Why “rent is throwing money away” misses the actual comparison
The real comparison isn’t rent versus a mortgage payment — it’s what happens to your money under each path. A renter who invests the down payment they didn’t spend, plus whatever they save each month versus the true cost of owning, builds a portfolio. A buyer builds equity instead, through both principal paydown and home appreciation, minus what it would cost to sell. Both are forms of net worth. The question this calculator answers is which one grows faster, and when, if ever, buying catches up.
How much home price appreciation changes the answer
Of every input in this calculator, home appreciation moves the break-even year the most, because it’s the main way a buyer’s net worth can outrun a renter’s invested portfolio. The table below holds every other input at this calculator’s default example — a $420,000 home, 10% down, a 6.42% rate, $2,200/mo rent rising 3% a year, and a 7% assumed investment return — and varies only the appreciation rate.
| Home appreciation | Buying breaks even |
|---|---|
| 0%/yr | Beyond 30 years |
| 1%/yr | Beyond 30 years |
| 2%/yr | Beyond 30 years |
| 3%/yr | Beyond 30 years |
| 3.5%/yr (long-run historical average) | Beyond 30 years |
| 4%/yr | Year 12 |
| 5%/yr | Year 6 |
| 6%/yr | Year 4 |
| 7%/yr | Year 3 |
At the historical long-run average of roughly 3.5% national home price appreciation, and a 7% assumed market return on the money a renter would otherwise invest, buying doesn’t catch up within 30 years on this example’s numbers — a useful reminder that “buying always wins eventually” isn’t a safe assumption. Once appreciation crosses roughly 4% a year, though, the math flips quickly in the buyer’s favor. Enter your own market’s typical appreciation rate above; it varies a great deal by region and has more influence on your answer than almost any other input.
The true cost of owning is more than the mortgage payment
A mortgage quote covers principal and interest. Owning a home also means property tax, homeowners insurance, and maintenance — commonly modeled at around 1% of home value per year for upkeep, repairs, and replacement of things that wear out. Add those together and the monthly cost of owning is routinely several hundred dollars above the P&I figure a lender quotes. This calculator includes all of it.
Understanding each input
Monthly rent & annual increase
Your current rent and how fast you expect it to rise each year. Rising rent is what eventually makes renting more expensive than a fixed mortgage payment — while a fixed-rate mortgage payment (aside from taxes and insurance) never increases, rent typically does every year or every lease renewal.
Down payment & closing costs
The cash a buyer puts in upfront. This calculator assumes 3% closing costs on top of the down payment itself. That combined amount is exactly what a renter is assumed to invest instead — it’s the seed of the “renting and investing the difference” portfolio.
Property tax & maintenance
Ongoing ownership costs a renter never pays. Maintenance is modeled as a percentage of current home value per year, since upkeep costs tend to scale with a home’s size and value, not stay fixed in dollar terms.
Home appreciation
How fast the home’s value is assumed to grow each year. This is the single biggest lever in the whole model — see the table above for exactly how much it changes the outcome.
Investment return
What the renter’s invested down payment, closing costs, and any monthly savings versus buying are assumed to earn in the market. This is the buyer’s true competition — not rent, but what that money could have done invested elsewhere instead.
Selling costs
Modeled at roughly 7% of the home’s value when calculating the buyer’s net worth — realtor commissions plus closing costs on the sale. This cost is a fixed percentage regardless of how long you owned, which is why holding period matters so much (see below).
Why the break-even year is rarely year one
Buying carries large upfront costs — the down payment itself, plus closing costs of roughly 2–5% of the purchase price that this calculator models at 3%. That’s money a renter keeps invested from day one. Buying starts behind and has to earn its way back through some combination of equity buildup and appreciation outpacing what the renter’s portfolio does in the market. That’s why break-even is commonly several years out, not immediate — and in some high-price, high-rate markets, buying may not catch up within a normal holding period at all.
The variable that changes everything: how long you stay
Selling costs — realtor commissions and closing costs, modeled here at roughly 7% — are a fixed hit whenever you sell, regardless of how long you owned. Spread over one year, that’s a brutal cost. Spread over fifteen years, it barely registers. This is the single biggest reason rent-vs-buy math depends so heavily on your expected time horizon: buying a home you’ll sell in two years is a very different financial bet than buying one you’ll hold for twenty.
What moves the break-even point the most
Three inputs matter more than the rest: your down payment size (more down payment means a smaller loan, but also more money that could have been invested instead), your mortgage rate (a swing of even half a point changes the monthly cost meaningfully over a 30-year term), and the investment return assumption (a higher assumed return makes renting-and-investing look better, since that’s exactly what the renter’s opportunity cost is measuring). Try adjusting each one independently above and watch how much the break-even year moves.
Using this calculator
Enter your actual local rent and a realistic home price for the market you’re evaluating — national averages will mislead you if your market runs hot or cold relative to the country. The year-by-year table shows both paths’ net worth every year for 30 years, so you can see not just the break-even point but how far ahead or behind either path is at any point along the way, including your actual expected time horizon if it’s shorter than 30 years.
This article is for educational purposes only and isn't legal, financial, or tax advice. See our Disclaimer for details.
