In this article, we’re providing a comprehensive and free rent vs buy calculator to help you answer one of the most basic (and biggest) budgeting decisions: should you rent or buy a house?
Of course, this calculator also applies to apartments, condos, and any other place you can buy or rent (to live in).
If you want to dive right in, the rent vs buy calculator can downloaded by entering your email below.
Further below, we’ll provide some more details on why answering the rent vs buy question is important. You’ll also get more details on some of the assumptions that went into the calculator.
High Level Guide to the Rent vs Buy Calculator:
The above image is the rent vs buy calculator dashboard. Full instructions on how to use it can be found on the first tab of the excel. High level instructions are below:
- Fill in light yellow cells on the left (under the gray “assumptions” box).
- Columns on the right (under the gray “results” box) automatically populate.
- The first column on the right (under the gray “results” box) tells you if you should rent or buy a home depending on how many years you plan to live in that location (based on the assumptions you entered).
Again, more details on the assumptions can be found further below.
Should You Rent or Buy a House?
Deciding to rent or buy a house is largely a complicated, numbers-based decision. That is why we built the comprehensive rent vs buy calculator that helps you make sense of the numbers.
It takes guessing out of that part of the decision.
Though, there are some major pros and cons to both renting and buying. And you don’t need a comprehensive calculator to understand those.
- Flexibility: When renting, you don’t have the burden of needing to sell your home before being able to move. It’s much easier to relocate on short notice.
- No Maintenance Fees: You are not responsible for any home upkeep or repairs when you are in a rental property. Usually, that falls on the property owner.
- No Taxes or Fees: Even though it’s likely included in the rental price, you do not face any taxes or other reoccurring fees. Just the monthly rent.
- Not Building Equity: When renting, you are not investing in a property or home. The money you spend monthly is an expense and you will not see it again.
- No Tax Benefits: Just like there are no taxes associated with renting, you also do not get any tax benefits (or deductions) from renting.
- Limited Stability: When renting, at any time (for the most part) the landlord could raise your rent. Or even worse, kick you out. It’s rare, but it can happen.
- Building Equity: When you buy a home, you are investing in that property and/or home. This is by far the biggest pro to buying a home. The money you spend on your mortgage monthly is not an expense, but instead is building equity over time (by paying down debt).
- Ownership: Besides the obvious fact that you own a home, you also own the ability to customize your home how you see fit. On top of that, you own your future – which includes deciding when and if you move. There is no risk of a landlord “kicking you out.”
- Tax Benefit: When you own a home, you get a tax benefit (deduction).
- One Time Expenses: There are a few one-time expenses associated with buying a home. The most common expense is closing costs. There is an opportunity cost to this large, upfront expense. Instead of getting a +7% annual return on that money in the stock market, it’s gone.
- Housing Market Returns: Historically, the housing market has provided lower returns than the general stock market. The calculator addresses this tough question and tradeoff in more detail – is it better to pay less money upfront to rent, and invest the savings in the stock market? Or pay a larger upfront cost and have your monthly payments go to paying down debt?
- Ownership (of costs): Ownership is a pro and also a con. With this ownership, you also own the responsibility of paying for maintenance and repairs. Luckily, insurance can usually help with any big surprises.
Rent vs Buy Calculator Assumptions
There are quite a few detailed assumptions that went into building this rent vs buy calculator.
As a reminder, instructions for the calculator are included on the “Instructions” tab. They looks like this:
Here are some more details on these assumptions that you need to enter – and how to enter them as accurately as possible:
- Mortgage Interest Rate: Estimate your mortgage interest rate based on your credit score. Or, better yet, reach out to a bank and see what they offer you.
- House Market Return: Estimate what you think the housing market will return year over year. Otherwise, stated, how much do you think your house will appreciate in value each year? The default is 2.5%.
- Stock Market Return: Estimate what you think the stock market will return year over year. Historically, the S&P 500 has had an annual real return of 7%. The default is 5% (being somewhat conservative).
- Annual Investable Income: Input your total investable income (after taxes), but excluding housing expenses. Otherwise stated, after paying for everything except housing, how much money do you have leftover to save, invest, or spend on housing?
- Closing Cost %: What is a normal percentage to pay in closing costs for your area or based on brokers in your area?
- Property Tax %: What is the property tax rate for the area you want to live in?
- Rental Inflation: Estimate how much you think rental costs will go up every year based on the area you want to live in. The default is 1%.
- House Price: What is the price of the house you are looking to buy? You can tweak this up or down as you look at the results of the calculator and see what you can afford.
- Down Payment: What is the down payment you will make on this house? 20% is recommended to receive a good interest rate, but you can pay more or less as you see fit.
- Mortgage Length: What is the length of the loan you wish to take out? 15 and 30 years are both common, with most people opting for 30 year loans.
- Insurance: How much will monthly insurance cost for your home and belongings?
- HOA Fees: Does the home you are looking at have HOA fees (this is more common with apartments and condos)?
- Monthly Rent: Fill in the monthly rent you can afford or want to pay. This likely will be similar to the monthly amount you are willing to pay in the buy scenario.
- Renters Insurance: How much will renters insurance cost per month for your apartment and belongings?
That’s pretty much everything.