Rent vs. Buy

Buying's net cost includes your down payment, closing costs, every monthly payment (principal, interest, taxes, insurance, maintenance), and selling costs at the end — offset by the equity and appreciation you've built up. Renting's net cost is your total rent paid, offset by what your down payment and closing-cost money (and any month where renting was cheaper than buying) could have earned if invested instead. The comparison is symmetric: in months where buying is the cheaper option, the buyer invests the surplus the same way. If the mortgage is paid off inside your horizon, the principal-and-interest payment stops — only taxes, insurance, and maintenance continue.

What it deliberately ignores: mortgage-interest tax deductions (most filers take the standard deduction now, but if you itemize, buying looks a bit better than shown), rent control (if your rent is legally capped, renting looks better than the steady-increase assumption here), and PMI is not modeled at all — so results with less than 20% down flatter buying slightly, since a real under-20%-down buyer would pay PMI on top of the figures shown. The defaults in every field are illustrations, not predictions — replace them with your own market's numbers.

A worked example

Take the defaults: a $400,000 home with 20% down at 6.5%, versus $2,200 rent, both over 7 years. Buying nets out around $169,000 and renting around $143,000 — renting comes out ahead by roughly $26,000, even though the buyer ends up with about $203,000 in equity. The up-front and exit costs are what tip it: with these same assumptions the chart's lines don't cross until around year 13, so if you stretched the stay long enough, buying would pull ahead.

Common questions

Why do closing and selling costs matter so much at short horizons? They're paid once but they're big — about $12,000 in and $34,000 out on the default numbers. Stay 3 years and that's over $15,000 per year of ownership; stay 20 and it fades to noise. Short stays rarely give equity enough time to outrun those fixed costs.

What does "opportunity cost of the down payment" mean? The renter in this model doesn't burn the down payment — they invest it. On the defaults, that's $92,000 (down payment plus closing costs) compounding at your investment-return rate, which is a large part of why renting stays competitive.

How reliable is a 15-year projection? Less than a 5-year one. Every input here — rates, appreciation, rent growth, investment returns — is a guess that compounds over time, so longer horizons carry more uncertainty in both directions. Treat the output as a rough direction, not a precise forecast.

This is a simplified estimate for general information, not personalized financial advice — it doesn't account for tax deductions, PMI, rent control, or changes in your own life circumstances.