Rent vs Buy Calculator: Should You Buy a Home in Your Market?
You’re paying $1,800/month in rent. Your friends are buying houses. Your landlord just raised your rent again.
Should you buy?
The answer isn’t “yes because rent is throwing money away” or “no because you can’t afford it.”
The answer depends on:
- Your local market (rent vs home prices)
- How long you plan to stay
- Your down payment and interest rate
- The true cost of homeownership (not just the mortgage)
- Your opportunity cost (what else you could do with that money)
This guide will walk you through the real math of rent vs buy—with actual numbers, hidden costs, and a framework to make the right decision for your situation.
No real estate agent sales pitch. No landlord propaganda. Just the numbers.
The Rent vs Buy Myth: “Rent Is Throwing Money Away”
You’ve heard it a million times:
“Rent is throwing money away. When you buy, you’re building equity.”
Here’s what they don’t tell you:
When you rent, you’re paying for housing. When you own, you’re ALSO paying for housing—plus:
- Property taxes
- Homeowners insurance
- Maintenance and repairs (1-2% of home value annually)
- HOA fees (if applicable)
- Opportunity cost (down payment money could be invested)
The truth: Renting isn’t throwing money away. You’re paying for flexibility, predictability, and someone else to fix the roof.
Buying isn’t automatically better. You’re trading flexibility for equity—but only if the numbers work out.
The True Cost of Homeownership (Most People Underestimate This)
Let’s say you’re looking at a $400,000 home.
What most people calculate:
- 20% down payment: $80,000
- Monthly mortgage (3.5% interest, 30-year): $1,437/month
- Total: $1,437/month
What it ACTUALLY costs:
| Expense | Monthly Cost |
|---|---|
| Mortgage (principal + interest) | $1,437 |
| Property taxes (1.2% annually) | $400 |
| Homeowners insurance | $150 |
| PMI (if down payment < 20%) | $200 (optional) |
| Maintenance (1% of home value annually) | $333 |
| HOA fees | $150 (if applicable) |
| Utilities (higher than apartment) | $50 extra |
| TOTAL MONTHLY COST | $2,520-$2,720 |
So if rent is $1,800/month, you’re NOT saving $1,800 by buying. You’re spending $700-900 MORE per month.
However: Part of your mortgage payment builds equity (you’re paying down the loan). That changes the calculation.
How to Calculate Rent vs Buy (The Right Way)
Step 1: Calculate True Monthly Homeownership Costs
Formula:
Monthly mortgage payment (P&I)
+ Property taxes (annual ÷ 12)
+ Homeowners insurance (annual ÷ 12)
+ PMI (if applicable)
+ Maintenance (1% of home value ÷ 12)
+ HOA fees (if applicable)
= Total monthly costExample (using $400K home):
- Mortgage: $1,437
- Property taxes: $400
- Insurance: $150
- Maintenance: $333
- Total: $2,320/month
Step 2: Calculate How Much Goes to Equity vs Interest
In the early years of a mortgage, most of your payment goes to interest (not equity).
Example (first year of $400K home with $80K down):
- Monthly mortgage payment: $1,437
- Principal (equity): ~$437/month
- Interest (expense): ~$1,000/month
So only $437/month is “building equity” in year 1. The rest is interest (similar to rent).
Step 3: Calculate Your True Cost of Owning
Formula:
Total monthly cost
- Principal payment (equity)
= True monthly cost of ownershipExample:
- Total monthly cost: $2,320
- Principal (equity): $437
- True cost: $1,883/month
Step 4: Compare to Rent
Your rent: $1,800/month
True cost of owning: $1,883/month
Difference: Owning costs $83/month more
But wait—there’s more to consider:
- Home appreciation (property value increases)
- Tax deductions (mortgage interest, property taxes)
- Opportunity cost (down payment invested could earn returns)
The 5-Year Break-Even Analysis (When Buying Makes Sense)
Key insight: You need to stay in the home long enough for appreciation and equity to offset closing costs.
Typical closing costs: 2-5% of purchase price = $8,000-$20,000 on a $400K home
If you sell in 2 years:
- You’ve paid $8,000-$20,000 in closing costs
- You’ve built ~$10,500 in equity ($437/month × 24 months)
- Your home appreciated ~4% (conservative) = $16,000
- Selling costs (6% realtor fees) = $24,960
- Net loss: ~$6,460
If you hold 5 years:
- Closing costs: $8,000-$20,000
- Equity built: ~$28,000
- Appreciation (4%/year × 5 years): ~$85,000
- Selling costs: $30,000 (on higher value)
- Net gain: ~$55,000
Break-even point: Usually 3-5 years, depending on your market.
