Rent vs. Buy Calculator 2026
Compare your net worth from buying a home vs. renting and investing the difference — with a break-even year and full monthly cost breakdown
Last reviewed:
Data sources: Federal Reserve Bank of Atlanta Housing Affordability Monitor, NAR Existing Home Sales Data 2024, IRS Publication 530 (Tax Information for Homeowners), Freddie Mac Primary Mortgage Market Survey, U.S. Census Bureau American Housing Survey 2023
What Is the Rent vs. Buy Decision?
The rent vs. buy question is one of the most consequential financial decisions most people face — and one of the most frequently oversimplified. Common advice like “renting is throwing money away” or “you need to own to build wealth” misses the fundamental complexity: buying a home is simultaneously a housing decision, an investment, and a leveraged bet on a single illiquid asset in a single market.
The calculator above gives you a precise answer based on your actual numbers. It compares your net worth trajectory under two scenarios: buying the home you’re considering, or renting a comparable property and investing the freed-up capital.
How the Calculation Works
The comparison is built on a consistent starting point: both scenarios begin with the same total capital — the down payment plus closing costs. The buyer deploys this into the home. The renter keeps it invested.
Monthly costs diverge immediately:
The buyer pays: principal and interest, property taxes, homeowner’s insurance, maintenance, HOA fees, and PMI (if down payment is below 20%). Most of these costs are fixed or semi-fixed in nominal terms.
The renter pays: monthly rent, which increases each year at the rent growth rate.
The monthly difference flows to the renter’s portfolio: If buying costs more per month (the usual case in high price-to-rent markets), the renter invests that difference. If renting costs more, the renter effectively draws down their portfolio.
The buyer builds equity two ways: mortgage principal paydown (a forced savings mechanism) and home price appreciation. Both increase the buyer’s net liquidation value over time.
At the end of the time horizon:
- Buyer’s net worth = home value × (1 − selling cost %) − remaining mortgage balance
- Renter’s net worth = investment portfolio (down payment + closing costs invested, plus monthly savings compounded at the investment return rate)
A Worked Example
Alex is deciding between buying a $400,000 home with 20% down at 6.8% for 30 years, or renting a comparable unit for $2,200/month. Alex has a 10-year horizon and expects 3% home appreciation, 3% rent increases, and 7% investment returns.
Upfront:
- Down payment: $80,000
- Closing costs (3%): $12,000
- Total capital deployed: $92,000
Year 1 monthly buying costs:
- Principal & interest: $2,091/mo
- Property taxes (1.1%): $367/mo
- Homeowner’s insurance (0.5%): $167/mo
- Maintenance/HOA: $300/mo
- Total buying: $2,925/mo
Year 1 monthly renting costs: $2,200/mo
Monthly difference: $725/mo more to buy initially. The renter invests this difference.
At year 10:
Buyer’s home value: $400,000 × (1.03)^10 = $537,600
Remaining mortgage balance: ~$292,000
Selling costs (6%): $32,300
Buyer’s net worth from home: $213,300
Renter’s portfolio: $92,000 growing at 7% for 10 years + $725/mo invested = approximately $248,000
Renter wins by ~$35,000 at year 10
At year 15, with more principal paid and continued appreciation, the buyer would pull ahead. The break-even in this scenario is approximately year 12–13.
The Complete Rent vs. Buy Guide
The Price-to-Rent Ratio: The Quick Sanity Check
Before running a full analysis, the price-to-rent ratio tells you roughly which direction the math will go. Divide the home price by annual rent for a comparable property:
| Price-to-Rent Ratio | Typical Implication |
|---|---|
| Below 15 | Buying is usually favorable within 5 years |
| 15–20 | Depends heavily on assumptions — model carefully |
| 20–25 | Renting often competitive unless staying 10+ years |
| Above 25 | Strong presumption toward renting; buying requires very long horizon |
In 2025–2026, many major metropolitan areas carried ratios of 25–40. San Francisco, New York, Los Angeles, and Boston all exceeded 30, meaning buying required 15+ year horizons to overcome the capital disadvantage at typical investment return assumptions.
