How a fair comparison works
Comparing rent with a mortgage payment misses most of the picture. Owners also pay property tax, insurance, maintenance and, once, buying and selling costs. But part of each mortgage payment builds equity, and the home may rise in value. Renters, meanwhile, keep the down payment and closing costs and can invest them.
This calculator follows two households with the same income. The buyer pays every cost of owning. The renter pays rent and invests the down payment plus the buying costs on day one, and each month invests whatever the buyer spends beyond the rent. If renting costs more than owning in a later year, the renter draws on those savings instead. At the end we compare the buyer's equity after selling costs with the renter's portfolio.
The price-to-rent ratio
A quick screen: divide the home price by a year's rent for a similar home. Below about 15, buying tends to win; above 20, renting usually does, unless prices rise quickly. With $420,000 against $2,400 a month the ratio is 14.6. Big coastal US cities often run above 25.
What matters most
- How long you stay. Buying and selling costs of 8% to 10% of the price take years of equity growth to recover. Under three to five years, renting usually wins.
- Mortgage rates. At 7%, most of the early payments are interest, which is a cost like rent.
- Price growth vs investment returns. The buyer's return comes from a leveraged house; the renter's from a diversified portfolio. Small changes to either assumption move the result a lot, so try the sensitivity chart.
- Discipline. The renter only comes out ahead if the difference really gets invested. A mortgage forces saving; a brokerage account does not.
What this leaves out
Taxes are simplified: we ignore the mortgage interest deduction (most households take the standard deduction now) and the capital gains exclusion on a home sale, as well as tax on the renter's investment gains. We also leave out the things money cannot measure: stability, the freedom to renovate, or the flexibility to move for a job.