Rule of thumb: If you’re not staying at least 5 years, renting is often better.
Real Scenarios: Rent vs Buy by Market
Scenario 1: Expensive Market (San Francisco, NYC, LA)
Home price: $800,000 Rent: $3,000/month Down payment (20%): $160,000 Monthly mortgage: $2,874 Total monthly ownership cost: $4,500 True cost (after equity): $3,626/month
Analysis:
- Owning costs $626/month more than renting
- Appreciation is strong (5-7%/year), but so is opportunity cost
- $160K invested in S&P 500 = ~$16,000/year in returns (vs maybe $40K-$56K/year appreciation)
Verdict: Rent is often better unless you’re staying 7-10+ years
Scenario 2: Affordable Market (Austin, Nashville, Phoenix)
Home price: $350,000 Rent: $1,600/month Down payment (10%): $35,000 Monthly mortgage: $1,415 Total monthly ownership cost: $2,100 True cost (after equity): $1,715/month
Analysis:
- Owning costs $115/month more than renting
- Lower down payment means faster to ownership
- Strong appreciation (4-6%/year)
Verdict: Buy if staying 4-5+ years
Scenario 3: Low-Cost Market (Midwest, South)
Home price: $200,000 Rent: $1,200/month Down payment (10%): $20,000 Monthly mortgage: $808 Total monthly ownership cost: $1,350 True cost (after equity): $1,125/month
Analysis:
- Owning costs $75/month LESS than renting
- Lower appreciation (2-3%/year) but stronger cash flow
- Smaller opportunity cost ($20K down payment)
Verdict: Buy if staying 3+ years
Hidden Factors That Change the Math
Factor 1: Tax Deductions
If you itemize deductions (most people don’t anymore):
- Mortgage interest deduction
- Property tax deduction (up to $10,000)
Example:
- Mortgage interest paid: $12,000/year
- Property taxes: $4,800/year
- Total deductions: $16,800
- Tax savings (22% bracket): $3,696/year = $308/month
This effectively reduces your homeownership cost by $300/month.
Caveat: Most people use standard deduction ($14,600 for single, $29,200 for married), so this only helps if your itemized deductions exceed that.
Factor 2: Opportunity Cost
Your down payment could be invested elsewhere.
Example:
- Down payment: $80,000
- Average stock market return: 10%/year
- Annual return if invested: $8,000/year = $667/month
If your home appreciation is less than $667/month ($8,000/year), you’re better off renting and investing the down payment.
Factor 3: Maintenance Surprises
Budget 1-2% of home value annually for maintenance.
But reality:
- Year 1-3: Maybe $2,000-$3,000 (minor repairs)
- Year 5: $15,000 (new roof)
- Year 8: $8,000 (HVAC replacement)
- Year 12: $12,000 (water heater, appliances, painting)
Average over 10 years: ~$5,000-$8,000/year (sometimes way more)
This can tip the scale toward renting if you don’t have an emergency fund.
Factor 4: Flexibility
Renting gives you mobility.
- Got a better job in another city? Move in 30 days.
- Market crashes? Not your problem.
- Roof leaks? Landlord’s problem.
Owning locks you in.
- Job opportunity elsewhere? Sell (costs 6-10% of home value) or become a long-distance landlord.
- Market crashes? You’re stuck or taking a loss.
- Major repair needed? Comes out of your savings.
Value of flexibility: Hard to quantify, but real.
When to Buy
✅ You should buy if:
- You’re staying 5+ years (ideally 7-10)
- You have 10-20% down payment saved
- Your housing payment (including all costs) is under 30% of take-home income
- You have a 6-month emergency fund AFTER the down payment
- The true cost of owning is equal to or less than renting
- You value stability over flexibility
- Your market has strong appreciation prospects
When to Rent
✅ You should rent if:
- You might move in the next 2-4 years
- You don’t have 10%+ down payment + emergency fund
- Your housing payment would exceed 30% of income
- Rent is significantly cheaper than true ownership costs
- Your career is uncertain or you’re building a business
- You value flexibility and mobility
- Your market has flat or declining home prices
Special Considerations for College Dropouts
Advantage: No Student Debt
Most college graduates have $30K-$100K in student loans. You don’t.
This means:
- Your debt-to-income ratio is lower (easier to qualify for mortgage)
- You can save for a down payment faster
- You have more monthly cash flow
Use this advantage strategically.
Challenge: Income Documentation
If you’re self-employed or freelancing, mortgage lenders want to see:
- 2 years of consistent income (tax returns)
- Stable or growing earnings
- Clean credit history
Plan ahead: If you want to buy in 2-3 years, make sure your tax returns reflect sufficient income.
