Rent vs Buy Calculator

The True Cost of Buying

Buying involves many hidden costs beyond the mortgage payment:

• Closing costs: 2-5% of home price upfront
• Property taxes: 0.5-2.5% annually depending on location
• Maintenance: Budget 1-2% of home value per year
• Insurance: Homeowners insurance is more than renters
• Opportunity cost: Down payment tied up in the house
• Selling costs: 5-6% when you sell (agent fees)

The True Cost of Renting

• Rent payments: No equity built, but no maintenance costs
• Rent increases: Typically 2-5% per year
• Renters insurance: Much cheaper than homeowners
• Investment potential: Can invest down payment savings

Key Factors to Consider

• Time horizon: Buying usually wins after 5-7 years
• Local market: Price-to-rent ratio varies by city
• Career stability: Moving is expensive as a homeowner
• Interest rates: Higher rates favor renting
• Home appreciation: Not guaranteed, varies by market

Non-Financial Considerations

• Stability: Owning provides housing security
• Flexibility: Renting allows easier relocation
• Customization: Owners can modify their home
• Time commitment: Homeownership requires maintenance time

The 5-Year Rule

A common guideline: if you plan to stay less than 5 years, renting often makes more sense. Transaction costs (closing costs, selling costs) take time to recoup through appreciation.

Price-to-Rent Ratio

Ratio = Home Price / Annual Rent

• Below 15: Buying typically favored
• 15-20: Depends on other factors
• Above 20: Renting typically favored