A rent-versus-buy answer is only as good as its assumptions, and most people cannot tell which assumption is doing the work. This guide takes the example on Calculation Guide's Rent vs Buy page, finds where its break-even comes from, then changes one input at a time to show what actually moves it.
What the break-even year measures in this model
Calculation Guide gives both households the same cash. The buyer spends the down payment and buying costs, then pays the loan installment and yearly ownership costs. The renter invests that upfront cash on day one and pays rent. Each month, whichever side spends less invests the difference at the return you enter. At each year-end the model values the buyer's position as the home's value after selling costs, minus the loan balance, plus anything the buyer invested. The break-even year is the first year-end when that exceeds the renter's portfolio.
V is the price grown at your home-value rate. Rent and home value change once a year; payments, costs and investment growth are monthly.
The base case: why buying starts behind
The example is a 10,000,000 home with 20% down, financed at 12% for 20 years (installment 88,086.89), against rent of 50,000 rising 8% a year. Home value grows 6% a year, ownership costs are 1% of value a year, buying costs 2%, selling costs 1%, and savings earn 10%.
| Year-end | Buyer | Renter | Leader |
|---|---|---|---|
| 0 | 1,900,000 | 2,200,000 | Rent |
| 1 | 2,596,562 | 3,013,665 | Rent |
| 5 | 5,908,887 | 6,686,078 | Rent |
| 10 | 11,589,690 | 12,210,550 | Rent |
| 12 | 14,728,754 | 14,901,645 | Rent |
| 13 | 16,642,197 | 16,462,042 | Buy (break-even) |
| 15 | 21,315,806 | 20,090,127 | Buy, by 1,225,678.67 |
At year 0 the buyer is already 300,000 behind. The renter holds the full 2,200,000 (2,000,000 down plus 200,000 buying costs). The buyer's equity, if sold at once, is 10,000,000 less 1% selling costs less the 8,000,000 loan, or 1,900,000. Buying and selling costs build no equity, so they are a head start the buyer must earn back.
Early on the buyer also pays more each month: 88,086.89 plus about 8,333 in ownership costs, against 50,000 rent. The renter invests that gap. Meanwhile most of the installment is interest, as the amortization schedule guide shows, so equity grows mainly through price growth. Buying catches up only because rent rises 8% a year: by the later years rent exceeds the buyer's monthly costs, and the buyer starts investing the difference.
Rent vs Buy CalculatorRun the comparison with your own price, financing quote, rent and assumptions, and read the year-by-year chart.Sensitivity: change one assumption, keep the rest
| Change | Break-even year | Position after 15 years |
|---|---|---|
| None (base case) | 13 | Buying ahead by 1,225,678.67 |
| Home value +5% a year (from 6%) | None in 15 years | Renting ahead by 1,646,142.65 |
| Home value +7% a year | 7 | Buying ahead by 4,519,594.60 |
| Rent rises 6% a year (from 8%) | None in 15 years | Renting ahead by 2,451,484.73 |
| Rent rises 10% a year | 9 | Buying ahead by 5,521,688.06 |
| Savings earn 8% (from 10%) | 7 | Buying ahead by 5,868,271.30 |
| Savings earn 12% | None in 15 years | Renting ahead by 4,884,781.54 |
| Financing at 10% (from 12%) | 4 | Buying ahead by 6,063,675.89 |
| Financing at 14% | None in 15 years | Renting ahead by 3,812,592.93 |
| Starting rent 60,000 (from 50,000) | 5 | Buying ahead by 7,742,847.14 |
| Ownership costs 2% (from 1%) | None in 15 years | Renting ahead by 3,592,434.49 |
| Buying costs 5% (from 2%) | None in 15 years | Renting ahead by 110,497.19 |
| Selling costs 4% (from 1%) | 15 | Buying ahead by 506,711.21 |
Reading the table
The growth rates dominate. A change of one or two points in home-value growth, rent growth, the savings return or the financing rate flips the 15-year answer. These four compound every year, while buying and selling costs are paid once. That is the core lesson: break-even is a property of the spread between rates, not of the price or the rent alone.
The savings return and the financing rate pull in opposite directions. A higher return makes the renter's invested cash grow faster; a cheaper loan makes the buyer's installment smaller, so less of the buyer's money goes to the lender. When your financing rate is above what you can realistically earn on savings, buying needs strong price or rent growth to win. The compound interest guide shows why a two-point difference in return grows so large over 15 years.
How long you stay matters as much as any rate. With every base-case rate unchanged, a 10-year stay leaves renting ahead by 620,860.05, while a 20-year stay leaves buying ahead by 6,893,553.83. If you might move before the break-even year, the comparison says renting was likely better under these assumptions.
Choosing assumptions you can defend
- Financing rate: use the rate or profit rate on an actual quotation, not an advertised headline. If the offer is flat-rate, convert it to a reducing-balance rate first.
- Rent growth and home-value growth: use a long-run local figure rather than the last two years. If you cannot find one, run a low and a high case and see whether the answer changes.
- Savings return: what you would actually earn after costs and tax on money you would actually leave invested. A renter who would spend the difference should enter a much lower figure.
- Ownership costs: include property tax, insurance, maintenance and society or HOA charges as a share of home value. The Mortgage calculator helps you total the monthly tax, insurance and dues first.
- Stay length: pick the year you would realistically sell, then check the remaining loan balance at that point in the Amortization calculator; a large balance early in the loan is why short stays favor renting.
What this break-even leaves out
The model does not apply income tax, capital-gains tax or transfer taxes unless you fold them into the cost percentages. It assumes a fixed financing rate, smooth yearly growth and a sale at the end of the period you enter. It values security of tenure, the freedom to move and the risk of a forced sale at zero. Islamic home-finance schedules can differ from a level installment; enter figures from your actual plan. Treat break-even as one input to the decision, not the decision itself.