How the calculations work
An overview of the math, assumptions, and methodology behind the rent-vs-buy projections.
Methodology
The calculator builds six scenarios — three home prices crossed with two loan terms (15-year and 30-year) — and projects each one year-by-year over a 30-year horizon. Every figure is computed on an after-tax, "if you liquidated today" basis. For each year it computes:
- Renter wealth: Your full starting non-retirement savings invested at the assumed return rate and grown over time, minus capital-gains tax on the portfolio's growth if it were sold. The renter keeps the whole nest egg invested because they never spend it on a down payment — that's the opportunity cost buying has to overcome.
- Buyer wealth: After-tax home sale proceeds (appreciated value − remaining mortgage balance − seller closing costs − capital-gains tax on the gain above the exclusion) plus the buyer's side investment portfolio (also after capital-gains tax).
- Cash-flow differential: Each year, the difference between rent and that scenario's net housing cost is added to — or drawn from — the buyer's investment portfolio. The renter's portfolio is a single baseline that doesn't change from scenario to scenario. This keeps one clean "rent" line on the charts while still making each buy-vs-rent comparison scenario-specific.
- Payoff relief: Once a loan term ends (year 15 for a 15-year loan), the mortgage payment drops away and only carrying costs — property tax, insurance, maintenance, HOA — remain. The freed-up cash flow then feeds the investment portfolio.
Tax calculations
The calculator uses 2026 federal and California parameters to estimate the tax effects of homeownership and investing:
- Itemized deductions, measured incrementally. Mortgage interest and property tax are treated as itemized deductions, but the benefit is the incremental tax saved versus renting — itemized-with-housing compared against the greater of (itemized-without-housing, the standard deduction). For higher earners who already itemize on the strength of their state income tax, this means the housing deductions deliver close to their full marginal value instead of being quietly absorbed by the standard deduction.
- SALT cap (2026 law). The state-and-local-tax deduction cap is $40,400 for 2026 (not the old $10,000), phasing down above ~$505,000 of income toward a $10,000 floor, and is scheduled to revert to $10,000 in 2030. State income tax counts toward that cap alongside property tax.
- Mortgage interest limit. Interest is deductible only on the first $750,000 of mortgage balance.
- Proposition 13. California limits assessed-value increases to 2% per year, so your property-tax base grows more slowly than the market value of the home. California also allows the full property-tax and mortgage-interest deduction with no SALT cap.
- Capital gains. Investment-portfolio growth (both renter and buyer) is taxed at sale at a combined long-term rate — federal 0/15/20% by income, plus the 3.8% Net Investment Income Tax, plus California (which taxes gains as ordinary income). The home sale gets the §121 exclusion ($250k single / $500k married); only the gain above it is taxed.
Default assumptions
Every input can be customized on the calculator. The defaults are tuned for a high-cost California market. Here's what each one means and how it compares to current norms:
Annual fixed rate, in line with recent 30-year fixed rates (roughly 6–7%). Adjust to your expected rate.
How fast the home value grows. The historical California average is roughly 3–4% annually, though it varies widely by market and time period.
The return on savings not locked into a down payment. The S&P 500 has historically averaged ~10% nominal; a balanced portfolio may return 5–7%. This is the single most influential input — it drives the renter's wealth and the buy-vs-borrow tradeoff.
Annual rent increase. California has historically run 3–5%. A lower value favors renting.
California's 1% base (Prop 13) plus local assessments of ~0.1–0.3%. Assessed value can rise at most 2% per year.
A standard rule of thumb for annual home maintenance and repairs.
Reasonable for California. Actual costs vary by location, coverage, and insurer.
Covers loan origination, title, escrow, and other fees. The typical range is 2–5%.
Primarily real estate agent commissions, typically 5–6%.
Defaults to zero for single-family homes. Condos and townhomes often have HOA fees of $200–$800+/month.
What's not modeled
No calculator captures everything. A few simplifications worth knowing:
- The home-sale tax assumes you sell at the horizon. Capital-gains tax on the home is applied when computing buyer wealth — but only because the model treats every year as "if you sold today." Many owners never realize the gain (they roll into the next home, or hold until heirs receive a stepped-up basis), in which case that tax wouldn't apply and buying looks even better.
- Carrying costs are held flat. Insurance is a fixed annual figure and maintenance is a percentage of the original price, so neither grows with inflation or home value. Long-horizon ownership costs are therefore slightly understated.
- Tax parameters are held constant. The projection applies one year's brackets, caps, and rates across all 30 years — it does not model bracket drift, your own income changing, or scheduled law changes (such as the 2030 SALT reversion).
- PMI (Private Mortgage Insurance): Not included. With a down payment below 20%, most lenders require PMI (~0.5–1% of the loan/year), so low-down-payment scenarios understate the true cost of buying.
- Inflation: All figures are nominal.
- Variable rates / refinancing: The mortgage rate is fixed for the life of the loan.
- Non-California taxes: The tax logic is California-specific; results are less accurate elsewhere.
Why the results can be surprising
The interactions between leverage, taxes, and compounding aren't intuitive. A few patterns that trip people up:
A 15-year and a 30-year mortgage often end up nearly equal in long-run wealth. It seems like the 15-year should win — once it's paid off, it frees up years of cash flow to invest. But three forces roughly cancel out: the 30-year pays more total interest (favoring the 15-year), yet it also earns ~15 more years of mortgage-interest deductions and keeps more money invested early, and because capital-gains tax is deferred until you sell, that invested money compounds at nearly the full return rate. At typical inputs the two terms land within a rounding error of each other at year 30. The tie-breaker is your investment return versus your mortgage rate: when your expected return is above your mortgage rate, the 30-year's "borrow cheap, invest the difference" leverage pulls ahead; when it's below, faster payoff (15-year) wins. So the choice is really about cash-flow comfort and risk tolerance, not a large wealth gap.
Capital-gains tax narrows buying's lead over renting — but rarely erases it. Taxing investment growth at sale lowers both sides, but it hits the renter harder: the renter holds a large, fully taxable portfolio, while much of the buyer's gain is shielded by the home-sale exclusion. In high-rent California markets over long horizons, buying still tends to come out ahead — just by less than a pre-tax view suggests.
There's only one "rent" line even though each home costs something different. That's deliberate. The renter keeps their entire nest egg invested; each buy scenario separately credits or debits its own cost difference to the buyer's side. The rent baseline is shared across scenarios, but the comparison against each one is still specific to that scenario.
Breakeven can arrive early. Because the renter's wealth is taxed too, the bar that buying must clear is lower than it looks — so in strong-rent markets, buying's net worth can overtake renting within just a few years, even though intuition says owning takes a decade to "pay off."
Investment return moves the needle more than anything else. Before agonizing over closing costs or insurance, try sweeping the investment-return input a couple of points in each direction. It reshapes the renter's trajectory and can flip both the rent-vs-buy verdict and the 15-vs-30 ordering on its own.
How the verdict works
The calculator compares renter and buyer net worth at year 10 for each scenario. If the difference is under $5,000 it calls a tie; otherwise the higher-wealth side wins. The breakeven year is the first year buying overtakes renting in net worth.