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Buy vs Continue Renting & Investing

Can renting and investing outperform ownership?

About this calculator

Renting instead of buying only builds wealth if the money you do not put into a home is invested, and if those investments grow fast enough. A buyer's wealth grows through the home's value and the shrinking mortgage; a renter's grows only through the portfolio. This calculator turns the question around: instead of asking which choice wins at one guessed return, it finds the break-even investment return, the yearly return the renter's portfolio needs to end with the same net worth as the buyer. If you believe your investments can beat that rate, renting and investing is the better plan; if not, buying is.

How to use this calculator

Start with the Expected Investment Return you think a portfolio could earn and the Years to Compare, which is how long you would rent, or own before selling. Enter the Monthly Rent for a home comparable to the one you would buy, the Home Price, your Down Payment as a percentage of the price and the Mortgage Rate. Under Advanced assumptions you can change home appreciation, rent increases, the loan term, closing costs, property tax, insurance, maintenance, HOA dues, selling costs, the PMI rate and renters insurance. The inputs use the same address parameters as the Rent vs Buy Calculator, so a scenario carries over between the two pages.

The method

The renter invests the down payment and closing costs on day one, the cash the buyer puts into the home. Each month the renter also invests the difference whenever owning costs more than renting: the mortgage payment, PMI, property tax, insurance, maintenance and HOA dues against rent and renters insurance. When renting becomes the more expensive choice, the buyer invests the difference instead, and those savings keep earning your expected return. The calculator then tries renter returns from −10% to 30% a year and narrows in on the one at which the renter's portfolio equals the buyer's net worth at the end: the home's value minus selling costs and the remaining loan, plus any savings the buyer invested. A higher return always grows the renter's portfolio, so there is exactly one break-even rate. The outcome table repeats the comparison at 4%, 6%, 8% and 10% so you can see how quickly the answer changes.

Worked example using the default values

A $400,000 home with 20% down and 3% closing costs means the renter starts by investing $92,000. Owning costs $2,870 in the first month against $2,215 for renting, and the renter invests each month's difference. Over 10 years the renter invests $150,425 in all: the $92,000 upfront plus $58,425 of monthly savings. The break-even investment return is 6.48% a year. At the expected 7%, which clears it by 0.52 points, the portfolio grows to $272,974, including $122,549 of investment growth, against the buyer's net worth of $260,824, so the renter ends $12,149 ahead. At 6% the buyer would be ahead by $10,547, and at 8% the renter would be ahead by $37,047.

Interpreting the results

The break-even return is the bar your investments must clear, after fees, every year on average. Compare it with what a realistic portfolio has earned, not with its best years. A small margin either way means the decision is close, and other factors such as stability or flexibility should weigh more. The breakdown bar shows how much of the renter's portfolio is money put in and how much is growth: when growth is a large share, the result depends heavily on the return assumption. The chart compares the renter's portfolio with the buyer's home equity year by year. The break-even return usually falls the shorter you stay, because the buyer's closing and selling costs weigh more on a short stay: with the defaults it is 3.49% over 5 years and 7.11% over 20 years.

Practical tips

The comparison only works if the renter really invests the upfront cash and every month's savings. Automate the monthly transfer if you choose to rent. Use a return net of fund fees, and consider a lower figure for a portfolio with bonds. A smaller down payment lowers the bar for renting because the buyer pays more interest and PMI: at 10% down the default break-even falls to 5.38%. Check the effect of slower appreciation, since the home's value is the buyer's main source of growth.

Limitations

Returns, appreciation and rent growth are constant here, while real ones vary from year to year, and a portfolio can lose value over a short stay. Income taxes are left out: the renter's gains may be taxed when sold, while up to $250,000 of gain on a main home ($500,000 for married couples filing jointly) is usually excluded from federal tax, so taxes tend to favor the buyer. The mortgage interest deduction is not included. Results are estimates for planning, not financial advice.

Frequently Asked Questions

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