Rent vs Buy NPV Comparison
Present-value cost of buying vs renting over a holding period, discounted at your investment return.
Example
You enter
- Purchase price ($) 400000
- Down payment ($) 80000
- Mortgage rate (percent) 6.5
- Loan term (years) 30
- Property tax (annual percent of price) 1.2
- Insurance (annual $) 1800
- Maintenance (annual percent of price) 1
- Appreciation (annual percent) 3
- Rent (monthly $) 2200
- Rent inflation (annual percent) 3
- Investment return / discount (annual percent) 5
- Holding period (years) 7
- Selling cost (percent of sale) 6
You get
- NPV cost of buying (today's $) $158760
- NPV cost of renting (today's $) $166256
- Difference (buy − rent) -7496.47
No published worked example is on file for this calculation. It is checked against a hand-worked derivation of its method and an independent reference test.
Details, formula, and sources
ScopeMortgage, tax, insurance, HOA, maintenance, appreciation, and net sale vs inflating rent; break-even year. NYT methodology.
Formula or tablediscount d_t = 1/(1+i)^t, i = investment return. PV_buy = down_payment + Σ ownership_outflow_t * d_t − net_sale * d_N, where ownership_outflow_t = P&I x (months of year t still inside the loan term) + tax_pct*price + insurance + HOA*12 + maint_pct*price and net_sale = price*(1+appr)^N − sell_pct*value − loan_balance_N. PV_rent = Σ rent*12*(1+rent_infl)^(t-1) * d_t. difference = PV_buy − PV_rent.
Source and editionNew York Times 'Is It Better to Rent or Buy?' rent-vs-buy methodology (published interactive). AICPA personal-financial-planning guidance. First-principles discounted cash flow.
Free accessThe NYT methodology is published; the DCF math is universal. CFPB homebuyer materials free at consumerfinance.gov.
What governsEstimate. Lender governs final underwriting and rate / fee disclosure. Appraiser governs the appraised value. State law and the agency's program guidelines may impose stricter limits than the published thresholds.
API field namespurchase_price, down_payment, mortgage_rate_pct, term_years, property_tax_pct, insurance_annual, maintenance_pct, appreciation_pct, rent_monthly, rent_inflation_pct, investment_return_pct, holding_years, selling_cost_pct, npv_buy, npv_rent, difference
- Discount rate the investment-return rate is used as the opportunity cost of capital for both pathsNYT methodology
- Annual cash flows ownership and rent outflows discounted at year-end; mid-year timing not modeledDCF simplification