Rent vs Buy Calculator

A Quick Rent vs Buy Benchmark You Can Do in Your Head

The "Rule of 150" provides a surprisingly accurate shortcut for comparing rent to homeownership costs:

Monthly Rent x 150 = Comparable Home Price

For example:

• $1,500 rent x 150 = $225,000 home
• $2,000 rent x 150 = $300,000 home
• $3,000 rent x 150 = $450,000 home

Why 150? This multiplier accounts for the fact that homeownership costs about 1.5x more than just the mortgage payment when you include property taxes, insurance, maintenance, and opportunity cost of the down payment.

How to Use It:

• If the home costs less than Rent x 150: Buying may be a good deal
• If the home costs more than Rent x 150: Renting may be more economical
• If they're equal: Other factors (stability, lifestyle, local market) should drive your decision

Important Caveats:

• This assumes roughly 3% annual home appreciation
• High property tax areas (Texas, New Jersey) may need 175-200x
• Low property tax areas (Hawaii, Colorado) may only need 125x
• The rule works best for 7-10+ year time horizons

"Rent is Throwing Money Away" - Is It Really?

This phrase has been repeated so often it's accepted as truth. But let's examine the math:

What Homeowners "Throw Away":

• Mortgage interest (often 60%+ of early payments)
• Property taxes ($3,000-$15,000+/year)
• Homeowner's insurance ($1,000-$3,000+/year)
• Maintenance and repairs (1-2% of home value annually)
• Closing costs when buying (2-5% of purchase price)
• Selling costs when moving (6-10% of sale price)
• HOA fees (if applicable)

In the first years of a 30-year mortgage, you might pay $15,000 in mortgage interest, $4,000 in property taxes, $2,000 in insurance, and $4,000 in maintenance. That's $25,000 "thrown away" - potentially more than a renter's entire housing cost.

The Counter-Argument: Homeowners do build equity and benefit from appreciation. But renters who invest the difference (down payment + monthly savings) can also build significant wealth.

The Historical Reality:

• U.S. homeownership rate peaked at 69% in 2004-2006
• It dropped to 63% after the housing crisis
• Currently around 65-66%
• Many developed nations have lower homeownership rates (Germany: ~50%, Switzerland: ~43%)

The Bottom Line: Neither option "throws money away." Both are valid financial strategies depending on your specific situation, timeline, and local market.

Hidden Homeownership Costs:

1. Opportunity Cost of Down Payment

   • A $60,000 down payment invested at 7% grows to $118,000 in 10 years
   • That's $58,000 in potential gains you're "trading" for home equity

2. Transaction Costs

   • Buying: 2-5% of purchase price ($8,000-$20,000 on a $400,000 home)
   • Selling: 6-10% of sale price ($24,000-$40,000)
   • Total: $32,000-$60,000 just to buy and later sell

3. The "1% Rule" for Maintenance

   • Budget 1-2% of home value annually for repairs
   • On a $400,000 home: $4,000-$8,000/year
   • Older homes often exceed 2%

4. Time Costs

   • Yard work, repairs, finding contractors
   • Dealing with HOA issues
   • This has real economic value

Hidden Renting Costs:

1. Rent Increases

   • Average 3-5% annually in many markets
   • $2,000/month becomes $2,690/month after 10 years at 3%

2. Less Control

   • Landlord may sell or not renew lease
   • Limited ability to customize
   • Pet restrictions, guest policies

3. No Leverage Benefit

   • Homeowners control a $400,000 asset with $80,000 down
   • 5x leverage means gains are amplified (and so are losses)

4. Potential Tax Disadvantage

   • No mortgage interest deduction
   • No property tax deduction (though standard deduction may be higher anyway)

Scenarios Where Renting is the Better Financial Choice:

1. Short Time Horizon (Under 5 Years)

   • Transaction costs make buying expensive for short stays
   • Break-even typically requires 5-7+ years
   • Job uncertainty or likely relocation? Keep renting

2. Overpriced Markets

   • When home prices exceed 20-25x annual rent
   • San Francisco, New York, Seattle often fall into this category
   • Price-to-rent ratios above 20 favor renting

3. High Investment Discipline

   • If you'll actually invest the down payment and monthly savings
   • Stock market historically returns 7-10% vs. housing's 3-4%
   • Renters who invest can build substantial wealth

4. Lifestyle Flexibility

   • Want to move for career opportunities?
   • Planning major life changes (retirement, kids leaving)?
   • Value freedom over roots?

