment, then catches up as principal accumulates and rent inflates. The practical question is therefore not "is buying better?" but "am I confident I will still be here past the breakeven year?" On these inputs, someone fairly sure they will move in four years is better off renting, and the $26,264 at year ten is irrelevant to them.
The three inputs that move the answer most
Appreciation and investment return are the same lever pointed in opposite directions, and the result is extremely sensitive to the gap between them. At 3.5% appreciation against a 7% portfolio return, buying still wins by year seven because the house is leveraged — you capture appreciation on $400,000 while having invested $88,000. Narrow that gap in either direction and the breakeven year moves substantially. Neither figure is knowable in advance, which is the honest caveat on the whole exercise: this is a model of a future, not a forecast of it.
Selling cost is the third, and it is the one people forget. At 7% of the sale price, the exit costs $39,497 in this example — more than the entire ten-year advantage, and charged on the appreciated value rather than what you paid. It is also why the breakeven is so late: the buyer has to earn back the cost of getting out before being ahead at all.
What the model leaves out
Several real factors sit outside this arithmetic, and they do not all point the same way. There is no tax treatment here — no mortgage interest or property tax deduction, which helps buyers who itemize, and no tax on the renter's investment gains, which hurts renters. Those two partly offset and the net depends entirely on your situation.
Nor does it model refinancing into a lower rate, a mortgage with a term shorter than the horizon, mortgage insurance on a smaller down payment, or special assessments. It assumes the renter actually invests the difference every year rather than spending it, which is an assumption about behavior rather than arithmetic and is frequently wrong in practice. And it treats maintenance as a steady percentage of value, when in reality it arrives as nothing for three years and a roof in the fourth.
The part no calculator settles
Mobility has a value this page cannot price. A renter can take a job in another city with thirty days' notice; a buyer facing the same opportunity in year three is looking at that 7% selling cost at the worst possible moment. Conversely, a fixed-rate payment is protection against rent growth, which compounds in the background here at 3% a year — by year ten the renter is paying about $3,130 for the same home.
Treat the breakeven year as a planning horizon rather than a verdict. If your honest expectation of staying comfortably exceeds it, the arithmetic supports buying; if it is close, the non-financial factors should decide, because the model's own inputs are uncertain enough that a year or two either way is inside the margin of error.
If you are buying it as an investment instead
This page compares renting against owning a home you live in. If the property would be rented out rather than occupied, the question is different and so is the arithmetic — use the single-family rental analyzer, which measures the property's own income rather than your housing cost. If you are weighing living in one unit and renting the others, the house hacking calculator handles that case directly. Our article on the rent-versus-buy breakeven covers the reasoning in more depth.