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. For each year it computes:
- Renter wealth: Starting non-retirement savings invested at the assumed return rate, plus any monthly savings from paying less than the equivalent buy scenario.
- Buyer wealth: Home equity (appreciated home value minus remaining mortgage balance) plus invested savings, minus cumulative housing costs (mortgage, taxes, insurance, maintenance, HOA), minus seller closing costs at the point of sale.
- Cash flow differential: Each year, the difference between what the renter and buyer spend on housing is reinvested by whichever side spends less, capturing the opportunity cost of tying up capital in a home versus investing it.
Tax calculations
The calculator uses 2024 federal and California tax brackets to estimate the tax benefit of homeownership:
- Mortgage interest and property taxes are treated as itemized deductions. The benefit is the amount by which itemized deductions exceed the standard deduction, multiplied by your marginal tax rate.
- The federal SALT deduction cap of $10,000 (from the Tax Cuts and Jobs Act) limits how much state and local tax — including property tax — can be deducted on your federal return.
- California's Proposition 13 limits assessed value increases to 2% per year, so your property tax base grows slower than the market value of the home.
- California state taxes allow the full property tax deduction with no SALT cap.
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. Current market rates are typically 6–7% (as of early 2025). Adjust this to match your expected rate.
How fast the home value grows. The historical California average is roughly 3–4% annually, though this varies widely by market and time period.
The return earned on savings that aren't locked in a down payment. The S&P 500 has historically averaged ~10% nominal, but a balanced portfolio may return 5–7%. This rate significantly impacts the renter's projected wealth.
Annual rent increase. California averages have historically been 3–5%, and recent years have seen even higher increases. A low value here favors the renting scenario.
California base rate is 1% (Proposition 13) plus local assessments that typically add 0.1–0.3%. The assessed value can only increase by a maximum of 2% per year under Prop 13.
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 things this one leaves out:
- PMI (Private Mortgage Insurance): If your down payment is below 20%, most lenders require PMI (typically 0.5–1% of the loan per year). This is not included, so low-down-payment scenarios may understate the true cost of buying.
- Capital gains tax on home sale: The calculator does not deduct capital gains tax when computing buyer wealth at sale. In practice, the first $250k ($500k married) of gain is excluded if you've lived in the home for 2+ of the last 5 years.
- Inflation adjustments: All figures are nominal (not adjusted for inflation).
- Variable rates or refinancing: The mortgage rate is fixed for the life of the loan.
- Non-California taxes: The tax logic is California-specific. Results will be less accurate for other states.
How the verdict works
The calculator compares renter and buyer net worth at year 10 for each scenario. If the difference is less than $5,000, it calls it a tie. Otherwise, whichever side has more wealth wins. The breakeven year is the first year that buying overtakes renting in net worth.