Strategy: House Hacking
Consider buying a duplex, triplex, or 4-plex:
- Live in one unit, rent out the others
- Tenants pay your mortgage
- FHA loan = only 3.5% down
Learn more: House Hacking Strategy Guide for College Dropouts
Your Rent vs Buy Decision Framework
Use this flowchart:
START:
-
Will you stay in this area for 5+ years?
- No → Rent
- Yes → Continue
-
Do you have 10%+ down payment + 6-month emergency fund?
- No → Rent (save more first)
- Yes → Continue
-
Calculate true monthly ownership cost. Is it equal to or less than rent?
- No → Rent (or wait for prices to drop)
- Yes → Continue
-
Is your total housing cost under 30% of take-home income?
- No → Rent (you’re overextending)
- Yes → Consider buying
-
Do you value stability over flexibility?
- No → Rent (flexibility is worth more to you)
- Yes → Buy
Action Plan: Decide Rent vs Buy This Week
Day 1-2: Calculate Your Numbers
- Find comparable homes in your market (Zillow, Redfin)
- Calculate true monthly ownership cost (use formula above)
- Subtract principal (equity) to get true cost
- Compare to current rent
Day 3-4: Analyze Your Situation
- How long will you stay? (Job stability, family plans, career)
- Do you have 10-20% down payment + emergency fund?
- Calculate opportunity cost (down payment invested = how much/year?)
- Factor in tax benefits (if applicable)
Day 5: Make Your Decision
If buying makes sense:
- Get pre-approved for mortgage (see what you qualify for)
- Research first-time homebuyer programs (down payment assistance)
- Start house hunting in your price range
- Read: First-Time Homebuyer Guide for College Dropouts
If renting makes sense:
- Negotiate lower rent (or find cheaper apartment)
- Set up automatic savings for future down payment
- Invest the difference (down payment money into index funds)
- Re-evaluate in 12 months
Online Calculators and Tools
Free rent vs buy calculators:
- New York Times Rent vs Buy Calculator - Most comprehensive (includes opportunity cost)
- Zillow Rent vs Buy Calculator - Simple, market-specific
- SmartAsset Rent vs Buy Calculator - Includes tax implications
- NerdWallet Rent vs Buy Calculator - Beginner-friendly
Mortgage calculators:
- Bankrate Mortgage Calculator - Includes taxes, insurance, PMI
- Zillow Mortgage Calculator - Shows total monthly cost
- Calculator.net Mortgage Calculator - Amortization schedule
Tip: Use 3-4 different calculators and average the results. They make different assumptions.
Common Rent vs Buy Mistakes
Mistake 1: Only Comparing Mortgage to Rent
Fix: Calculate TRUE monthly ownership cost (taxes, insurance, maintenance, etc.)
Mistake 2: Ignoring Opportunity Cost
Fix: Compare home appreciation to investing down payment in index funds
Mistake 3: Assuming You’ll Stay 10+ Years
Fix: Be honest about job/life stability. Most people overestimate how long they’ll stay.
Mistake 4: Buying at the Top of Your Budget
Fix: Aim for 25% of take-home income (not 30-35% that lenders approve)
Mistake 5: Not Accounting for Major Repairs
Fix: Budget 1-2% of home value annually. Assume $5K-$10K surprise every few years.
Related Articles
Making housing decisions? Check out these guides:
- First-Time Homebuyer Complete Guide for College Dropouts - Step-by-step home buying process
- House Hacking Strategy Guide - Live for free while building equity
- Closing Costs Explained - Hidden costs of buying
- Budgeting for Irregular Income - Manage housing costs with variable income
The Bottom Line
Rent vs buy isn’t about “building equity” or “throwing money away.”
It’s about:
- Time horizon: Staying 5+ years favors buying
- True costs: Ownership costs 25-40% more than mortgage alone
- Opportunity cost: Could down payment earn more if invested?
- Flexibility: Do you value mobility or stability?
- Math: Run the numbers for YOUR market and situation
For most college dropouts in their 20s-early 30s:
- Renting is often the better financial choice (especially if career is still developing)
- Buying makes sense when you have stable income, 10-20% down + emergency fund, and plan to stay 5-7+ years
- House hacking (buying multi-unit property) can make buying attractive earlier
Action plan:
- Calculate true ownership cost for your market (today)
- Compare to rent + opportunity cost (10 minutes)
- Assess your 5-year stability (be honest)
- Decide: Rent and invest, or buy and build equity
The right answer is the one that fits YOUR numbers and YOUR life—not what your parents, friends, or real estate agents say.
Run the math. Make the decision. Move forward.
