The Rent Versus Buy Calculator Put to the Test, Part II

by Mark Wellborn

The Rent Versus Buy Calculator Put to the Test, Part II: Figure 1

A few years ago, graphic editors Kevin Quealy and Archie Tse created a Rent vs. Buy calculator for The New York Times that has become perhaps the most-used internet tool when people are attempting to make a calculated decision to purchase a home.

“It is an interactive calculator that uses formulas to calculate the year-by-year costs of buying and renting,” Kevin Quealy told UrbanTurf in a 2010 article. “It then determines which is cheaper after each year.”

Given that it has been a little over two years since UrbanTurf put the calculator to the test, we decided that enough has changed in terms of the housing market in the DC area that it made sense to revisit its results.

Here is how the calculator works. Users input their monthly rent and their desired home price point, in addition to a slew of variables like down payment amount, probable mortgage rate, property taxes, condo fees and the rate of home value appreciation and rent increases in their area. The calculator then creates a graphical representation of the time it takes for one to break even on their investment, and the return on that investment going forward. The calculator also lets you compare figures across a theoretical number of years lived in the property, so you can see the cumulative savings or loss.

The issue that we discovered with the calculator is that it does not allow you to enter a variable home price appreciation or rent increase percentage. In other words, if a user enters a home price appreciation rate of 5 percent a year, that level of appreciation is assumed for the entire period of the loan.

Still, we went ahead and tested it out for a potential buyer and provided three different scenarios, based on varying home price appreciation and rental rate changes that take into account the fact that home values and rental rates will rise and fall over the years.

Here is our potential buyer:

Ariel — 32-year-old consultant living in Logan Circle

Ariel is paying $2,600 a month for a 1,100 square-foot two-bedroom apartment with no roommate. She’d like to buy a comparable space in the area, where similar two-bedrooms are fetching $625,000. She knows that she has enough savings for a 10% down payment, and is pre-approved for a 30-year, fixed-rate mortgage at 3.9 percent.

Here are some of the other variables that we incorporated into the scenarios below:

  • Condo fees: $300 a month
  • Annual renovation costs: 0.5 percent of the purchase price
  • Annual maintenance costs: 0.5 percent of the purchase price
  • Homeowner’s insurance rate: 0.5 percent of the home’s value

Scenario #1

Our first scenario assumes a rather modest home price appreciation of 2 percent a year, and a rental rate increase also of 2 percent a year. Assuming these numbers, it would take Ariel about nine years to break even on her investment, according to the calculator. A graphical representation of the rent versus buy breakdown for this scenario can be seen below.

Scenario #2

Our second scenario assumes a home price appreciation rate of 3 percent a year, and a rental rate increase of 4 percent a year. Assuming these numbers, it would take Ariel about five years to break even on her investment, according to the calculator. A graphical representation of the rent versus buy breakdown for this scenario can be seen below.

Scenario #3

Our third scenario assumes a home price appreciation rate of 4 percent a year, but a rental rate increase of just 2 percent a year. Assuming these numbers, it would take Ariel about four years to break even on her investment, according to the calculator. A graphical representation of the rent versus buy breakdown for this scenario can be seen below.

See other articles related to: rent vs buy, rent, home buying

This article originally published at https://dc.urbanturf.com/articles/blog/the_rent_versus_buy_calculator_put_to_the_test_part_ii/6709


