What this answers
Two households with the same budget: one buys, one rents the same kind of home. The renter invests the deposit and the buying cost, and each month whoever’s own cost is lower invests the difference. After the years you choose, the calculator compares what each has: the buyer’s home (minus selling cost and the loan) plus any savings, against the renter’s investments.
Formula
Net worth, buying = home value × (1 − selling cost) − loan balance + savings
Net worth, renting = deposit + buying cost + monthly differences, invested at the return
The loan is an annuity at a fixed nominal rate. Price growth, rent increase and return are effective annual rates. The rent steps up once a year; the monthly fee stays flat.
Worked example
A home at 3,000,000 with a 450,000 deposit, a 4% loan over 30 years, a monthly fee of 3,500, rent 13,000, prices and rent both rising 2% a year, a 5% return, 2% buying and 3% selling cost, over 20 years: the loan costs 12,174 a month, buying pulls ahead from year 4 and ends at 3.36 million against 1.74 million for renting. Set price growth to 0% and it takes until year 17. Every figure is an example, in any currency. Change them.
What is not included
- Tax. No interest deduction and no capital gains tax, on the home or on the investments.
- Repairs and renovation, and a deposit on a rental.
- A changing loan rate. The rate is fixed for the whole loan.
Common questions
Why does the renter invest the deposit?
Money in a home cannot also be invested. Comparing the two means giving the same money to both sides.
What does the break-even year mean?
The first year at the end of which buying leaves you with at least as much as renting. If it says a dash,
that does not happen within the years you chose.