The True Costs of Homeownership
New homeowners consistently underestimate total ownership costs. The mortgage payment is the floor, not the ceiling.
Maintenance: The 1% rule (1% of home value per year in maintenance) is a useful baseline. On a $400,000 home, that’s $4,000/year or $333/month. Reality ranges widely: a new construction home in year 1 needs almost nothing; a 30-year-old home with aging mechanicals can easily run $8,000–$15,000 in a bad year (roof, HVAC, plumbing). The calculator uses your maintenance input, not a fixed rule.
Property taxes: Highly variable by location. New Jersey tops 2.2% annually; Hawaii is below 0.3%. The US median is about 1.1%. Property taxes are reassessed periodically and can increase significantly — especially in areas with rapidly rising home values.
PMI: If your down payment is below 20%, expect to pay 0.5–1% of the loan balance annually until your equity reaches 20% of the original purchase price. The calculator uses 0.5% (a conservative estimate). PMI on a $360,000 loan costs $150–$300/month.
Selling costs: Real estate agent commissions, transfer taxes, attorney fees, and closing costs when selling typically total 5–7% of the home price. On a $400,000 home, that’s $20,000–$28,000 — a real drag on the buyer’s return, especially in shorter time horizons.
Opportunity Cost: What the Down Payment Could Earn
The down payment is the most overlooked cost in the rent vs. buy debate. A $80,000 down payment invested in a broad market index fund at 7% annually grows to approximately $157,000 after 10 years and $314,000 after 20 years. That compounding foregone return is a genuine cost of buying — and it’s why the renter often starts ahead and stays ahead for years.
This is not an argument against buying. It is an argument for including the opportunity cost in the analysis, which most rule-of-thumb advice ignores.
Why Buying Wins Long-Term in Most Scenarios
Despite the upfront disadvantage, buying typically wins over a long enough horizon because of three structural advantages:
Leverage. A 20% down payment controls 100% of the home’s appreciation. On a $400,000 home with $80,000 down, a 3% appreciation gain ($12,000) represents a 15% return on capital deployed — before any mortgage paydown. The renter investing $80,000 at 7% earns $5,600 in year one. At moderate appreciation rates, leverage is the buyer’s most powerful advantage.
Forced savings. Every mortgage payment includes principal repayment. Many buyers who would struggle to save $2,000/month voluntarily find that homeownership creates the discipline by making it mandatory. The renter in this model requires consistent monthly investment discipline to achieve the same result.
Inflation protection on a fixed payment. A 30-year fixed mortgage payment doesn’t change. Rents increase 3–4% annually over the long run. After 20 years, a $2,200/month rent at 3% growth becomes $3,970/month — while the buyer’s P&I payment hasn’t changed. This dynamic is what usually tips the long-term balance toward buying.
When Renting Is Clearly Better
Short time horizons. If you’re moving in under 5 years, the transaction costs of buying — closing costs in, selling costs out — rarely amortize. Calculate your break-even year; if it exceeds your expected tenure, rent.
High price-to-rent markets. In cities where rent is $3,000/month but buying a comparable home costs $1.2M (ratio of 33), the monthly cost of buying often exceeds rent by $3,000–$5,000/month. That’s $36,000–$60,000/year flowing into the renter’s investment account. At 7% returns, the renter’s compounding advantage can remain intact for 15+ years.
Career or life uncertainty. Homeownership is illiquid. Selling takes 60–90 days and costs 6%. Renting gives you 30–60 day mobility. If you’re uncertain about your employer, city, or family situation, preserving optionality has real value beyond what a financial model captures.
When market prices are elevated relative to fundamentals. Price-to-rent and price-to-income ratios in 2024–2026 were at historically elevated levels in many markets. Higher prices mean higher transaction costs, higher property taxes, and a longer break-even period.
Key Assumptions and Limitations
Closing costs are fixed at 3%. Actual purchase closing costs range from 2–5% depending on state, loan type, and lender. FHA loans require MIP; VA loans have a funding fee. Adjust your analysis if your costs differ significantly.
