Deep-dive guide
Buy vs Rent and Invest Simulator: Ten-Year Net Worth With a Mortgage or a Portfolio
Executive industry analysis
Few financial questions are as emotional as whether to buy a home or rent and invest. Owning feels like building something, while rent feels like money thrown away. Yet rent buys a service, shelter, and so do the mortgage interest, the property tax, the insurance and the repairs. The fair question is which path leaves you with more wealth after ten years once every cost is counted on both sides. A buyer holds equity in a home. A renter holds a portfolio funded by the down payment and by every month in which owning would have cost more than renting. This simulator compares both and shows the difference as a monthly amount.
The structure of the problem is a two-sided race. On the buying side, price growth works on the whole value of the home, while a mortgage amplifies the result because you control a large asset with a small deposit. On the renting side, the portfolio grows by the investment return, starting with the cash you did not tie up and adding the monthly difference between owning and renting. The mortgage rate, the holding costs and the transaction costs sit on the owner's side, and the rent and its growth sit on the renter's side. Which one wins depends on the gap between price growth and investment return, adjusted for those costs.
The domino cascade starts with the monthly cost of owning, mortgage plus holding costs. That sets how far above the rent you are paying, which determines how much extra cash you tie up each month and how much a renter can invest instead. Over ten years the first month's gap becomes home equity on one side and a portfolio on the other, and their difference is the owning advantage. A higher rate or higher holding costs widen the premium, shrink the renter's cash advantage in the opposite direction, and can flip the sign of the last box.
The iceberg separates what buyers compare from what they pay. Above the waterline sit the mortgage payment and the rent you avoid. Below it sit four costs that rarely get into the headline comparison: the interest that fills the early years of a mortgage, the property tax, fees, insurance and repairs that continue for as long as you own, the cost of buying and selling, and the growth you give up on the cash locked into the down payment. In many cases the hidden part is larger than the interest. Use the simulator to find the price growth or rate at which owning stops beating renting, then decide with your own horizon.
Formula and methodology blueprint
The model runs the two paths month by month for ten years. The buyer pays a 20% deposit plus 3% in buying costs and borrows the rest on a twenty-year loan. The home grows at the chosen rate, holding costs are a share of its current value and the sale at the end costs 5%. The renter pays rent that rises 3% a year, invests the deposit and buying costs, and invests any month in which owning would cost more than rent. If renting ever costs more, the owner invests the difference. The net is the final wealth gap divided by 120 months.
- Mortgage payment
- pmt = L × i ÷ (1 − (1 + i)^−240)
- Level monthly payment on 80% of the price at the chosen rate.
- Holding costs
- hold_t = value_t × holding% ÷ 12
- Property tax, fees, insurance and repairs as a share of the current home value.
- Renter's portfolio
- P_t = P_(t−1) × (1 + r) + max(0, pmt + hold_t − rent_t)
- The deposit and every month of extra owning cost, compounding at the investment return.
- Buyer's equity
- E = value_120 × 0.95 − remaining loan
- What the owner would keep after paying off the loan and selling costs.
- Owning advantage
- Net = (E + owner's portfolio − P_120) ÷ 120
- Positive means owning wins. The breaking point is where this reaches zero.
Cascading elasticity
The mortgage rate and the home price move the result most because they scale the biggest numbers in the model. Price growth acts on the whole value of the home and is the main source of owner's gains, while the investment return is its mirror image on the renter's side. Rent matters through the cash a renter can invest and the premium of owning. Holding costs are a slow leak that grows with the home's value.
Three real-world case studies
Bootstrapped starter
A first home in a growing area
A buyer purchases a modest home with a fair mortgage rate and sees steady growth. The rent avoided is large relative to the price, so owning pulls ahead moderately. Loading it shows how the rent-to-price ratio shapes the result.
Scaling mid-market
A larger home in a strong market
A bigger purchase in a market with firm price growth and rent high enough to make owning cheap relative to renting. Leverage works in the owner's favour. Loading it shows how large the gap can become when growth beats the return on investments.
