Should you rent or buy?

Compare net worth, not monthly payments

A mortgage payment against a rent check is not a comparison, because the two paths do different things with the rest of your money. The buyer ties up $92,000 in a down payment and closing costs, and part of every payment builds equity. The renter has that $92,000 free to invest and often a smaller monthly outlay to invest on top.

So this model gives the renter that money. Every month, whoever pays less invests the difference at the return you set, and at the end the buyer's position is the home's value minus the loan and minus the cost of selling. On the defaults, buying ends at $259,102 and renting at $250,668, a gap of $8,434 after ten years.

That gap is a rounding error, and that is the finding

$8,434 on a quarter of a million dollars is about 3%. Nudge the appreciation rate, the investment return or the rent by a fraction and the winner changes. This is not a defect in the model. It is the actual answer: for typical assumptions over a typical horizon, buying and renting are close enough that the decision is not really financial.

What tips it is usually how long you stay. Buying carries large costs at both ends, so a short horizon almost always favors renting. Move the horizon slider to three years and renting wins comfortably. Move it to twenty-five and buying wins by a wide margin, because the purchase costs are spread thin and the loan is nearly repaid.

The two assumptions that decide it

Home appreciation against investment return is the first. Buying is a leveraged bet on one asset, so a small change in appreciation moves the result a lot. If your expected investment return is well above your expected appreciation, the renter's invested down payment is doing more work than the house.

Rent growth is the second, and it is where owning earns its keep. A mortgage payment is mostly fixed for thirty years while rent compounds. At 3% growth, rent roughly doubles in 24 years. The longer the horizon, the more that divergence favors the owner, and it is the strongest financial argument for buying that does not depend on house prices rising at all.

What this calculator leaves out

The loan itself is simplified here. The mortgage calculator shows the full amortization schedule and what extra payments would do to it. The mortgage interest deduction is excluded, which understates buying for the minority of households that itemize. Working against that, maintenance is a flat percentage of the home's value, when in reality it arrives as a $14,000 roof in a single year. It also assumes you invest the difference every month without fail, which is the assumption renters most often fail in practice.

The larger omission is everything that is not money. Owning means you cannot leave quickly and repairs are yours; renting means someone can decline to renew your lease. Those are real costs and benefits that no calculator can price, and they are frequently the deciding factor. Use this to find out how big the financial gap is. On these defaults, the answer is that it is small enough that you can reasonably choose on other grounds.

Unfamiliar term? The course glossary defines the fifty this site actually uses, in the sense this site uses them.