Rent or buy calculator

What the rent vs buy calculator compares

Two columns, the same period of years. On one side you rent and invest your savings. On the other you put the savings in as a deposit, borrow the rest, and pay it down while the property does whatever the growth rate you entered says it does.

1. 1

   The owning side

   Repayments on the purchase price less your savings, at the rate and term you enter, plus the annual ownership costs you type in: rates, water, insurance, strata and maintenance.

2. 2

   The renting side

   The rent you pay now, grown every year by the rate you set, for the whole period. Rent rises with the market, which is the point of asking you for that figure.

3. 3

   The invested difference

   Your savings are invested at the return you enter. In any month where owning costs more than renting, that gap goes into the same investment, because a renter who spends the difference is not really comparing anything.

4. 4

   The finish line

   Property value less loan balance gives the owner's equity. The renter's side is what the investment grew to. The headline is the gap between those two.

Every row moves the moment you change an input, and that is the point of the page. The result is not a fact about renting and buying. It is a consequence of about ten assumptions, and you chose all of them.

The growth rate is the one number nobody knows

This is the health warning on every rent versus buy calculator ever built, including this one. The property growth rate moves the answer more than the interest rate, the rent and the ownership costs put together, and it is the single input that is a guess.

Take an example: a $650,000 purchase with $154,890 of savings, which leaves a $130,000 deposit once $24,890 of transfer duty comes out. That is a $520,000 loan at 6% over 30 years, looked at ten years down the track. The repayment works out at $3,117.66 a month and the balance falls to $435,166 by year ten.

Same loan, same rent, same costs. The only thing that changed was a number nobody can verify, and the owner's position moved by more than $600,000 across the range. Anyone showing you a single answer without that spread is selling you a conclusion.

The costs of buying that renting does not have

A renter's housing costs are the rent and the contents insurance. An owner's costs start before the keys change hands and keep arriving afterwards, and almost none of them appear on a listing.

• Transfer duty at settlement, which on a $650,000 purchase is $24,890 on the general rate
• Settlement agent fees, inspections and Landgate registration, all quoted rather than published
• Lenders mortgage insurance where the deposit is under 20% of the price
• Council rates, water rates, strata levies and building insurance, every year you own it
• Maintenance, from a hot water system to a roof, which a renter reports to an agent instead
• Agent commission and marketing when you sell, and transfer duty again on whatever you buy next

The calculator takes your annual ownership costs as one number and does not price the entry or exit costs at all. Add them yourself before you trust the headline. Our property buying costs calculator prices the duty and lists the rest of what turns up at settlement.

The duty figure is worth sitting with for a moment. At 3% growth a $650,000 property gains $19,500 in its first year, so it takes roughly fifteen months of growth just to get back to level on the duty alone. Selling costs are still waiting at the other end.

The costs of renting that never arrive as a bill

Rent looks like the cheaper number because for a long time it is the only number. What it does not buy you is security or control, and neither of those shows up in a spreadsheet.

• No security of tenure beyond the term of the current lease
• No say in what happens to the property, from the paint to whether it is sold
• Rent set by the market, reviewed and rising, while a loan balance only ever falls
• Inspections, applications and moving costs each time a lease is not renewed
• Nothing to show for the money at the end of the period

Rent compounds the same way a property price does, and people forget that when they compare it against a repayment. On $600 a week rising 3% a year, the rent in the tenth year is $782.86 a week, and the ten years together come to $357,673.

A principal and interest repayment does not track the market. It moves when the rate moves, and on a fixed rate it does not move at all until the term ends.

Should I rent or buy? Mostly it depends how long you stay

Buying tends to need years rather than months to beat renting, because the entry costs are all paid on day one and recovered slowly afterwards. Duty, inspections and fees are spent before you own anything worth counting.

Interest works against you early for the same reason. In the first year of that $520,000 loan at 6%, $31,026 of the $37,412 you pay goes to the lender as interest, which is within $200 of the $31,200 a year the renter hands over.

So if there is a real chance you move within a few years, the sum usually favours renting, and it is not close. Set the slider to three years and look at that before you look at thirty.

What a mortgage does that a savings account does not

Part of every repayment is yours. In the first year of the example loan, $6,386 comes off the balance, and over ten years $84,834 does, money a renter would have had to put aside deliberately every month.

That forced saving effect is real, and it is the strongest argument for buying that has nothing to do with growth rates. It is also why the renting column here is optimistic by design.

The renting side assumes you invest your savings and then invest the monthly difference, every month, without missing one. Very few people do that. The calculator has no way of knowing whether you are one of them, so it gives the renter the benefit of the doubt.

The other half of the decision is the loan itself, and this page cannot tell you what you can borrow or what it would cost. Nothing here is a quote or an approval. We are brokers with a panel of more than forty lenders, so before you act on any of it, let us put real numbers against your situation.