Rent vs Buy: True Opportunity-Cost Breakeven
Example: Home price: 450000 $ · Down payment: 20 % · Mortgage rate: 6.75 %/yr · Property tax rate: 1.1 %/yr · Home insurance (annual): 1800 $ · Maintenance reserve: 1 %/yr · Equivalent monthly rent: 2200 $ · Annual rent increase: 3 %/yr · Annual home appreciation: 3.5 %/yr · Investment portfolio return: 7 %/yr · How many years you plan to stay: 7 yrs
| Buyer wealth advantage vs renter | $-30,831 |
| Buyer net wealth at horizon | $211,339 |
| Renter portfolio at horizon | $242,170 |
| Opportunity cost of down payment | $56,699 |
Worked example
On a $450,000 home with 20% down ($90,000), at 6.75% rate and 7-year horizon: the buyer's all-in monthly cost (P&I + taxes + insurance + maintenance) is about $3,650. If rent is $2,200, the renter invests the $90,000 down payment plus the $1,450 monthly surplus. After 7 years the buyer has roughly $127,000 in net equity; the renter has roughly $155,000 in their portfolio — the opportunity cost of locking up that down payment matters most in the early years.
Frequently asked questions
Why does the down payment matter so much in this calculation?
$90,000 invested at 7% for 7 years grows to about $145,000. That compounding headstart is why renting can win financially even when the home appreciates — the opportunity cost of the down payment is the factor most calculators omit.
What appreciation rate should I use?
The FHFA House Price Index shows U.S. homes have appreciated roughly 3–4% annually over the long run. High-growth metros vary widely. Use 3% for a conservative baseline; the tool shows how sensitive the result is to that assumption.
Does this account for the mortgage interest deduction?
Not directly — the calculation uses gross costs. If you itemize, your after-tax mortgage cost is lower than shown. Adjust for that by entering a slightly lower effective rate or consult a tax advisor for your specific situation.
What investment return should I assume for the renter?
A diversified U.S. stock index has returned roughly 7% annualized (real, after inflation) over long periods per historical data. Short horizons vary significantly; a 7% nominal return is a common planning assumption, not a guarantee.