Purpose and steps
Buying net cost = down payment + cumulative ownership spending − ending home equity. Renting net cost = cumulative rent − investment gains on the saved down payment. Compare at each year. The calculation runs locally and keeps cash-flow timing consistent with the stated assumptions.
- Confirm currency and monthly versus annual amounts. U.S. tax and loan models should be used within their stated scope.
- Prepare Home price, Down payment, Annual interest rate, Loan term, Annual property tax rate, Annual homeowners insurance, Monthly HOA dues, Years in the home, Current monthly rent, Annual rent increase, Annual maintenance / home value, Annual home appreciation, Return on invested down payment. Defaults demonstrate the model rather than your personal circumstances.
- Check the headline result and its components. A key interpretation for this tool is: A positive renting-minus-buying difference means buying is cheaper under these assumptions.
- Compare the baseline with a changed scenario: Negative net ownership cost can reflect appreciation, not spendable income.
Input reference and units
These values reproduce the model’s demonstration. Replace them with your own records or measurements; they are not recommended targets.
On a small screen, swipe the table horizontally to see all columns.
| Parameter | Demonstration value | How to enter it |
|---|---|---|
| Home price | 400000 USD | Use dollars and the monthly or annual period stated in the field label; do not enter thousands of dollars. |
| Down payment | 20 % | Check the unit carefully: some tools use a percentage and others a cash amount. |
| Annual interest rate | 6.5 % | Enter a percentage such as 6.5, not 0.065. The equation converts it to a decimal. |
| Loan term | 30 years | Use years here. The model converts to months when the payment schedule requires it. |
| Annual property tax rate | 1.2 % | Enter a percentage such as 6.5, not 0.065. The equation converts it to a decimal. |
| Annual homeowners insurance | 1800 USD | Use dollars and the monthly or annual period stated in the field label; do not enter thousands of dollars. |
| Monthly HOA dues | 0 USD | Use dollars and the monthly or annual period stated in the field label; do not enter thousands of dollars. |
| Years in the home | 10 years | Use years here. The model converts to months when the payment schedule requires it. |
| Current monthly rent | 2000 USD | Use dollars and the monthly or annual period stated in the field label; do not enter thousands of dollars. |
| Annual rent increase | 3 % | Enter a percentage such as 6.5, not 0.065. The equation converts it to a decimal. |
| Annual maintenance / home value | 1 % | Enter a percentage such as 6.5, not 0.065. The equation converts it to a decimal. |
| Annual home appreciation | 3 % | Enter a percentage such as 6.5, not 0.065. The equation converts it to a decimal. |
| Return on invested down payment | 5 % | Enter a percentage such as 6.5, not 0.065. The equation converts it to a decimal. |
Model-specific method
How this calculator produces its result
Buying net cost = down payment + cumulative ownership spending − ending home equity. Renting net cost = cumulative rent − investment gains on the saved down payment. Compare at each year.
A cash-flow waterfall and scenario sensitivity
Income and costs form successive layers. Subtracting financing before computing NOI changes the definition and distorts cap-rate comparisons. Principal repayment uses cash but can also build equity, so a tax profit, operating profit and cash-flow result may legitimately differ.
Sensitivity analysis changes one assumption while keeping the others fixed. If yearly potential rent is G, a one-percentage-point vacancy increase directly reduces collected rent by G×0.01, before variable expense offsets. Combined stress scenarios are also important: vacancy, maintenance and borrowing costs can worsen together.
Effective income = potential income × (1 − vacancy) NOI = effective income − operating expenses Cash flow = NOI − debt service DSCR = NOI / debt service
- Potential income: before vacancy or collection loss
- NOI: net operating income before financing
- Debt service: contractual principal and interest payments
- Cash flow: money remaining after the modeled payments
Worked example
On a $400,000 home with 20% down, $80,000 becomes equity at purchase. The renting scenario keeps that $80,000 invested; at 5% annual return it earns $4,000 in the first year.
Reproduce the default scenario
This is a separate example, calculated using the exact engine on the tool page and the defaults in the input reference above. Health examples use metric units. Displayed rounding may differ from intermediate precision.
- Renting minus buying net cost
- 49,508.22 USD
- Buying net cost
- 175,313.31 USD
- Renting net cost
- 224,821.53 USD
- Home equity at selected year
- 266,282.95 USD
- First buying break-even year (up to 50 years)
- 1
- Mortgage payment before payoff
- 2,022.62 USD
Reading results without overstating them
- A positive renting-minus-buying difference means buying is cheaper under these assumptions.
- Negative net ownership cost can reflect appreciation, not spendable income.
Assumptions and exclusions
- Excludes PMI, purchase/sale closing costs and tax benefits. Only the down payment is invested in the renting case; ongoing cost differences are not reinvested. The first break-even year is not a guarantee that buying stays cheaper.
Sources and content notes
Toolify describes the implemented algorithm and its assumptions. Sources below support the topic or applicable rules; they do not endorse this calculator. Examples are illustrative, and published rules take precedence over simplified estimates.
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