What is Rent vs Own Analysis?

Rent vs own analysis compares your total net worth after renting and investing your down payment versus buying a home over a specific time period. It shows which choice builds more wealth.

Simple Rent vs Own Formula

Rent Scenario = Investment Growth - Total Rent Paid Own Scenario = Home Equity - Total Payments Made

For example over 10 years:

• Rent + Invest: $450,000 investment growth - $384,000 rent = $66,000 net worth
• Buy Home: $720,000 home equity - $650,000 payments = $70,000 net worth
• Buying wins by $4,000

What Makes Each Option Better?

Renting Often Wins When:

• High home prices relative to rent
• Strong investment returns (8%+)
• Short time horizon (under 5 years)
• High property taxes and maintenance

Buying Often Wins When:

• Reasonable home prices relative to rent
• Long time horizon (10+ years)
• Low interest rates
• High rent increases expected

How to Use the Rent vs Own Calculator

Step 1: Enter Home Purchase Details

Start with the home you're considering buying:

1. Home Price: Enter the purchase price you're considering
2. Down Payment %: Enter your down payment percentage (typically 10-20%)
3. Mortgage Rate: Enter current interest rates you qualify for

Step 2: Enter Rental Comparison

Find a comparable rental property:

1. Monthly Rent: Enter rent for a similar home in the same area
2. Property Tax: Enter annual property taxes for the home
3. Insurance: Enter annual homeowner's insurance cost
4. Maintenance: Budget 1-2% of home value annually

Step 3: Set Investment Assumptions

Configure your investment strategy:

1. Investment Return: Conservative = 6%, Moderate = 8%, Aggressive = 10%
2. Time Period: How long you plan to stay (5-30 years)

Step 4: Compare Results

Review both scenarios:

• Blue numbers = Rent and invest scenario
• Green numbers = Buy home scenario
• Winner = Strategy that builds more wealth

Quick Tips

• Use realistic rent prices for comparable properties
• Budget 1-2% of home value for annual maintenance
• Consider 6-8% investment returns for conservative planning
• The calculator updates automatically as you change numbers

Frequently Asked Questions

How accurate is the 3% home appreciation assumption?

The calculator assumes 3% annual home appreciation, which is close to the long-term average. However, real estate markets vary greatly by location and time period.

What investment return should I use?

Conservative investors should use 6-7%, moderate investors 7-8%, and aggressive investors 8-10%. Historical stock market average is around 10% but includes significant volatility.

Does this include tax benefits?

This simplified calculator doesn't include mortgage interest deductions or property tax deductions, which can favor homeownership for higher-income earners.

What if I can't afford the down payment?

If you can't afford 20% down, adjust the percentage. Remember that lower down payments mean PMI costs, which aren't fully captured in this basic calculator.

Should I factor in rent increases?

The calculator assumes static rent, but real rents typically increase 2-3% annually. This generally favors the buying scenario over longer time periods.

What about closing costs and transaction fees?

The calculator doesn't include buying/selling costs (typically 6-8% of home value). For short time periods, these costs often favor renting.

When does buying almost always win?

Buying typically wins when you'll stay 7+ years, home prices are reasonable relative to rent (price-to-rent ratio under 20), and you have stable income for payments.

When does renting almost always win?

Renting typically wins for short stays (under 3 years), very expensive housing markets, or when you can invest the down payment at high returns with low risk.

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