The five inputs that actually decide it
A rent-vs-buy comparison isn't a single number — it's five assumptions working together: the home's purchase price and down payment, the mortgage rate, the current rent, the time horizon, and the expected annual home appreciation and rent growth rates. Buying involves a down payment, ongoing mortgage payments, and additional ownership costs (property taxes, insurance, maintenance), but it also builds equity through both loan paydown and any home price appreciation — value the owner keeps at the end of the horizon. Renting avoids the down payment and ownership costs but builds no equity, and rent itself typically rises over time.
Net owning cost is calculated as total cash outlaid (down payment, mortgage payments, and ownership costs) minus the equity value retained at the end of the horizon (home value at that point minus the remaining loan balance). Total renting cost is simply cumulative rent paid over the same horizon, with rent assumed to grow annually. Whichever total is lower is the lower-cost option for the entered assumptions.
- Mortgage payment M = L × [r(1+r)^360] ÷ [(1+r)^360 − 1], where L = price − down payment
- Equity at horizon = home value at horizon − remaining loan balance
- Net owning cost = down payment + total mortgage payments + total ownership costs − equity at horizon
- Total rent cost = cumulative rent paid, growing annually at the entered rent-growth rate
Worked example
A $400,000 home with 20% down ($80,000, a $320,000 loan) at 6.5% has a mortgage payment of $2,022.62. Over 7 years, with 3% annual home appreciation and 1.5% annual ownership costs, the home value grows to about $491,950 and the remaining loan balance falls to about $289,332, giving equity of about $202,618. Total cash outlaid — down payment, mortgage payments and ownership costs — is about $291,900, so net owning cost is about $89,282. Renting at $1,800 a month with 3% annual rent growth costs about $165,509 in total over the same 7 years. Because net owning cost ($89,282) is lower than total renting cost ($165,509), buying wins by about $76,227 under these assumptions.
Why the appreciation assumption dominates
The same $400,000/6.5%/7-year comparison shifts substantially just by changing the appreciation rate, holding every other input fixed — which is why appreciation is typically the single most sensitive assumption in the whole comparison.
| Annual home appreciation | Net owning cost (7 yrs) | Total renting cost (7 yrs) | Lower-cost option |
|---|---|---|---|
| 1% | ≈ $150,000 | $165,509 | Buying (narrower margin) |
| 3% | $89,282 (exact) | $165,509 (exact) | Buying |
| 5% | ≈ $30,000 | $165,509 | Buying (wider margin) |
| 0% (no appreciation) | ≈ $178,000 | $165,509 | Renting (in this scenario) |
What this comparison leaves out
The model excludes selling costs — real estate commissions and closing costs on sale, which typically run several percent of sale price and would reduce the equity actually realized if the home is sold at the end of the horizon. It also excludes mortgage interest and property tax deductions, moving costs, and the value of flexibility renting provides. A short time horizon tends to make buying look worse simply because there is less time for equity and appreciation to offset the upfront transaction costs — none of which makes the appreciation-rate assumption any less uncertain to begin with.
Perguntas frequentes
Is it cheaper to rent or buy?
It depends entirely on the specific numbers: purchase price, down payment, mortgage rate, current rent, time horizon, and assumed appreciation and rent growth. In one worked example — a $400,000 home, 20% down at 6.5%, versus $1,800 rent over 7 years — buying wins by about $76,227, but changing the appreciation assumption alone can flip that result.
What input matters most to the rent-vs-buy verdict?
Home appreciation is typically the most sensitive assumption. In the worked example, dropping the appreciation rate from 3% to 0% flips the verdict from buying (favored by $76,227) to renting (favored by about $12,500) with every other input unchanged.
Does a rent-vs-buy comparison include selling costs?
Not in this model. It excludes real estate commissions and closing costs on sale, which would reduce the equity actually captured if the home is sold — omitting them makes buying look somewhat more favorable than it would with selling costs included.
Why does the time horizon matter so much?
Buying involves upfront costs — the down payment and, in reality, closing costs — that are spread over however many years the home is held, while equity builds gradually. Over short horizons those upfront costs are spread over less time, which often makes renting appear more favorable; over longer horizons, accumulated equity has more time to offset them.
Referências
- Consumer Financial Protection Bureau (CFPB) — Renting vs. buying a home: factors to consider. https://www.consumerfinance.gov/
- U.S. Department of Housing and Urban Development (HUD) — homeownership counseling and affordability resources. https://www.hud.gov/
- Freddie Mac — understanding mortgage options and loan types. https://www.freddiemac.com/