Rent vs Buy Calculator: The Break-Even Year, Not the Monthly Payment

Introduction

The comparison almost everyone makes is mortgage payment against rent. It is the wrong comparison, and it is wrong in a direction that flatters buying.

TL;DR: Rent versus buy is not a monthly question, it is a duration question. Buying carries costs a renter never pays — maintenance, property tax, and the return your down payment would have earned elsewhere — and a transaction cost of roughly 7% on the way out. Those land immediately; equity accrues slowly. So there is always a break-even year, and the only thing that matters is whether you will still be there when it arrives.

Why the payment comparison misleads

A mortgage payment and a rent cheque look comparable because both leave your account monthly. They are not comparable, for three reasons.

A renter's payment is a ceiling; an owner's is a floor. Rent is the most a tenant pays in a month. The mortgage is the least an owner pays — before the roof, the water heater, the property tax reassessment and the insurance renewal.

The down payment is not free. Money in a house is money not in an index fund. At a 7% alternative return, $90,000 tied up in a down payment and closing costs gives up roughly $6,300 in the first year alone. This never appears on a mortgage statement, which is exactly why it gets omitted.

Selling costs are real and they are large. Six to seven percent of the sale price, paid at the end, on the whole value rather than on your equity. On a $490,000 sale that is about $34,000 — which has to be earned back before buying is ahead of anything.

buyer  = sale proceeds − cash invested − all ownership costs
renter = investment gain on the same cash − all rent paid

Both sides are scored the same way above: change in net worth, relative to doing nothing. That is what produces a break-even year.

A worked example

A $400,000 purchase at 20% down and 6.5%, against renting the equivalent home for $2,200. Property tax 1.1%, maintenance 1% a year, 3% appreciation, 3% rent growth, and a 7% return if the cash were invested instead.

After 7 years	Amount
Cash invested at closing	$90,000
Monthly cost to own	$2,873
Monthly cost to rent	$2,215
Total paid to own	$248,057
Total paid to rent	$203,668
Home value at sale	$491,950
Equity after selling costs	$168,181
Buying ahead by	−$20,728

At seven years, buying is still behind by about $21,000. The break-even lands in year 11.

That result surprises people, because the monthly figures are close — $2,873 against $2,215 — and the house appreciated by $92,000. Both are true. The appreciation is simply eaten by the selling cost, seven years of maintenance and tax, and the compounding the down payment forfeited.

What moves the break-even year most

In rough order of leverage:

1. The gap between appreciation and your alternative return. If money invested elsewhere compounds faster than the house does, time works against buying rather than for it. This single spread dominates everything below it.
2. Selling costs. Seven percent versus four percent moves the break-even by well over a year on its own.
3. The rent you are comparing against. Buying looks far better against $2,900 rent than against $2,200, and it is the input people estimate most loosely.
4. Maintenance. One percent a year is the common rule and is not conservative on older housing stock. It is also the line most often set to zero.
5. The rate. Lower is better, but it moves the answer less than the first two — a point of rate is worth less than three points of selling cost.

Where this calculator is deliberately simple

It does not model the mortgage interest or property tax deduction. After the 2017 standard-deduction change most filers no longer itemise, so including it by default would flatter buying for the majority of users. If you do itemise, buying is somewhat better than shown.

It does not model PMI on a low-down-payment purchase, which would make buying worse in the early years, nor rent control, nor the transaction cost and hassle of moving as a renter.

It also assumes you stay the whole period and sell at the end. A buyer forced to sell in year two by a job change does far worse than the year-two figure suggests, because that is precisely when the transaction costs have not been recovered.

How to use the result

Take the break-even year and compare it honestly against how long you expect to stay — not how long you hope to. If the break-even is 11 years and your job, relationship or city is a five-year proposition, renting is the better financial decision, and no amount of "you are throwing money away on rent" changes the arithmetic.

If you are buying as an investment rather than a home, the framing changes entirely: run the property through the rental property ROI calculator and the cap rate calculator instead, because an investment is judged on what it pays you rather than what it saves you. If you plan to live in one unit and rent the others, the house hacking calculator is the right model.

FAQ

Is renting really throwing money away?

No more than mortgage interest, property tax, maintenance and selling costs are. In the example above, the owner pays $248,057 over seven years and recovers equity worth $168,181 — the rest is gone. The renter pays $203,668 and recovers nothing directly, but keeps a portfolio that grew. The gap between those two positions is the actual question, and it is much narrower than the slogan implies.

How many years do you need to stay for buying to be worth it?

Five to seven years is the usual rule of thumb, and it is roughly right in a market with strong appreciation and modest selling costs. It is too optimistic when appreciation is near inflation, when selling costs are 7% or more, or when interest rates are high relative to what invested cash would earn. Run your own numbers rather than trusting the rule.

Should I include the tax deduction?

Only if you actually itemise. Since the standard deduction roughly doubled in 2018, the large majority of filers do not, which means the mortgage interest deduction is worth nothing to them. If you do itemise, add the deduction's value to the buying side — it will pull the break-even in by a year or more.

What return should I assume on the money if I rent instead?

Use something you would genuinely achieve. A broad equity index has historically returned around 7% real over long periods, but if the alternative is a savings account at 4%, use 4% — the comparison is against what you would really do, not against the best available option.

Does a bigger down payment make buying better?

Not in this comparison. A larger down payment lowers the payment and the interest, but it also ties up more capital that would otherwise compound, and those effects substantially offset. What it does change is risk: more equity means less leverage in both directions.

What if home prices fall?

Set appreciation below zero and look at the break-even year. It usually disappears entirely, because the buyer is paying transaction costs and maintenance on a depreciating asset while the renter's capital keeps compounding. This is the scenario the standard five-year rule quietly assumes away.

Conclusion

Rent versus buy has no universal answer, only a break-even year and an honest estimate of how long you will stay. Run it at your real rent, your real alternative return, and a maintenance figure you would defend to a contractor. If the break-even arrives comfortably before you expect to move, buy. If it does not, renting is not a failure — it is the correct answer to the arithmetic.