Is It Cheaper to Rent or Buy a House? The Real Math

Renting and buying pay for the same basic need: housing. Comparing rent with the mortgage payment alone misses upfront cash, ownership expenses, sale proceeds and investment growth. A useful comparison gives both households the same starting cash and spending budget.

What Belongs in the Comparison?

• Buying: Down payment, closing costs, mortgage principal and interest, property tax, insurance, HOA, maintenance and any PMI.
• Selling: Subtract the remaining loan and selling costs from the modeled home value.
• Renting: Rent and assumed rent increases. Add renter-only costs to your estimate separately; this tool does not have a renter-insurance or moving-cost input.
• Investments: The renter can invest the avoided down payment and closing costs. Either household can invest its positive annual cash-flow savings.

Use actual quotes where available. Appreciation, inflation and investment returns are assumptions, not forecasts. All money values in this comparison are nominal; do not mix an inflation-adjusted investment return with nominal home appreciation and rent growth.

Equal Budgets: Avoid Counting Savings Twice

Each year, whichever household spends less on housing invests the difference. The model compounds existing portfolios at the same assumed annual rate and adds savings at year-end. Saved contributions remain your own money; they are not investment earnings.

Buy net cost = cumulative ownership cash paid - assumed tax benefits - home sale proceeds - buyer investment earnings.

Rent net cost = cumulative rent - renter investment earnings.

With the equal-budget assumption, the difference between these net costs equals the difference in terminal wealth. Subtracting the renter's whole portfolio from rent would incorrectly count the saved contributions as a second gain.

A One-Year Worked Example

Consider a deliberately simplified $100,000 all-cash purchase versus $500 monthly rent. Assume $12,000 yearly ownership costs, 8% home appreciation, no transaction costs and a 0% investment return.

• Both households begin with $100,000. The buyer purchases the house; the renter keeps that cash invested.
• The buyer pays $12,000 during the year. The renter pays $6,000 and saves the remaining $6,000 under the same budget.
• The buyer's home ends at $108,000. The renter ends with $106,000.
• Buying is ahead by $2,000. Neither portfolio earned investment income at 0%; the renter's extra $6,000 is a contribution.

This is an accounting example, not a housing-market forecast. Real transaction costs and different growth assumptions can reverse the result.

What Does Break-Even Mean?

The rent vs buy calculator marks the first modeled year when buying has lower net cost. It is not a universal minimum stay and does not promise buying stays ahead afterward. Compare the year-by-year chart and several holding periods; the curves can cross again.

Higher home appreciation, lower ownership expenses or higher rent tend to favor buying. Higher transaction costs or stronger renter investment growth can favor renting. Changes interact, so compare several plausible scenarios instead of relying on a single price-to-rent threshold.

Tax Benefits Are Not Automatic

The calculator assumes no tax benefit by default. Its optional annual benefit is a user-entered estimate, capped at yearly ownership cash outflow. It does not determine filing status, itemization, deduction eligibility, future tax law or tax due when selling. Verify any benefit independently before entering it.

Sources and Scope

Examples use the shared monthly mortgage schedule and equal-budget model, with automated accounting checks. Property tax, insurance and HOA escalate with the inflation input; maintenance follows home value. PMI uses a simplified original-loan-to-value rule. The horizon is 30 years, not a promise of future performance or independent professional review.

• CFPB: Owning a Home for the homebuying and mortgage comparison process.
• SEC Investor.gov compound interest calculator for rate, contribution and compounding assumptions.

For related borrowing calculations, see monthly mortgage payments and how amortization works.