Housing
Rent vs. Buy with Opportunity Cost
Over the years you plan to stay, does buying leave you richer than renting and investing the difference?
The comparison only means something if the renter invests what the buyer puts down at closing. Both sides run to the same year, and the sale is priced.
What this calculator answers, what you need, and what to do with the result
Have this in front of you
- Two real numbers for the same home: the purchase price and the monthly rent.
- Your mortgage rate, and what you would put down.
- The property tax rate and insurance quote for that address, not the county average.
Words on this page, in plain English
- Price-to-rent
- The home price divided by a year of rent. Near 15 or below, owning usually wins on cost; above 20, it needs rising prices.
- Opportunity cost
- What the down payment would have earned if you had invested it instead of putting it into the house.
- Net proceeds
- What you keep from a sale after the agent’s commission and the remaining loan are paid.
What to do with the answer
- 01Set the horizon to how long you will really stay. Under five years, closing and selling costs usually decide the answer.
- 02If the renter wins here, the case for buying is stability and control. Decide whether that is worth the gap.
- 03Re-run it at 0% appreciation. If buying still wins, the decision is not resting on a forecast.
Personal capital · housing
Rent vs. Buy with Opportunity Cost
Both households to the same horizon: the owner sells and nets the proceeds, the renter invests the down payment and the monthly difference. The comparison is net worth, not monthly payment.
01The purchase
02Cost of owning
03The alternative
Excluded: mortgage-interest tax deductibility (standard-deduction phase-outs make it personal), renter's insurance, and any reinvestment of home equity before sale. The renter invests the down payment, closing costs and the monthly difference, and draws down when owning is cheaper in a given month. Property tax and maintenance are held at today's price level; appreciation compounds annually on the purchase price.
Method
How this number is calculated
- 01
What the buyer commits at close
Down payment plus closing costs. That total is the renter starting portfolio, which is why the comparison begins level rather than with the buyer at zero and the renter at zero.
- 02
Monthly principal and interest
The standard amortization payment on the loan balance. Property tax, insurance, maintenance as a share of home value, and HOA are added to it to get the true monthly cost of owning.
- 03
The renter side
Rent rises every twelve months. Each month the portfolio earns the investment return and receives the difference between owner cost and rent; when rent is the larger number, the portfolio pays the gap.
- 04
Both sides at the horizon
Owner net worth is appreciated value minus selling costs minus the remaining loan balance. Renter net worth is the portfolio. The larger one wins, and the break-even year is the first year the owner overtakes.
Assumes the full horizon is served. Rent risk, the option value of being able to move, and renovation spending are not priced. Appreciation and rent growth are the two assumptions that move the answer most.
Worked numbers
Pre-computed scenarios
Three price points, same terms: 20% down, 6.5% over 30 years, 1.1% property tax, 1% maintenance, 3.5% appreciation, 3% rent growth, 7% portfolio return, 2% closing and 6% selling costs, seven-year horizon.
| Scenario | Inputs | Outcome |
|---|---|---|
| Entry market | $480,000 home · $2,400/mo rent · P/R 16.7 | Owner nets $226,854 vs renter portfolio $256,450 — rent and invest, no break-even inside 7 years |
| Mid market | $650,000 home · $3,300/mo rent · P/R 16.4 | Owner nets $307,198 vs renter portfolio $335,767 — rent and invest, no break-even inside 7 years |
| Low price-to-rent, strong market | $420,000 home · $2,900/mo rent · P/R 12.1 | Owner nets $233,470 vs renter portfolio $133,326 — buy, break-even year 3 |
Questions
What people ask before trusting this number
Why does the renter get credit for the down payment?
Because the buyer no longer has it. The renter starts with the down payment plus closing costs invested, and every month invests the difference between the owner cost and the rent. When rent is higher than owning, that contribution turns negative and the portfolio is drawn down instead.
What is a price-to-rent ratio and when does it matter?
Home price divided by a year of rent. Around 15 or below, owning tends to work on cost alone. Above 20, the model needs rent growth and appreciation to carry it, and those are the two assumptions you should be least confident in.
Why subtract selling costs at the horizon?
Because you do not own the sale price, you own what is left after the agent and the transfer. Net proceeds are the appreciated value minus 6% selling costs minus the remaining loan balance. Skipping that step is worth a year of appreciation in the comparison.
Why is there no break-even year in some scenarios?
Because owner net worth never overtakes the invested portfolio inside the horizon. At a high price-to-rent ratio with moderate appreciation, the renter compounds the down payment faster than the owner builds equity net of costs. The model reports that rather than forcing an answer.
What breaks this comparison?
A short stay. Closing costs are paid up front and selling costs at the end, so horizons under five years are usually decided by those two charges alone. Also unpriced: rent risk, the option value of moving, and any renovation that changes the home value.
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