# Rent vs Buy Total Cost of Ownership Tutor — Mortgage, Tax, Insurance, Maintenance + NPV Break-Even and IRR

Side-by-side monthly rent-vs-buy simulation: mortgage amortization, property tax, insurance, HOA and maintenance against rent plus renter insurance; the renter invests the down payment and monthly savings at an opportunity-cost rate. Outputs break-even year on net sale proceeds, per-year differential NPV, SALT-cap-aware after-tax cash flows, a differential IRR, and a ±20% tornado sensitivity chart.

> Canonical page: https://elysiatools.com/en/tools/rent-vs-buy-total-cost-of-ownership-mortgage-tax-insurance-maintenance-irr-tutor

- **Category:** Finance

- **Keywords:** rent vs buy, total cost of ownership, break even year, mortgage amortization, NPV, IRR, opportunity cost, SALT deduction cap, price to rent ratio, home buying calculator

## Overview

The model runs month by month: the fixed-rate payment splits into interest and principal; property tax and maintenance grow with the appreciating value; the tax shield is marginalRate × max(0, mortgage interest + min(property tax, SALT cap) − standard deduction) — the incremental itemize-vs-standard comparison (2026 SALT cap $40,400 with a high-income phaseout; mortgage interest is only deductible on the first $750,000 of principal). Renter wealth compounds (down payment + closing costs) plus the monthly rent-buy difference at the investment return; break-even is the first year net sale proceeds (after selling costs) overtake the renter's account; differential NPV discounts the extra money buying requires, so NPV > 0 means buying beats the alternative investment; the IRR is solved with Newton-Raphson and a bisection fallback. Price-to-rent bands: below 15 favours buying, 15–20 balanced, above 20 favours renting, and the 5% rule gives the parity rent for unrecoverable costs. Capital-gains exclusion (IRC §121) is not modelled. Educational tool — not tax or investment advice.

## Inputs

- **Home price ($)** (number): 450000
- **Down payment (%)** (number): 20
- **Mortgage rate (% APR)** (number): 6.5
- **Term (years)** (number): 30
- **Property tax rate (%/yr)** (number): 1.1
- **Homeowner insurance ($/yr)** (number): 2200
- **HOA fee ($/mo)** (number): 0
- **Maintenance (% of value/yr)** (number): 1.0
- **Appreciation (%/yr)** (number): 3.5
- **Selling cost (% of value)** (number): 6
- **Closing cost (% of price)** (number): 3
- **Monthly rent ($)** (number): 2400
- **Rent growth (%/yr)** (number): 3.0
- **Renter insurance ($/yr)** (number): 180
- **Investment return (%/yr)** (number): 5.0
- **Marginal tax rate (%)** (number): 24
- **SALT deduction cap ($)** (number): 40400
- **Standard deduction ($)** (number): 31500
- **Analysis horizon (years)** (number): 10

## When to use

- Evaluating whether buying a specific property yields higher net wealth than renting and investing the difference.
- Estimating the break-even holding period required to offset purchase closing costs and future selling fees.
- Assessing how mortgage interest deductions and SALT deduction caps affect real after-tax ownership costs.

## How it works

- Amortizes monthly mortgage principal and interest while scaling property tax, insurance, and maintenance costs against property appreciation.
- Calculates itemized tax shields using your marginal tax rate, the standard deduction threshold, and applicable SALT deduction caps.
- Compounds the renter's down payment, closing costs, and monthly cash flow differences at your designated investment return rate.
- Compares net home sale proceeds against the renter's investment portfolio to identify break-even years, differential NPV, and differential IRR.

## Use cases

- Prospective homebuyers deciding between entering the housing market or continuing a lease in their target neighborhood.
- Financial planners stress-testing real estate purchases against stock market opportunity costs across multiple time horizons.
- Relocating professionals comparing home prices and rental rates across different regional housing markets.

## Frequently asked questions

### What does the break-even year represent?

It is the first year where net proceeds from selling the home exceed the accumulated balance of the renter's investment portfolio.

### How does the tool calculate the tax shield?

It compares eligible deductions—mortgage interest plus property taxes capped by SALT rules—against the standard deduction and applies your marginal tax rate to the excess.

### What does a positive differential NPV indicate?

A positive NPV means buying generates more wealth over the analysis horizon than investing the equivalent upfront and monthly capital at your opportunity-cost return rate.

### How is the price-to-rent ratio interpreted?

Ratios below 15 generally favor buying, ratios between 15 and 20 represent a balanced market, and ratios above 20 typically favor renting.

### Are capital gains exclusions included in the sale calculation?

No, IRC Section 121 capital gains exclusions are not modeled; net sale proceeds reflect home value minus specified selling costs and remaining loan balance.

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