Rent vs buy with opportunity cost

Rent vs. buy — with opportunity cost baked in

Most rent-vs-buy calculators compare your monthly rent to your monthly mortgage payment and declare the cheaper one a winner. That's not how the math actually works. To compare rent and buy fairly, you have to account for what the renter does with the down payment they didn't spend — and what the buyer gives up by tying that money into a house.

What buyers pay that gets hidden

• Closing costs — 2–4% of purchase price, paid at close. Mostly non-recoverable (title, appraisal, lender origination, transfer taxes).
• Property taxes — typically 0.3% (Hawaii) to 2.2% (New Jersey) of assessed value annually, growing as assessments rise.
• Homeowners insurance — $800–$3,500/year depending on location and coverage.
• Maintenance — 1–4% of home value annually over a long holding period. Most people underestimate this because it's lumpy (roof every 25 years, HVAC every 15, water heater every 10).
• HOA fees — if applicable, often $200–$800/month in condos and new subdivisions.
• Selling costs — 5–8% of sale price, typically paid at the end of the hold (agent commission, title, transfer tax).

What renters pay that people forget

• Renters insurance — $150–$300/year.
• Annual rent increases — in non-rent- controlled markets, 3–8% per year is typical. Over 7 years, rent at a 4% escalator grows 32%.
• Moving costs — $500–$3,000 every time you move.

The opportunity cost engine

This calculator models the renter investing both the down payment + closing costs AND the monthly difference between owning and renting (when owning is more expensive) in a tax-advantaged portfolio earning your specified return. When renting is more expensive than owning, we withdraw the difference. At the end of the holding period, the renter's net position is portfolio balance minus rent paid.

For the buyer, net position is home sale proceeds (after agent commission, remaining mortgage balance, and closing costs) minus the total out-of-pocket cash spent over the hold.

The break-even horizon

For a typical U.S. market in 2024 (home price ≈ 200× monthly rent, 7% mortgage rate, 3% appreciation, 3% rent growth), break-even is usually 5–7 years. In expensive coastal markets where home prices are 300–400× monthly rent, break-even can extend past 10 years. In lower-cost inland markets where price is 100–150× rent, buying usually wins within 3–5 years.

The price-to-rent ratio shortcut

A quick triage tool: divide home price by annual rent. Below 15× (price = 15 years of rent), buying almost always wins over 5+ years. Above 25×, renting almost always wins unless you stay 10+ years. Between 15 and 25 is the zone where the detailed math in this calculator matters.

Tax effects to consider

Post-2017 TCJA, the mortgage interest deduction applies only to the first $750,000 of mortgage debt and requires you to itemize (vs. the $27,700 standard deduction for married filing jointly in 2023). For most buyers at current interest rates, itemizing doesn't beat the standard deduction — so the "mortgage is tax-deductible" argument doesn't apply the way people remember it. This calculator leaves tax effects out to stay conservative.

Non-financial factors

The math in this calculator deliberately ignores the non-financial reasons people buy or rent — stability, ability to renovate, landlord risk, community, flexibility to move for a new job. Those are real. But they shouldn't be used to justify an obviously losing financial decision. Look at the numbers first, then decide whether the non-financial premium is worth paying.