Real Estate · Rent or buy a home

Rent, or buy?

Four things you could do with the cash you have — buy a home and live in it, buy it and rent it out, buy it and rent out the spare rooms, or keep renting and invest it all — and what each one leaves you with after the years you plan to stay. Same money in every case, so the difference is only where it went.

Cash you have?Everything you could put toward a home today — savings you'd use for a down payment and closing costs. The tool works out the biggest house that cash covers, and whatever isn't spent on the house stays invested.

Down payment?The share of the price you'd pay up front. Below 20% most lenders add mortgage insurance, and the tool includes it.

Mortgage rate?The interest rate on the loan, per year. It sets the monthly payment, how much of each payment is interest (which is what the tax test looks at), and how fast you build equity. A point either way moves the answer more than most people expect.

Rent you'd pay?What a place you'd be happy living in costs to rent, per month. This is the renting scenario — and the rent you'd pay elsewhere if you bought the house and let it out.

$/mo

Investments earn?What money you don't spend on housing earns each year, before tax. A broad stock-index fund has averaged around 7% a year over long periods, but it swings. This is the same rate in every scenario — the renter's whole pot, and whatever the owners have left over.

%/yr

How long you'll stay?Buying costs money going in (closing) and going out (selling), and it takes years of appreciation to earn that back. This is the single input that changes the answer most, so it's a slider — drag it and watch.

10 yrs

Your marginal tax rate

Household income this year

How you file

The four, side by side

Also compare: rent the house out, rent elsewhere rent out the spare rooms

1 · Buy and live in it

The house is home

You buy it, you live in it, nobody pays you rent. Whatever cash the house didn't need stays invested.

—net worth at the horizon

4 · Rent, and invest it all

Keep renting

Every dollar stays in the market. Each year you also invest whatever owning would have cost more than renting.

—net worth at the horizon

2 · Buy it, rent it out, rent elsewhere

Own it as a rental

The whole house is let from day one. You pay rent somewhere else. It's an investment property — with an investment property's tax.

—net worth at the horizon

Rent the house would fetch?What a tenant would pay for the whole house, per month. Starts at a rule of thumb — about 0.7% of the price — and you should replace it with what similar homes actually let for.

$/mo

3 · Live in one room, rent the others

House-hack it

You live in it and let the spare rooms — or the other half of a duplex. The rent covers part of the cost every month.

—net worth at the horizon

Bedrooms

You rent out

Rent per room?Per month, per room. For a duplex, set bedrooms to 2, rent out 1, and put the whole unit's rent here.

$/mo

How the room rent is treated?Cost-sharing treats it as a housemate chipping in: no tax, no depreciation, no deductions, and the whole house stays your home for the sale exclusion. Reported rental runs the rented share through Schedule E — depreciation and expenses come off, the profit is taxed, and the depreciation is recaptured when you sell.

Assumptions — the loan, the running costs, the rates. All nominal.

The house

Price?Solved from your cash and down payment. Lower it if you'd buy something cheaper — the rest of your cash stays invested. It can't go higher than the cash allows.

Loan term

yrs

Mortgage insurance

%/yr

Running costs, per year

Property tax

% of price

Insurance

% of price

Maintenance

% of price

HOA

$/mo

Buying and selling

Closing costs

% of price

Selling costs

% of sale

Land share?Only the building depreciates, not the land under it. Matters for scenarios 2 and 3 when the rooms are reported.

Vacancy

How things grow, per year

Home appreciation?The input every rent-vs-buy calculator abuses. Set it high and buying always wins. US homes have averaged roughly 3–4% a year nominal over long periods, with whole decades above and below that.

Rent growth

Cost growth

Tax

How you file

Household income?Used for the passive-loss allowance in scenarios 2 and 3 (it phases out between $100,000 and $150,000) and by the rate estimator. Leave it at 0 and the full allowance is assumed.

State income tax you pay?Per year. Property tax and state income tax share one capped deduction, so what you already pay the state decides how much of the property tax is deductible at all.

Capital-gains rate

What this tool does — and doesn't — read once before trusting a number.

Every scenario spends the same money every year. In each year, the dearer of buying-and-living-in-it or renting sets the budget; every scenario invests whatever it didn't spend, at the same return. The four differ only in where the money went, never in how much there was. That is the discipline most "payment versus rent" calculators skip, and it's why the renter can win here when a simpler tool says they can't.

The tax is real, and it's why the four aren't the same house four times. Buying a home saves tax only if your mortgage interest and property tax beat the standard deduction — for most buyers they don't, and this tool says so rather than crediting a benefit that never arrives. A rental gets depreciation and the passive-loss rules, and gives up the home-sale exclusion. Rooms let in your own home can be treated either way, and the switch shows what each costs.

What it leaves out: the phase-down of the SALT cap at very high incomes, other itemized deductions you may already have, state income tax on rental profit, the 3.8% net investment income tax, points, refinancing, and the cost of your own time as a landlord. Returns here are steady; real ones aren't.

Scenario 3 has a cost the arithmetic can't see: you'd be living with tenants. On the numbers alone house-hacking usually wins. Whether it's worth it is a different question, and only you can answer it.

Every rate here is nominal — appreciation, rent growth and the investment return are the same kind of number, so none of the four gets a hidden advantage. This is a model, not advice; the figures are for thinking with.

Your inputs, the chart, and the four scenarios on two pages.