When does buying almost always beat renting financially?

When you hold for a long time (10+ years), when property growth exceeds the investment return on the deposit, and when your purchase price is close to the rental equivalent (low rent-to-price ratio). Transaction costs (stamp duty, agent commission) take years to recover -- the longer you hold, the more the compounding capital gain outweighs the initial costs.

What is the opportunity cost of the deposit?

The opportunity cost is what the deposit could have earned if invested elsewhere instead of used for a house purchase. If you have a $200,000 deposit and the sharemarket returns 7% per year, the opportunity cost over 5 years is approximately $81,000 (the growth that deposit would have generated). This must be added to the renting cost to make a fair comparison.

Should I include rent increases over the comparison period?

Yes, for a more accurate analysis. Australian rents have increased significantly in recent years. If rents grow at 4-5% per year, the cumulative rent cost over 5 years is substantially higher than the first year's rent multiplied by 5. This calculator uses static rent -- for a dynamic model, increase the weekly rent by 3-5% per year.

Rent vs Buy Calculator — Free Real Estate Calculator

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Clients have been renting for five years and are wondering if they should have bought. Or they're about to sign a lease and wondering if buying makes more sense. You need the 5-year comparison before the conversation goes in circles.

Rent vs Buy Calculator

Analysis

Property purchase price ($)

Your deposit ($)

Mortgage rate (% p.a.)

Equivalent weekly rent ($)

Annual property growth (%)

AU long-run average ~5–7%

Investment return on deposit (%)

If you invested the deposit instead

Buying costs: Mortgage repayments, council rates (~0.3%), maintenance (~1% p.a.), insurance, strata (if applicable), minus equity gained
Renting costs: Rent paid over 5 years, renters insurance
Opportunity cost: Return you could have earned investing your deposit instead

Reference: ASIC MoneySmart — Rent vs Buy

ℹ️ Results are estimates for planning purposes. Verify with current standards and a qualified professional.

1 What this calculator does

Compares the true cost of buying vs renting over a 5-year period. Buying costs include mortgage repayments, rates, insurance, maintenance and acquisition costs, offset by capital growth. Renting costs include rent plus the opportunity cost of the deposit invested elsewhere.

2 Formula & professional reasoning

Buy cost (5yr) = Total mortgage repayments + Rates and insurance + Maintenance - Capital gain
Rent cost (5yr) = Annual rent x 5 + Deposit opportunity cost
Deposit opportunity cost = Deposit x [(1 + invest rate)^5 - 1]
Property value year 5 = Price x (1 + growth rate)^5

The rent vs buy decision requires comparing like-with-like over the same time horizon. The buy side includes the total mortgage outflow minus capital gain accrued. The rent side includes total rent paid plus the opportunity cost of the deposit -- what the deposit would have grown to if invested in the sharemarket instead. The critical inputs are property growth rate and investment return rate -- small changes in these assumptions drive large differences in the outcome.

3 Worked examples

⚠️ Illustrative example only — not clinical or professional instruction.

Basic

Suburban family home -- steady market

Working:

Loan: $600,000 | Monthly repayment at 6.5%: $3,792 | 5yr mortgage total: $227,520 | Rates/insurance/maintenance est: $7,500/yr x 5 = $37,500 | Property value yr 5: $750K x 1.05^5 = $957,211 | Capital gain: $207,211 | Buy net cost: $227,520 + $37,500 - $207,211 = $57,809 | Rent total: $550 x 52 x 5 = $143,000 | Deposit opportunity cost: $150K x (1.07^5-1) = $61,038 | Rent total net: $204,038

Answer: Buying saves $146,229 over 5 years at 5% growth and 7% investment return

💡 Property growth and investment return assumptions drive the result. At 3% property growth vs 9% investment return, renting may win on this calculation.

Standard

Inner-city apartment -- slow capital growth

Working:

Buy net cost including lower capital gain: approximately $118,000 | Rent total: $480 x 52 x 5 = $124,800 | Opportunity cost: $130K x (1.08^5-1) = $61,065 | Rent net: $185,865

Answer: Buying saves ~$68,000 over 5 years even at slower growth

💡 At 3% growth the buy advantage narrows significantly. If the property grows at only 2%, renting is likely better on pure financial terms for a 5-year horizon.

Advanced

How growth rate assumptions change the answer

Working:

Scenario A buy advantage: property growth dominates -- buying wins comfortably | Scenario B: high investment return + low property growth -- renting may be equal or better

Answer: Scenario A: buying clearly better | Scenario B: renting roughly equivalent or slightly better

💡 The rent vs buy calculator is only as good as its growth assumptions. Use it to understand which assumptions you are implicitly making rather than treating the result as a forecast.

4 Sanity check

Long-run Australian property growth

Major capitals: 6-8%/yr over 30 years | Regional and outer suburban: 3-6%/yr

Past performance does not guarantee future returns -- 5-year periods show much higher variance than long-run averages.

ASX sharemarket long-run return

Approximately 9-10%/yr before tax including dividends | After-tax 7-8%/yr for most investors

Transaction costs excluded from this calculator

Stamp duty: $20,000-$55,000+ | Conveyancing: $1,500-$3,000 | Agent commission on sale: 2-2.5% of sale price

Add stamp duty to buying costs for a complete comparison.

Emotional and lifestyle factors

Job security, school catchments, renovation plans, desire to own -- not captured in any calculator

The decision to buy is rarely purely financial.

5 Common errors

Error	Cause	Consequence	Fix
Using a short time horizon	Comparing rent vs buy over 1-2 years	Transaction costs dominate -- buying almost always looks worse on short horizons	The rent vs buy comparison needs at least 5 years to be meaningful. Stamp duty alone takes 3-4 years to recover through capital growth.
Not including opportunity cost of the deposit	Treating the deposit as money that 'just sits there'	Renting looks more expensive than it really is -- because the opportunity cost of the deposit is ignored	The deposit could be invested. Its growth over the comparison period is the opportunity cost of buying. Include it in the analysis.
Using optimistic growth assumptions without sensitivity testing	Applying the long-run average growth to a short-term scenario	Buy advantage appears large when it may be marginal or negative	Run the comparison at pessimistic (3%), base (5%) and optimistic (7%) growth rates. The range of outcomes is more informative than a single forecast.
Treating the mortgage principal repayment as a pure cost	Focusing on the repayment amount without separating principal from interest	Buying appears more expensive -- but part of each repayment is building equity	The calculator nets capital growth against mortgage costs. Principal repayment is not a cost -- it is equity accumulation. Only interest is a true cost.

6 Reference & regulatory links

🇦🇺 Australia

🇺🇸 United States

7 Professional workflow

Common tools used alongside this one:

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Mortgage Affordability Calculator

Use Mortgage Affordability to confirm the purchase is within borrowing capacity before running rent vs buy

→

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First Home Buyer Cost Summary

First Home Buyer Cost Summary adds stamp duty and transaction costs that should be included in buying costs

→

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Rental Yield Calculator

If considering buying as an investment property while continuing to rent, use Rental Yield alongside this calculator

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Input	Result
5yr property growth 5%, invest return 7%	Buying typically better
5yr property growth 3%, invest return 9%	Renting may be equal
Transaction costs excluded	Add stamp duty to buying cost