📐 The 5% Rule
A popular rule of thumb: Multiply the home price by 5%, then divide by 12. If the result is higher than your rent, renting may be cheaper.
📐 Quick Formula
For a $400,000 home:
$400,000 × 5% ÷ 12 = $1,667/month
If your rent is below $1,667, renting may be the better financial choice.
The 5% accounts for ~3% opportunity cost of capital, ~1% property taxes, and ~1% maintenance. If your actual costs differ, adjust accordingly.
Opportunity Cost: The Hidden Factor
When you buy a home, your down payment is locked in real estate. If you rent instead, that money could be invested in the stock market.
💰 Example Opportunity Cost
An $80,000 down payment invested at 7% for 10 years would grow to:
$80,000 → $157,352
That's $77,352 in potential gains you'd miss by tying up the money in a house.
What This Calculator Does
This calculator factors in investment returns on your down payment when analyzing the renting scenario, giving you a true apples-to-apples comparison.
Rent Scenario
Calculates total rent paid + insurance, minus the investment growth you'd earn by investing your down payment in the stock market instead.
Buy Scenario
Sums up mortgage, taxes, HOA, and maintenance, then subtracts the equity you build (principal paydown + home appreciation).
The Crossover Point
The exact year where buying becomes cheaper than renting. If you plan to move before this year, you should rent.