OneTaskBy Tim King · Updated
Rent vs Buy Calculator
Net Worth From Buying a House Against Renting and Investing the Difference
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How the Rent vs Buy Calculator works
This rent vs buy calculator compares two households over the same years. One buys a home. The other rents a similar home and invests the deposit, the buying costs and any monthly difference instead. It shows who has the higher net worth at the end and the year buying pulls ahead.
Rent vs buy calculator formula
Both sides spend the same money each month. The buyer pays the mortgage and owning costs; the renter pays rent and invests whatever is left over, starting with the deposit and buying costs:
Buyer net worth = home value × (1 − selling costs) − loan balance Renter net worth = investments, growing at the investment return
If renting costs more than owning in a month, the renter's investments shrink by the difference. Home value rises by the growth rate and rent by the rent increase each year. Owning costs cover rates, insurance and maintenance as a share of the value.
Worked example: over 20 years
A 700,000 home with a 140,000 deposit, 30,000 buying costs and a 6% loan, against renting for 600 a week. With 4% price growth, 3% rent rises and a 6% investment return, after 20 years the buyer's net worth is 1,200,690 and the renter's 962,666. Buying is ahead by 238,024 and pulls ahead in year 6.
Worked example: over 5 years
Compare the same homes over just 5 years and renting comes out ahead by 1,980, 315,500 against 313,519. Buying costs and selling costs take years of price growth to recover.
Rent vs buy reference table
The weekly rent that equals a 3%, 4% and 5% gross yield on each home price. When the rent for a similar home is low compared with the price, renting tends to look better.
| Price | Rent at 3% yield | Rent at 4% yield | Rent at 5% yield |
|---|---|---|---|
| 400,000 | 231 | 308 | 385 |
| 450,000 | 260 | 346 | 433 |
| 500,000 | 288 | 385 | 481 |
| 550,000 | 317 | 423 | 529 |
| 600,000 | 346 | 462 | 577 |
| 650,000 | 375 | 500 | 625 |
| 700,000 | 404 | 538 | 673 |
| 750,000 | 433 | 577 | 721 |
| 800,000 | 462 | 615 | 769 |
| 850,000 | 490 | 654 | 817 |
| 900,000 | 519 | 692 | 865 |
| 950,000 | 548 | 731 | 913 |
| 1,000,000 | 577 | 769 | 962 |
| 1,050,000 | 606 | 808 | 1,010 |
| 1,100,000 | 635 | 846 | 1,058 |
| 1,150,000 | 663 | 885 | 1,106 |
| 1,200,000 | 692 | 923 | 1,154 |
| 1,250,000 | 721 | 962 | 1,202 |
| 1,300,000 | 750 | 1,000 | 1,250 |
| 1,350,000 | 779 | 1,038 | 1,298 |
Quick answers
- Buying usually needs several years to recover buying and selling costs.
- Higher price growth favours buying.
- A higher investment return favours renting.
- The renter must actually invest the difference for the comparison to hold.
- Low rent compared with the price favours renting.
- The answer often turns on how many years you stay, since buying costs take time to recover.
FAQ
Is it better to rent or buy?
It depends on how long you stay, how fast prices and rents rise, and what the renter's investments earn. Over short periods renting often wins; over long periods buying often does. Try your own figures and a few growth rates.
Why does the renter invest the deposit?
To compare like with like. The buyer's deposit becomes home equity, so the renter's alternative is to put the same money into investments. Otherwise the buyer would look richer.
What does the calculator leave out?
Taxes on investment returns or on selling a home, rent-free security of tenure, and lifestyle factors. It is a money comparison only. Add those yourself.
See also: all Property tools, Pay, Bills, Debt, Investing, Saving.
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