Use this rent vs. buy calculator to decide whether to buy or rent that place you call home.
I have researched the web to find the perfect rent vs. buy calculator and found the most accurate one on Reddit. Of course!
So I built this calculator to be interactive to decide when to rent and when to buy a house for your family.
The Rent vs. Buy Calculator
Steps to Figure out Rent or Buy
Time needed: 2 minutes.
Follow the following steps to use the Rent vs Buy Calculator:
- Enter your Basic Buy Information
* The price of your home
* Your pre-qualified Mortgage rate APR
* The length, in years, of mortgage
- Edit Economic Assumptions
* House appreciation
* Rental appreciation
* Investment returns, post tax
* Inflation rate
- Tweak Optional Information to Fine Tune Results
We have a bunch of additional information you can enter to fine tune your results.
But you can skip these and use the default numbers I’ve added in already.
- View Results
Once you’ve completed steps 1 to 3, you should be able to view results
What’s your results? And are you following he calculator’s advice? Comment below and let me know!
What Drives the Rent vs Buy Results?
Most people think the drivers of whether to buy a house are those “basic buy information” factors I’ve listed above:
- The price of the house
- Your mortgage rate
- Whether to get a 30-year or 15-year mortgage.
But that’s actually not true.
The price of your house has a smaller effect on your rent or buy decision.
And mortgage rates almost always move opposite of housing prices. We have record-low mortgage rates right now, which is why we have record-high housing prices.
Think about buying a house this way:
You have a bunch of money. You can buy stocks with this money. Or, you can use it to pay down your house.
You do that for 30 years and in the end you either own a house or own stocks.
If the value of the house and the stocks stay constant, then it doesn’t really matter where you put your money.
It’s like saying if you want to put your money in the red box or the blue box. At the end of the day, it’s just a box that holds money.
But in reality, stocks and houses change in value.
How much stocks and houses change in value is the MOST IMPORTANT thing that impacts your rent vs. buy decision.
The economic assumptions section in the rent vs. buy calculator above plays the most critical role.
Growth is Everything
The rate of appreciation for your house, investment, and rental matters A LOT in your rent vs buy calculation.
You can test this yourself – update the house appreciation (%) or the investment returns (%) and see your results update.
The problem is these economic assumptions are also the hardest variables to forecast.
If you invest in index funds, you can argue that you may be able to forecast your investment returns with more confidence based on historical performance.
But it is near-impossible to estimate how much your house will appreciate in value.
We can’t predict if you’re living in the next San Francisco, where housing boomed for the past decade. Or whether NYC’s housing market has reached its peak.
And we don’t know if, for the next 30 years, the migration will move toward suburban or urban, East Coast or West Coast, or just as likely, neither of these places.
If you live in New York or New Delhi, Chicago or Sydney, or the suburbs of major cities worldwide, it’s tough to predict whether your hood will be the next “it” hood.
Rent vs Buy Calculator: Summary
I hope you enjoyed using this rent vs buy calculator!
And I’d love to hear your results! Please share your results below, and let me know if you are renting or buying and why.
Lastly, I want to share that I built this model by leveraging an existing model built by a fellow Redditor.
However, since I only have access to the model, I no longer remember which Redditor had created it.
So if you are the original creator of this fabulous Rent vs. Buy calculator, reach out to me, and I’ll be sure to credit you.
After the rent vs. buy decision, now find out how much of a house you should buy: How Much House Can I Afford for FI/RE?
In this post, I argue that buying a house is not an investment: Stocks vs. Real Estate: Never Buy a House as Investment.
What is wrong with America? Two words: Wealth Inequality: How to Make Money Despite Wealth Inequality