5. Market Timing Concerns

   • Buying at market peaks can take years to recover
   • 2007 buyers didn't break even until 2016+ in many markets
   • Renting avoids timing risk

Example Calculation:

• Rent: $2,500/month in competitive market
• Comparable home: $600,000 (24x annual rent - expensive!)
• Down payment: $120,000 (20%)
• If that $120,000 grows at 8%/year: $259,000 in 10 years
• Renter invests $800/month savings (difference in costs): Additional $139,000
• Total potential renter net worth: $398,000 in investments
• This could exceed home equity depending on appreciation

Scenarios Where Buying is the Better Financial Choice:

1. Long Time Horizon (10+ Years)

   • Transaction costs are amortized over more years
   • Home appreciation compounds
   • Mortgage payoff accelerates as you build equity

2. Underpriced Markets

   • Price-to-rent ratio below 15
   • Many Midwest and Southern cities qualify
   • Cleveland, Indianapolis, Memphis often favor buying

3. Forced Savings Benefit

   • Each mortgage payment builds equity
   • Many people don't have discipline to invest monthly
   • Homeownership "forces" wealth building

4. Rent Appreciation Exceeds Home Appreciation

   • In hot markets, rents can increase faster than home prices
   • Locking in a mortgage payment provides stability
   • Your housing cost becomes relatively cheaper over time

5. Strong Local Market Fundamentals

   • Population growth
   • Job market expansion
   • Limited housing supply
   • Infrastructure improvements

Example Calculation:

• Home price: $350,000 in growing Sunbelt market
• Equivalent rent: $2,100/month (price = 14x rent - cheap!)
• Down payment: $70,000 (20%)
• Monthly PITI: $2,400
• After 10 years with 4% appreciation: Home worth $518,000
• Remaining mortgage: $220,000
• Home equity: $298,000 (plus 10 years of stable housing costs)

Current Market Conditions:

Affordability Crisis:

• Income grew 16% while home prices grew 35%
• Monthly payments up 54% due to prices AND rates
• Housing costs now consume 30-40%+ of income in many markets

Price-to-Income Ratios by Market (2026):

Historically healthy ratio: 3-4x income

What This Means:

• In expensive markets, renting often makes more financial sense
• In affordable markets, buying remains attractive
• The "American Dream" now requires 2x the income it did in 1980

Understanding Your Break-Even Point:

The break-even point is when buying becomes cheaper than renting over your time horizon. It depends on:

1. Transaction Costs: Higher costs = longer break-even
2. Appreciation Rate: Higher appreciation = shorter break-even
3. Interest Rate: Higher rates = longer break-even
4. Rent Growth: Higher rent growth = shorter break-even
5. Investment Returns: Higher returns = longer break-even

Sample Break-Even Calculations:

Scenario A: Expensive Market (SF/NYC)

• Home: $900,000, Rent: $3,500/month
• Price-to-rent ratio: 21.4 (high)
• Break-even: 9-12 years
• Verdict: Rent unless staying 10+ years

Scenario B: Affordable Market (Midwest)

• Home: $250,000, Rent: $1,500/month
• Price-to-rent ratio: 13.9 (low)
• Break-even: 3-4 years
• Verdict: Buy if staying 4+ years

Scenario C: Mid-Cost Market (Sunbelt)

• Home: $400,000, Rent: $2,000/month
• Price-to-rent ratio: 16.7 (moderate)
• Break-even: 5-6 years
• Verdict: Either option viable for 5+ year horizon

The 2026 Interest Rate Impact: At 6.8% mortgage rates vs 3% in 2020:

• Monthly payment on $320K loan: $2,080 vs $1,350
• Break-even extended by 2-3 years
• More scenarios now favor renting

The Disciplined Renter Strategy:

If renting and investing the difference:

The Homeowner Equity Path:

Key Insights:

• Homeowner wins if appreciation is consistent
• Renter wins if disciplined and market underperforms
• Both can build substantial wealth
• The "forced savings" of homeownership is powerful for most people

Hybrid Strategy: Buy modest home, invest aggressively:

• Don't max out your housing budget
• Buy at 2.5-3x income instead of 4-5x
• Invest the savings difference
• Get both equity AND investment growth

Challenging the "Successful People Own Homes" Narrative:

Notable Long-Term Renters:

• Albert Einstein - Rented most of his life, focused on physics rather than property
• Many NYC Billionaires - Rent in Manhattan where buying makes less sense
• Tech Nomads - Many successful founders rent for flexibility during company building

Counterpoint - The Warren Buffett Story: Warren Buffett famously still lives in the Omaha house he bought in 1958 for $31,500 (about $325,000 in today's dollars). But here's the nuance:

1. He bought in a low-cost market - Omaha, not NYC or San Francisco
2. He stayed for 65+ years - The ultimate long time horizon
3. He didn't tie up capital - Used minimal down payment, invested the rest
4. He didn't upgrade - Avoided the "housing ladder" wealth drain

The Real Lesson: Buffett's success isn't from his house - it's from investing. His home is worth maybe $1.5 million today. His investments are worth $100+ billion. He kept his housing modest and invested aggressively elsewhere.

What This Means for You:

• Don't overextend on housing to "keep up"
• The 28/36 rule exists for a reason
• Modest housing + aggressive investing often beats expensive housing + minimal investing