How do you calculate whether to rent or buy a home?
Compare net worth at the date you'd move: the buyer's home value after 6% selling costs, minus the loan balance, versus the renter's down payment and closing costs invested plus any monthly savings invested. Whichever is larger wins; the first year buying pulls ahead is your break-even.
The five numbers that decide rent vs buy
| Input | Default | Why it matters |
|---|---|---|
| Years you'll stay | 7 | Spreads the ≈9% round-trip transaction cost |
| Price-to-rent ratio | 15.9 | $420,000 ÷ ($2,200 × 12) |
| Mortgage rate | 6.5% | Drives interest, the largest unrecoverable cost early on |
| Appreciation vs rent growth | 3.5% / 3.5% | Equity growth vs rising rent |
| Investment return | 6% | What the renter's cash earns instead |
How to read this table
- Price-to-rent ratio sits at the top of the table (15.9) — $420,000 ÷ ($2,200 × 12). If your situation looks like this row, plan against the upper half of the range rather than the midpoint.
- Appreciation vs rent growth anchors the bottom (3.5% / 3.5%) — equity growth vs rising rent. Treat this as the conservative case you should still be profitable at.
- The gap between the top and bottom row is roughly 4.5×. That spread is why a single blended average is close to useless here — pick the row that matches your setup instead of averaging the column.
- With 5 reference points in the "the five numbers that decide rent vs buy" table, the fastest way to use this page is to find the closest row, take its default, then stress-test it ±30% before you build a plan on it.
Context
The common shortcut — comparing a mortgage payment to rent — misleads because it ignores equity, transaction costs and the return on cash the renter keeps. A fair comparison gives both paths the same starting cash and the same monthly budget, and lets whichever side spends less invest the difference.
What moves this number
Financing terms
Rate, down payment and amortisation drive cash-on-cash return more than purchase price does. The same building can cash-flow or bleed depending on the loan.
True operating expense ratio
Management, insurance, tax, maintenance, vacancy and capital reserve typically consume 35–50% of gross rent. Models that skip reserves overstate returns badly.
Vacancy and turnover
One 45-day vacancy plus a turn can erase a year of thin cash flow. Underwrite 5–8% vacancy even in tight markets.
Local regulation
Rent rules, short-term rental caps and licensing requirements change the achievable revenue of an identical property between neighbouring cities.
Methodology
Assumptions (all editable in the calculators): $420,000 home (≈2025 US median, NAR), 10% down, 6.5% 30-year fixed (Freddie Mac PMMS range), 3.5%/yr appreciation and rent growth (long-run FHFA HPI / CPI shelter), 1.1% property tax, 1% maintenance, $1,900/yr insurance, 3% buy and 6% sell costs, 6%/yr investment return. Excludes mortgage interest deduction, capital-gains tax and PMI.
Assumptions and caveats
- Returns exclude appreciation and principal paydown unless a row states otherwise.
- Local tax, insurance and regulation can move these figures by several points in either direction.
- This page was last reviewed on 2026-10-01. Ranges are updated as new data lands, so re-check before using them in a contract or a plan.
- Use these numbers as a starting range, not a guarantee — your own historical data always beats a benchmark.
Frequently asked questions
How do you calculate whether to rent or buy a home?
Compare net worth at the date you'd move: the buyer's home value after 6% selling costs, minus the loan balance, versus the renter's down payment and closing costs invested plus any monthly savings invested. Whichever is larger wins; the first year buying pulls ahead is your break-even.
Which option pays the most in the the five numbers that decide rent vs buy table?
Price-to-rent ratio, at 15.9 ($420,000 ÷ ($2,200 × 12)). That row represents the strongest case in this dataset, so use it as an upper bound rather than an expectation.
What is a realistic low-end figure?
Appreciation vs rent growth at 3.5% / 3.5% (Equity growth vs rising rent). Plan your costs so the low end still works, then treat anything above it as upside.
Why do the numbers vary so much?
The spread between the highest and lowest row is about 4.5×. Financing terms and true operating expense ratio explain most of that gap — see the drivers section above for the full list.
Where do these numbers come from?
Assumptions (all editable in the calculators): $420,000 home (≈2025 US median, NAR), 10% down, 6.5% 30-year fixed (Freddie Mac PMMS range), 3.5%/yr appreciation and rent growth (long-run FHFA HPI / CPI shelter), 1.1% property tax, 1% maintenance, $1,900/yr insurance, 3% buy and 6% sell costs, 6%/yr investment return. Excludes mortgage interest deduction, capital-gains tax and PMI.
How can I estimate my own number instead of using a benchmark?
Use the Rent vs Buy Net Worth Calculator on RevenueLab — it takes your own inputs and returns a figure specific to your setup, which is always more accurate than a published range.
Model your own numbers
- Rent vs Buy Net Worth Calculator
- Rent vs Buy Break-Even Calculator
- Price-to-Rent Ratio Calculator
- Down Payment Opportunity Cost Calculator
Related reading
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Last updated 2026-10-01.