Rent vs Buy Calculator
Rent vs Buy Calculator
Buying a home or renting and investing the difference: your net worth on each path, year by year, on the same monthly budget. The answer turns on the assumptions, so try several.
Rent or buy
A $80,00,000 home with $16,00,000 down and a 8.5% loan over 20 years; 7% buying and 2% selling costs; ownership costs 1% a year; prices and rent (from $25,000 a month) both rising 6% a year; savings earning 8%; compared over 25 years
Two households on the same budget
- VT
- the home’s value after T years: price × (1 + growth)T; s the selling cost
- BT
- the loan still outstanding after T years (standard EMI loan, annual rate ÷ 12, EMI at month end)
- U
- the cash the buyer puts in on day one — down payment plus buying costs — which the renter invests instead
- dk
- in year k, EMI + ownership costs − rent, a month. The renter invests it when positive; when negative the buyer invests the saving
- A
- what 12 month-end payments of 1 grow to in a year at the monthly rate (1 + ret)1/12 − 1
Worked example
A $80,00,000 home with $16,00,000 down and a 8.5% loan over 20 years; 7% buying and 2% selling costs; ownership costs 1% a year; prices and rent (from $25,000 a month) both rising 6% a year; savings earning 8%; compared over 25 years
EMI on $64,00,000 = $55,541; the buyer's day-one cash is 16,00,000 + 7% of 80,00,000 = $21,60,000, which the renter invests instead
Year 1: owning costs 55,541 + 6,667 a month against 25,000 rent, so the renter also invests $37,207 a month
After 25 years the home is worth $3,43,34,966 and the loan is repaid: buyer's net worth $3,84,40,595, including savings made once the EMIs stop
The renter's investments are worth $3,68,80,136
Buying minus renting = $15,60,459. Buying first comes out ahead in year 20; at a 9% return renting stays ahead throughout
Buying minus renting after 25 years, by return on savings and by home price and rent growth
| Price and rent growth | Return 7% | Return 8% | Return 9% | Return 10% |
|---|---|---|---|---|
| 4% a year | −$94,66,003 | −$1,64,90,843 | −$2,50,43,263 | −$3,54,48,532 |
| 5% a year | −$15,47,263 | −$83,71,397 | −$1,66,99,101 | −$2,68,52,407 |
| 6% a year | $81,62,684 | $15,60,459 | −$65,19,433 | −$1,63,95,593 |
| 7% a year | $2,00,73,547 | $1,37,17,096 | $59,10,953 | −$36,59,831 |
A fair comparison, and what it cannot tell you
A rent-versus-buy comparison is only fair if both households start with the same money and spend the same each month. The buyer puts the down payment and the buying costs into the home; the renter keeps that cash and invests it. Each month, whichever household’s housing costs less invests the difference. In the early years that is almost always the renter, because an EMI plus upkeep costs more than rent on the same home. Once the loan is repaid it is usually the buyer. This page follows both, year by year, and counts the buyer’s net worth as what the home would fetch after selling costs, less any loan still owed.
In the example the renter is ahead for most of the period and buying comes out ahead in year 20. After 25 years the buyer is $15,60,459 ahead. That is a small margin over twenty-five years: at a 9% return on savings instead of 8%, renting stays ahead throughout. The table shows how much the answer moves with the two assumptions nobody knows in advance — how fast prices and rents rise, and what the savings earn. It is a map of outcomes, not a recommendation.
What the arithmetic leaves out matters as much. The renter’s lead depends on actually investing the difference every month for decades; money that is spent instead leaves the renter behind. The buyer carries a large, single, leveraged asset that cannot be sold in part, and price growth varies a great deal by city and decade. The page ignores taxes: gains on investments and on property are often taxed, and home loan interest or principal may earn a deduction where you live. It also leaves out the things no number captures — security of tenure, freedom to move, and the chance to choose your own home.
For the EMI on its own use the EMI calculator; to see what a lender might offer, the home loan eligibility calculator; and for a lump sum you could either put into a loan or invest, the prepay or invest calculator. This is arithmetic on the figures you enter, not financial advice.
Frequently asked questions
Is it better to rent or buy a house?
It depends on the price, the rent, how fast both rise, the loan rate and what savings earn. This page compares your net worth on each path with the same monthly budget; small changes in the assumptions can reverse the answer, so try several.
Why does the renter invest the down payment?
Because a fair comparison starts both households with the same money. The buyer’s down payment and buying costs go into the home; the renter keeps that cash invested, and each month invests whatever renting saves.
What if rent ends up costing more than owning?
Then the buyer invests the saving, at the same return. That usually happens once the loan is repaid, and it is counted in the buyer’s net worth.
Does the calculator include stamp duty?
Yes, as part of the buying costs you enter as a percentage of the price. Rates differ by state and country, so enter your own; the default is only an example.
Are taxes included?
No. Tax on investment gains, on a gain when you sell a home, on rent and any deduction for home loan interest all depend on where you live and change over time.
Related calculators
References
- Brealey RA, Myers SC, Allen F. Principles of Corporate Finance. McGraw-Hill. Present and future values, annuities and growing annuities; the level-payment loan formula.
- Bodie Z, Kane A, Marcus AJ. Investments. McGraw-Hill. Risk and return: why an expected return is not a certain one.
- Central-bank inflation targets used as default inflation by currency: Reserve Bank of India (4% CPI, flexible inflation targeting framework); U.S. Federal Reserve (2% PCE); European Central Bank (2%); Bank of England (2% CPI); Bank of Canada (2%); Reserve Bank of Australia (2–3%); Bangko Sentral ng Pilipinas (3% ± 1). Actual inflation often runs above target.