Rent versus buy
A mortgage payment and a rent cheque are not comparable numbers: one buys an asset and the other buys a month of shelter. This puts both tenures on the same axis — every dollar out, less what the money is worth at the end — and finds the year the owner pulls ahead.
| Year | Buy net cost | Rent net cost | Difference |
|---|---|---|---|
| 1 | $47,943 | $20,412 | −$27,531 |
| 2 | $68,387 | $41,270 | −$27,117 |
| 3 | $88,534 | $62,578 | −$25,957 |
| 4 | $108,366 | $84,337 | −$24,028 |
| 5 | $127,861 | $106,552 | −$21,309 |
| 6 | $147,000 | $129,223 | −$17,777 |
| 7 | $165,759 | $152,351 | −$13,407 |
| 8 | $184,114 | $175,938 | −$8,176 |
| 9 | $202,040 | $199,982 | −$2,058 |
| 10 | $219,510 | $224,482 | +$4,972 |
A positive difference means buying is ahead. The buyer’s number already nets off the equity they would walk away with, so it is not a cash-flow comparison.
D + C + Σ(P&I + carry) − benefit − equity · Equity is the sale price less selling costs and the outstanding loan.
Σ rent − (D + C)((1+i)^t − 1) · The renter keeps the down payment invested; the gain offsets the rent.
min t : buy(t) ≤ rent(t) · Reported only if it happens inside the horizon.
net cost / 12t · Puts a long horizon and a short one on the same scale.
A clear path from inputs to results.
A mortgage payment and a rent cheque are not comparable numbers: one buys an asset and the other buys a month of shelter. This compares the two tenures on net cost — everything paid out, less what the money is worth at the end — and finds the year the owner actually pulls ahead.
How to use
- Enter the purchase price, down payment and mortgage rate.
- Add the costs that never become equity: property tax, insurance, maintenance and HOA.
- Enter the rent you would pay for an equivalent home, and how fast it grows.
- Set the return the renter could earn on the down payment they did not spend.
- Read the break-even year and the net cost of each tenure at the horizon.
The formula
Reference: Net-cost comparison as set out in the NYT rent-versus-buy model and in Geltner & Miller, Commercial Real Estate Analysis; equity is measured net of selling costs.
Worked example
$420,000 house against $2,100 rent
- Price $420,000, 20% down, 6.5% fixed for 30 years.
- Property tax 1.1%, insurance 0.4%, maintenance 1.0% of value, no HOA.
- Rent $2,100 a month growing 3%; the renter earns 6% on the down payment.
- Home appreciation 3%, selling costs 6%, closing costs 2%, ten-year horizon.
- 1
The down payment is $84,000 and the loan is $336,000, giving a payment of $2,123.75.
- 2
Year one carries $4,620 of property tax, $1,680 of insurance and $4,200 of maintenance on top.
- 3
Equity grows two ways: the loan amortises and the house appreciates 3% a year.
- 4
By year ten the house is worth $564,445 and the loan is down to about $285,000, so net equity after a 6% sale cost is $245,730.
- 5
Total outlay over ten years, net of the tax benefit and that equity, is $219,510.
- 6
Renting costs $224,482 over the same period after crediting the growth on the invested down payment.
Break-even in year 10: buying is ahead by about $5,000 after a decade, and by much more after that.
Interpreting the result
The crossover is late because the first years are dominated by transaction costs and interest, not by the house. Roughly 30–40% of a thirty-year mortgage payment is interest at this rate, and closing plus selling costs consume more than a year of appreciation. The break-even year is the number to compare against how long you actually expect to stay.
Assumptions & limitations
- Property tax, insurance and maintenance are fractions of the current value, so they rise with appreciation.
- The mortgage is a fixed-rate, fully amortising loan with no prepayment and no refinancing.
- The renter invests the down payment and closing costs at a constant return; the buyer has no equivalent investment.
- Selling costs are a percentage of the sale price, applied at the horizon only.
- The tax benefit is interest plus property tax at the marginal rate, and only when the buyer itemises.
- The capital-gains exclusion, mortgage-interest limits and any change in the buyer's tax position over time are ignored.
Frequently asked questions
Why is the comparison on net cost rather than monthly payment?
Because a mortgage payment contains a principal component that comes back to you when you sell, and rent does not. Comparing payments alone makes buying look expensive in year one and cheap in year twenty with no way to see where the crossover is.
Should I include the tax deduction?
Only if you already itemise. Since the standard deduction rose, most households with a single mortgage take the standard deduction, so the interest deduction is worth nothing at the margin. The model lets you switch it off.
What about maintenance on a new build?
A new house needs less in the first decade, but the 1% rule is an average across the life of the asset, and the big-ticket items — roof, HVAC, siding — arrive eventually. Lowering it to 0.5% is defensible for a new build, but do not set it to zero.
What matters most to the answer?
How long you stay, then appreciation, then the rent you would otherwise pay. A two-year horizon almost never favours buying at these transaction costs; at fifteen years it almost always does unless appreciation is negative.
Is a 3% appreciation assumption reasonable?
It is close to the long-run US nominal average, but it is a national average and local markets diverge enormously. Run the sensitivity against appreciation — the break-even year moves more with that one input than with any other.
Methodology last reviewed 2026-10-21. Results are informational and not financial or engineering advice — see our disclaimer.