Rent vs Buy Calculator

Renting vs buying a house: why the answer isn't simple

The question of whether to rent or buy a house is one of the most financially significant decisions most people ever make — and one of the most frequently oversimplified. Headlines alternate between "buying is always better" and "renting is throwing money away" with little nuance. The truth is that the right answer depends on your time horizon, your local market, prevailing mortgage rates, what you'd do with the down payment otherwise, and your marginal tax rate.

A genuine rent versus buy calculator has to account for both sides of the ledger honestly. Buying comes with equity accumulation, inflation-protected fixed payments, and meaningful tax savings on mortgage interest. But it also comes with transaction costs, maintenance bills, property taxes, and a large illiquid down payment that could otherwise be growing in a market portfolio. This calculator models all of it.

The four factors that swing the rent or buy decision

How mortgage interest tax savings change the maths

One dimension of buying vs renting a home that is consistently underestimated is the cumulative value of the mortgage interest deduction. In the early years of a 30-year mortgage, the vast majority of each monthly payment is interest rather than principal. On a $360,000 loan at 6.5%, you pay roughly $23,000 in interest in year one alone. At a 24% marginal federal tax rate, that's a $5,520 reduction in your tax bill — if you itemise.

The critical caveat is whether itemising makes sense for your situation. Since the 2017 Tax Cuts and Jobs Act nearly doubled the standard deduction, fewer taxpayers benefit from itemising. A single filer with a $300,000 mortgage in a low-tax state may find their total itemised deductions — mortgage interest plus the $10,000 SALT cap — are still below the $14,600 standard deduction, yielding zero marginal benefit. Our calculator handles both cases: select "US — Always itemise" if you're confident you'll itemise, or "US — Standard deduction" to see only the marginal benefit above the threshold.

The property tax deduction adds further complexity. The SALT (State and Local Tax) cap, introduced in 2018, limits the deduction for all state and local taxes combined — including property tax — to $10,000 per year. In high-tax states like California, New York, and New Jersey, annual property taxes on a median-priced home can easily exceed this cap, meaning the overage is not deductible. This calculator applies the $10,000 SALT cap in all US scenarios.

The Price-to-Rent Ratio: Your First Diagnostic Tool

Before diving into the complex math of this calculator, many real estate investors look at the Price-to-Rent Ratio. This is a quick-and-dirty metric that helps you understand whether a local market is fundamentally "overpriced" or "underpriced" relative to renting. To calculate it, simply divide the median home price by the median annual rent.

Interest Rate Sensitivity: Why 1% Matters So Much

The most volatile variable in the rent vs buy equation is the mortgage interest rate. Because most buyers use leverage, a small move in interest rates has a disproportionate impact on the "cost of buying." As a general rule of thumb, every 1% increase in interest rates reduces your purchasing power by roughly 10% for the same monthly payment.

In a high-rate environment, the "interest paid" component of your mortgage payment grows so large that it can outweigh the benefits of equity accumulation for several years. This shifts the break-even point further into the future. For example, at a 3% mortgage rate, buying might beat renting after 4 years. At a 7% rate, that same house might take 9 years to break even against the same rent.

The Hidden Trap: Property Tax Assessments

One of the most common errors users make when comparing renting vs buying is using the current owner's property tax bill as their input. In many jurisdictions (such as New York, California with Proposition 13, or Florida with Save Our Homes), property taxes are capped for long-term owners.

When the property is sold, the tax is often reassessed at the new purchase price. This means your property tax bill could be 50% or even 100% higher than the previous owner's bill. If you don't account for this "tax jump," you will significantly underestimate the cost of buying. Always verify the local reassessment rules with your attorney or real estate agent before making a decision.

Rent or buy by time horizon

The single most important variable in any rent or buy analysis is how long you plan to stay. Transaction costs — closing costs when buying, agent commissions and transfer taxes when selling — mean that a short hold almost never makes buying worthwhile.

The Capital Gains Exclusion: Your Ultimate Tax Shield

One massive benefit of buying that isn't captured in your monthly payment is the Section 121 Exclusion. Under current US tax law, if you have owned and lived in your home as a primary residence for at least two of the last five years, you can exclude up to $250,000 (single) or $500,000 (married filing jointly) of gain from the sale of your home from your income.

This is essentially a tax-free investment. A renter who invests $100k in the S&P 500 and makes $500k in profit will owe 15-20% in capital gains tax. A homeowner who makes that same $500k in appreciation pays $0 in taxes. This "tax-free growth" is one of the primary reasons buying wins over long time horizons.

What this rent versus buy calculator models

Most online rent or buy tools make one of two mistakes: they ignore the opportunity cost of the down payment (overstating the case for buying), or they ignore the equity accumulation and tax savings (overstating the case for renting). This calculator is designed to be genuinely neutral and complete.

Frequently asked questions