Rent vs Buy Calculator
Counts what a renter invests, not just pays.
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Questions
Why is 'rent is dead money' the wrong way to think about it?
Because it compares a rent payment to a mortgage payment and stops. On a $700,000 home, roughly $2,500 of an early monthly payment is interest, property tax, maintenance and insurance — money as gone as any rent cheque. Meanwhile the renter has the entire down payment invested. Both of those terms are larger than the one people compare.
What actually decides the answer?
The rent-to-price ratio above all: if rent is far below the full cost of owning, the renter invests the difference every month and it compounds. Then the gap between home appreciation and investment return, and finally how long you stay — transaction costs are roughly 2% to buy and 5% to sell, so selling within five years usually loses money regardless of the market.
Does buying only work if prices go up?
No, and this is the most interesting result the calculator produces. With rent close to the cost of owning, buying wins even with zero appreciation, because paying down principal is saving and it happens whether or not you feel like saving that month. Appreciation makes buying better; it is not what makes it work.
Is the calculator biased toward renting?
It assumes the renter invests the full down payment plus every dollar by which owning costs more — which is the only way the comparison means anything, and also something most people do not actually do. If you would spend the surplus rather than invest it, the model overstates the case for renting. That is not a flaw in the arithmetic, it is a fact about behaviour, and it is the strongest honest argument for buying.
What is not included?
Land transfer tax, which in Toronto is charged twice and can exceed $20,000. CMHC insurance if the down payment is under 20%. Tax on investment growth outside a TFSA. And every non-financial factor — security of tenure, freedom to renovate, freedom to move for a job in six weeks. A calculator answers a narrow financial question; it cannot tell you whether you want to own a home.
About rent vs buy
The comparison most people get wrong
“Rent is dead money” compares a rent payment against a mortgage payment and stops there. That comparison is meaningless, because it ignores the two largest terms: the money a buyer spends that never becomes equity, and the money a renter invests instead of putting it into a down payment.
On a $700,000 home, roughly $2,500 of an early monthly payment is interest, property tax, maintenance and insurance — money as gone as any rent cheque. Meanwhile the renter has $154,000 of down payment and closing costs invested. This calculator models both.
What actually decides it
- The rent-to-price ratio.If rent is far below the full cost of owning, the renter invests the difference every month and it compounds. This is the situation in Toronto and Vancouver, and it is why the honest answer there is often “rent”.
- The gap between appreciation and investment return. A home is a leveraged asset, so appreciation is magnified by the mortgage — but a 6% portfolio against 3% appreciation still closes much of that gap.
- How long you stay. Transaction costs are brutal: roughly 2% to buy and 5% to sell. Selling within five years usually loses money regardless of the market.
Forced saving is a real advantage
There is one finding worth sitting with: with rent close to the cost of owning, buying wins even with zeroappreciation. Paying down principal is saving, and it happens whether or not you feel like saving that month. The renter’s advantage depends entirely on actually investing the difference — and most people do not.
If you would spend the surplus rather than invest it, the model above overstates the case for renting. That is not a flaw in the arithmetic; it is a fact about how people behave, and it is the strongest honest argument for buying.
What is left out
Land transfer tax, which in Toronto is charged twice and can exceed $20,000. CMHC insurance if the down payment is under 20%. Tax on investment growth outside a TFSA. And every non-financial factor: security of tenure, the freedom to renovate, the freedom to move for a job in six weeks.
A rent-versus-buy calculator answers a narrow financial question. It cannot tell you whether you want to own a home, and that is usually the actual question.
Related
Work out the payment with the Canadian mortgage calculator, or plan a down payment with the savings goal calculator.