CalculateY
Quick Answer
Over 7 years, renting at $2,000/month (3% increases) with investing a $80,000 down payment at 7% has an estimated net cost of approximately $182,000. Buying a $400,000 home (20% down, 6.5%, 30-year) has an estimated net cost of approximately $125,000, suggesting buying is less costly in this scenario.
Renting
Assumed return if down payment is invested instead
Buying
Common Examples
| Input | Result |
|---|---|
| $2,000 rent, 3% increase, $400,000 home, 20% down, 6.5%, 7 years | Estimated buy net cost lower by approximately $57,000 |
| $1,500 rent, 3% increase, $300,000 home, 10% down, 7%, 5 years | Estimated rent net cost lower over 5 years |
| $3,000 rent, 4% increase, $600,000 home, 20% down, 6%, 10 years | Estimated buy net cost lower by approximately $120,000 |
How It Works
Renting Total Cost
Rent Total = Sum of monthly rent over all years, with annual increases
Each year, rent increases by the specified percentage. The renter also invests the equivalent of the down payment in the stock market or other investments, earning compound returns.
Rent Net Cost = Total Rent Paid - Investment Gains on Down Payment
Buying Total Cost
Buy Total = Down Payment + Sum of (Mortgage + Property Tax + Insurance + Maintenance) per year
The buyer builds equity through principal payments and home appreciation.
Buy Net Cost = Total Payments + Down Payment - Home Equity
Home equity = Estimated home value at end of period - Remaining loan balance.
Key Assumptions
This comparison assumes: the renter invests the down payment and earns compound returns; the home appreciates at a steady annual rate; property taxes, insurance, and maintenance scale with home value; rent increases are steady; and mortgage rate is fixed.
Break-Even Timeframe
For most scenarios, buying becomes cheaper than renting after 5 to 7 years. In the first few years, buying has higher upfront costs (closing costs, down payment) and heavy interest payments. Over time, equity building and home appreciation typically shift the balance in favor of buying.
Worked Example
Renting at $2,000/month with 3% annual increases over 7 years: total rent = approximately $184,000. Investing $80,000 (down payment equivalent) at 7% annually for 7 years grows to approximately $128,600, a gain of approximately $48,600. Rent net cost = approximately $135,400. Buying a $400,000 home with 20% down at 6.5% for 30 years: monthly mortgage = approximately $2,023. Total buy payments over 7 years = approximately $259,700 (mortgage + tax + insurance + maintenance). Estimated home value after 7 years at 3% appreciation = approximately $491,900. Estimated equity = approximately $182,400. Buy net cost = approximately $77,300. Based on these inputs, buying has a lower estimated net cost.