Rent vs Buy Calculator: The Ultimate Financial Showdown
The decision to Rent or Buy is often emotional. We are told that "rent is throwing money away" and "buying is building an asset." But is that mathematically true?
The **Rent vs Buy Calculator** cuts through the noise. It compares the **Total Cost of Ownership** (Buying) against the **Total Cost of Renting** over a specific period. It factors in loan interest, property taxes, maintenance, brokerage, and most importantly, the **Opportunity Cost** of your down payment.
The 5% Rule: A Quick Mental Check
Before you dive into the complex calculator, use the 5% Rule to compare the annual cost of owning a home vs renting it.
Cost of Capital (Interest) + Maintenance + Taxes ≈ 5% of Property Value
- If the Annual Rent is LESS than 5% of the Property Value, RENTING is usually better financially.
- If the Annual Rent is HIGHER than 5% of the Property Value, BUYING might be a bargain.
Example: A ₹1 Crore flat. 5% is ₹5 Lakhs (₹41,000/month). If rent is ₹25,000, you are saving money by renting.
The Hidden "Opportunity Cost"
This is the most ignored factor in the Rent vs Buy debate.
When you buy a house, you pay a huge **Down Payment** (say, ₹20 Lakhs). That money is now locked. It cannot earn 12% in the stock market or 7% in a Fixed Deposit.
Our calculator aggressively accounts for this. It asks: "If you didn't buy the house, and instead rented, how much would that ₹20 Lakhs grow to over 20 years?" often revealing that renting is cheaper than you think.
Pros and Cons: Beyond the Math
✅ Advantages of Buying
- Forced Savings: Paying EMI builds equity every month.
- Stability: No landlord can ask you to vacate.
- Customization: Renovate and design as you please.
- Tax Benefits: Section 24 and 80C deductions in India.
✅ Advantages of Renting
- Flexibility: Easy to move for jobs or schools.
- Lower Monthly Outflow: Rent is typically 2-3% of property value (vs 8-9% EMI interest).
- Zero Maintenance: Major repairs are the landlord's headache.
- Liquidity: Your savings aren't tied up in concrete.
City-Wise Realities in India
| City Type | Rental Yield | Verdict |
|---|---|---|
| Metro (Mumbai/Delhi) | Low (1.5% - 2.5%) | Strongly Favor Renting. Property prices are too high vs rent. |
| Tech Hubs (Blr/Hyd) | Medium (3% - 4%) | Neural/Buy. High rent inflation drives people to buy. |
| Tier-2 Cities | High (3.5%+) | Favor Buying. Properties are affordable, rents are comparable to EMI. |
Frequently Asked Questions
Does this calculator include Inflation?
Yes. It accounts for **Rent Inflation** (usually 5-10% annually) and **Property Appreciation**. Without inflation, the comparison would be useless over a 20-year horizon.
What is a good Breakeven Period?
Typically, if you plan to stay in a property for less than 7 years, renting is cheaper due to the high transaction costs of buying (Stamp Duty, Brokerage). Buying makes sense for longer tenures.
Why is EMI higher than Rent?
EMI covers both Interest (cost of money) and Principal (equity). Rent only covers utility. However, in India, high interest rates (8.5%) and low rental yields (2.5%) create a massive gap between EMI and Rent.
Can I edit the tax bracket?
Currently, the calculator assumes a standard tax benefit benefit. We are adding advanced tax toggles soon to account for HRA (renting) vs Section 24 (buying).