Rent vs Buy Calculator
Should you rent or buy a home? Get a data-driven comparison of total costs, equity buildup, and net worth over any time horizon.
Compare Renting vs Buying a Home
How This Calculator Works
This calculator compares the net worth of buying vs renting over your chosen time horizon. For buying: home equity (home value minus remaining mortgage). For renting: the down payment invested in the stock market, plus any monthly savings from the lower rent cost.
True Cost of Homeownership
- Mortgage (P&I): Principal and interest payment — only principal builds equity
- Property Tax: Typically 1–2% of home value per year
- Homeowner's Insurance: ~0.5–1% per year
- Maintenance & Repairs: Budget 1–2% of home value per year
- PMI: Required if down payment < 20% — adds ~0.5–1% per year
- Closing Costs: 2–5% of purchase price (often ~3%)
- Selling Costs: 6% agent commissions + transfer taxes when you eventually sell
When Buying Makes More Sense
- You plan to stay in the home for 5+ years (time to recover closing costs)
- Local home appreciation rate outpaces your investment return
- Monthly mortgage is similar to or less than rent for comparable home
- You value stability, customization, and building equity over time
When Renting Makes More Sense
- Home prices are very high relative to rent (price-to-rent ratio > 20)
- You may relocate within 3–5 years
- Mortgage + costs significantly exceed comparable rent
- You can invest the down payment in higher-returning assets
The Price-to-Rent Ratio Explained
The price-to-rent ratio is the quickest gauge of whether a market favours buying or renting. Divide the purchase price of a home by its annual rent: a ratio below 15 generally favours buying, 15–20 is borderline, and above 20 tends to favour renting. For example, a ₹1 crore flat that would rent for ₹30,000 a month (₹3.6 lakh a year) has a ratio of about 28 — a strong signal that renting and investing the difference may build more wealth than buying in that area.
The Hidden Costs of Buying
The mortgage payment is only part of the cost of ownership. Buyers also pay stamp duty and registration (often 5–7% of the price upfront), property tax, maintenance and repairs (budget around 1% of the home's value per year), home insurance, and society or HOA charges. These recurring costs do not build equity, and they are a major reason the “rent is just throwing money away” argument is misleading — a significant slice of early mortgage payments and ownership costs is effectively spent, not saved.
The Opportunity Cost of Your Down Payment
A large down payment is money that could otherwise be invested. If you put ₹20 lakh down on a home, the real cost is not just ₹20 lakh — it is everything that ₹20 lakh could have earned elsewhere. Invested at a 12% equity return, ₹20 lakh grows to over ₹62 lakh in 10 years. A fair rent-vs-buy comparison must credit the renter with the investment growth on the money they did not tie up in a down payment and closing costs, which is exactly what this calculator accounts for.
The Bottom Line
Buying usually wins financially only when you stay long enough (typically 5–7+ years) to spread the high upfront transaction costs over many years and to let equity build. If there is any chance you will relocate sooner, or if local prices are very high relative to rent, renting while investing the difference is often the wealthier choice. The right answer depends on your time horizon, the local price-to-rent ratio, and your investment discipline.
Frequently Asked Questions — Rent vs Buy Calculator
Buying generally wins when: you plan to stay for 5+ years (to recoup closing costs and break even), your monthly mortgage payment is comparable to rent, home prices are appreciating in your market, and you have a stable income and emergency fund. Renting wins when you have flexibility needs, the market is overpriced, or you can invest the down payment at a higher return than home appreciation.
The break-even point is the number of years you need to own a home before buying becomes cheaper than renting. It accounts for closing costs (typically 2–5% of purchase price), the opportunity cost of the down payment, maintenance, property taxes, and home appreciation. In expensive cities, break-even can be 7–10 years; in lower-cost areas, it may be 3–5 years.
Major overlooked costs: (1) Maintenance — budget 1–2% of home value annually (~$4,000–8,000/year on a $400K home). (2) Property taxes — typically 1–2% of assessed value. (3) Homeowner's insurance — $1,000–3,000/year. (4) HOA fees if applicable. (5) Closing costs on purchase (3–5%) and selling (6–8% in agent commissions + fees). (6) PMI if down payment is under 20%.
The 5% rule (popularized by Ben Felix) says: multiply the home's value by 5%, then divide by 12 to get the monthly "unrecoverable cost" of owning (property tax ~1%, maintenance ~1%, cost of capital ~3%). If you can rent a comparable home for less than this amount, renting is financially better. Example: a $500,000 home has a 5% unrecoverable cost of ~$2,083/month.
If you rent instead of buying and invest the down payment in a diversified index fund (historical ~7–10% annual return), that invested capital can grow significantly. This calculator compares the net worth impact of both paths — factoring in home equity growth, investment portfolio growth, and all costs. In high-price markets, investing the down payment often outperforms ownership over 10–15 years.