Homeowner’s insurance is set at 0.5% annually. This is a reasonable national average but varies by location, home age, and coverage. High-risk areas (flood zones, hurricane corridors) pay substantially more.
The mortgage interest tax deduction is not modeled. Most homeowners take the standard deduction post-TCJA. The marginal tax benefit from itemizing is often less than $1,500/year — included in a full model but omitted here for clarity. This favors renting slightly in the model.
Returns are constant. Real investment returns fluctuate year to year. The 7% default is the approximate long-run annualized return of a broad US equity index fund, which includes significant down years.
Rent control is not modeled. In cities with strong rent control (San Francisco, New York City, parts of Los Angeles), actual rent increases for existing tenants can be far below 3% annually — potentially making renting more favorable than the model suggests.
Capital gains tax on the home sale is excluded. If your gain exceeds the $500,000 MFJ (or $250,000 single) primary residence exclusion, you owe capital gains tax on the excess. For most homeowners this doesn’t apply, but very long holding periods in appreciating markets can trigger it.
Frequently Asked Questions
Is buying always better than renting long-term?
No — it depends on the price-to-rent ratio in your market, your time horizon, investment returns, and home appreciation. In high-cost markets like San Francisco or New York where price-to-rent ratios exceed 30, renting and investing the difference can outperform buying even over 20 years. In lower-cost markets with ratios below 15, buying typically outperforms quickly. The break-even year — when buying first produces more net worth than renting — is the most useful single metric for your specific inputs.
What is the price-to-rent ratio and how do I use it?
The price-to-rent ratio is the home price divided by the annual rent for a comparable property. A $400,000 home with comparable rent of $2,000/month has a ratio of $400,000 ÷ $24,000 = 16.7. Rules of thumb: below 15, buying is usually favorable; 15–20, neutral — depends on your assumptions; above 20, renting often makes more financial sense, especially in shorter time horizons. National median ratios have ranged from 17–24 in 2024–2025 as home prices have risen faster than rents in many markets.
Why does the calculator start with renting ahead?
The comparison begins with both people having the same amount of liquid capital — the down payment plus closing costs. The buyer immediately deploys this capital into an illiquid asset (the house) and pays 6% in transaction costs on the way out. The renter keeps all of it invested and liquid. Over time, home appreciation, mortgage paydown (building equity), and fixed principal payments (while rents rise) shift the balance toward buying. The break-even year is when those forces finally overcome the buyer's upfront disadvantage.
What costs of homeownership does this calculator include?
The calculator includes: principal and interest payments, property taxes (as a % of home value), homeowner's insurance (0.5%/yr of home value, auto-calculated), maintenance and HOA (your input), PMI if the down payment is below 20%, purchase closing costs (3%, built in), and selling costs (your input, typically 5–6%). It does not include mortgage interest tax deduction, HOA special assessments, or capital improvements. The mortgage interest deduction is less impactful post-TCJA since most homeowners take the standard deduction.
How does the time horizon affect the rent vs. buy decision?
Dramatically. The upfront costs of buying (down payment, closing costs, immediate selling cost disadvantage) are amortized over the time you own. A buyer who moves after 3 years rarely recoups those costs. The break-even year in most scenarios ranges from 5–12 years. If you're confident you'll stay at least 7 years, buying becomes compelling in most markets. If your job, family situation, or lifestyle makes 3-year moves likely, the math usually favors renting — regardless of what happens to home prices.
Should I include the mortgage interest deduction in this analysis?
For most homeowners, probably not. The Tax Cuts and Jobs Act (2017) raised the standard deduction substantially. In 2026, the standard deduction is approximately $16,150 (single) and $32,300 (MFJ). A homeowner needs itemized deductions to exceed that threshold to benefit from the mortgage interest deduction. On a $300,000 mortgage at 6.8%, year-one interest is about $20,000. Adding property taxes ($4,500) and charitable giving, many homeowners do itemize — but the marginal benefit (deductions above the standard deduction) is often less than $5,000/year, or roughly $1,000–$1,500 in actual tax savings.