Black-swan crisis
High rates, falling prices and high costs
A buyer takes a high-rate loan just before prices stall, pays heavy holding costs and has a strong investment return available. The renter's portfolio wins by a wide margin. Loading it shows which input would bring the buyer back in front.
Industry benchmark matrix
| Metric | Danger zone | Industry average | Top 10% elite |
|---|---|---|---|
| Annual rent as share of price | Below 3% | 4–6% | Above 7% |
| Mortgage rate minus investment return | Above 4 points | 0–2 points | Below 0 points |
| Holding costs as share of value | Above 2.5% | 1–1.8% | Below 0.8% |
| Home price growth (long run) | Below inflation | Near inflation | Clearly above inflation |
| Years to break even on costs of buying | More than 8 years | 4–6 years | Under 3 years |
Variables and levers
Home price
Purchase price of the home you would buy, before the 20% down payment and the mortgage.
Lever: Negotiate harder or buy smaller, because a lower price reduces the loan, the interest, the holding costs and the cash you tie up.
Monthly rent
Rent for a comparable home today. It is assumed to rise 3% a year.
Lever: Compare rents for truly equivalent homes, since a higher rent you can avoid is the main benefit of owning.
Home price growth
Average yearly change in the home's value over ten years. Use a cautious figure and allow for flat or falling years.
Lever: Run the model with flat and falling prices, because owning only wins on growth if you can survive the years it does not come.
Mortgage rate
Interest rate on a twenty-year loan for 80% of the price.
Lever: Shop lenders, improve your deposit ratio and consider a shorter fix, as each point of rate is paid on a very large balance.
Investment return
After-fee yearly return you could earn on a diversified portfolio. A cautious figure is better than a hopeful one.
Lever: Be cautious about your return assumption, because a higher return makes renting and investing look better and makes buying harder to justify.
Holding costs
Property tax, building fees, insurance and maintenance together, as a share of the home's value.
Lever: Budget maintenance and taxes honestly and plan repairs, because holding costs are the part of owning that most buyers underestimate.
How to use this simulator
- 1Enter the price of the home you are considering and the rent for a comparable one.
- 2Enter a realistic mortgage rate and cautious figures for price growth and investment return.
- 3Add holding costs honestly, including tax, fees, insurance and repairs.
- 4Press Find my breaking point to see the rate, price growth or return where owning stops winning.
- 5Open the Parallel universe tab to compare your plan with the smaller-home, better-rate plan over 24 months.
Mistakes to avoid
- Counting only the mortgage payment as the cost of owning. Taxes, fees, insurance and repairs can add a fifth or more to the monthly bill.
- Using the best recent price growth as a forecast. Homes can stay flat for years, and the investment alternative should be judged on the same cautious basis.
- Ignoring the cost of buying and selling. These costs have to be earned back before ownership pulls ahead, which takes years.
- Assuming the renter invests the difference. If the extra cash is spent, the comparison becomes a comparison between equity and nothing.
Frequently asked questions
Is renting really throwing money away?
No more than mortgage interest, taxes and repairs are. Both buy housing. What matters is the wealth each path leaves after every cost is counted.
How long do I need to stay for buying to win?
Transaction costs mean short stays rarely favour buying. Look at the net with different horizons in mind, and remember this model uses ten years.
Why is the down payment not an input?
To keep the model focused it is fixed at 20% with 3% buying costs. Whether a bigger deposit helps depends on whether your mortgage rate exceeds your investment return.
Are taxes and subsidies included?
Only as part of holding costs. Mortgage interest relief, capital gains rules and property tax differ widely, so check current rules where you live.
What if I do not invest the difference?
Then the renter's result will be worse than shown. The model assumes disciplined investing every month, which not everyone achieves.
How accurate is this?
It is an educational planning model with stated assumptions, not financial, legal or tax advice. Prices, rates and returns are uncertain, so test cautious cases.
This is an educational planning model with stated assumptions. It is not financial, tax or legal advice. Replace the inputs with your own figures and verify important decisions with a qualified professional.