  1. Real Estate said at 4:06 pm on Friday March 1, 2013:
    2-4% appreciation in the housing market in this economy? Optimistic.
  1. Chris said at 4:56 pm on Friday March 1, 2013:
    I have used the calculator a number of times when considering buying and found it helpful. Prices went up 10 percent in dc alone in last year so 2-4 percent appreciation scenarios over time seem reasonable.
  1. ap said at 6:27 pm on Friday March 1, 2013:
    to the comment above, maybe that applies nationally, but the DC market has statistically been one of the hottest in the country for the past couple years. 2-4 seems conservative in the District, where many areas have "taken off" and enjoyed double digit increases year over year for the last couple. Sequestration notwithstanding...
  1. Zesty said at 6:37 pm on Friday March 1, 2013:
    "Prices went up 10 percent in dc alone in last year so 2-4 percent appreciation scenarios over time seem reasonable."...Basing future growth in housing prices based on last years price appreciation is not a best practice. You should look at household formation trends, employment trends, rental pricing, etc.
  1. David said at 7:38 pm on Friday March 1, 2013:
    10% down payment Is she paying PMI? That could be an additional couple hundred per month.
  1. Logan Lady said at 9:23 pm on Friday March 1, 2013:
    Can you provide a link for this calculator so I can try it myself?
  1. kob said at 9:26 pm on Friday March 1, 2013:
    I think these calculators are useful exercises, but they don't measure the intangibles or account for risks. The intangibles involved rent vs. buy are well known. But what's hammered me in the past (in the 1980s and more recently) with home purchases, are the macro risks. Yes, things look good for now. But these calculators won't give you any guidance on how to assess the ongoing pullback in defense spending. That's going to take a toll on this region.
  1. Mary said at 1:35 am on Saturday March 2, 2013:
    This is a great tool. Is there a link that I can drive buyers to?
  1. Caleb said at 1:40 am on Saturday March 2, 2013:
    A useful tool. However, your projected expense of $41,000 in maintenance and renovations over 5 years could be rather high depending on the property. I purchased a brand new 2br condo in Logan back in 2009 and have spent maybe a couple hundred dollars on such expenses replacing air filters and smoke detector batteries.
  1. Mike said at 2:23 am on Saturday March 2, 2013:
    @Logan Lady and @Mary - The hyperlink is in the very first sentence of the article: "Rent vs. Buy". Click on it and you'll be able to run your own scenerios.
  1. will said at 6:06 pm on Friday December 6, 2013:
    L.A., Orange County, (20% YoY) Vegas, Phx have seen double digit gains. Of course, past does not indicate future. But in highly desirable areas,the appreciation will be greater than a low-income working class area

DC Real Estate Guides

Short guides to navigating the DC-area real estate market

We've collected all our helpful guides for buying, selling and renting in and around Washington, DC in one place. Visit guides.urbanturf.com or start browsing below!

Northern Virginia

Profiles of 14 neighborhoods across Northern Virginia

Looking to Give People A Reason to Stay Past 6pm
Happily Straddling the Line Between City and Suburb
Columbia Pike
Arlington’s Neglected Stepchild is Getting a Makeover
Crystal City
Turning Lemons into Lemonade
Lyon Village
Developing An Air of Exclusivity?
Hitting Its Growth Spurt
An Urban Village Hitting Its Stride
Del Ray
Virginia’s Small Town Near the Big City
Eisenhower Avenue
The Vibrancy Might Take a Few Years
The Quiet Neighborhood By the Beltway
Old Town
Mayberry By The Potomac
132 Commerical-Free Acres
Downtown Falls Church
Staying the Same in the Midst of Change
Tysons Corner
Radical Change Could Be On The Way

See more Northern Virginia »


Profiles of 14 neighborhoods in suburban Maryland

Small-Town Living in the State Capital
Bedroom Community Gets Buzzing Cache
Cabin John
In With The New While Maintaining the Old
Chevy Chase
Affluence, Green Lawns and Pricey Homes
Downtown Silver Spring
Experiencing a Resurgence After a Bumpy History
A Suburb on Steroids
Rockville Town Square
Despite the Dynamism, Still Somewhat Generic
Takoma Park
More Than a Little Bit Quirky
A Foodie Magnet on the Verge of Change
Capitol Heights
Kudzu, Front Porches and Crime
Glass Half Full or Half Empty?
Mount Rainier
Artists, Affordable Homes and A Silo Full of Corn
National Harbor
A Development Rises Next to the Potomac
Riverdale Park
A Town Looking For Its Identity

See more Maryland »

Northwest DC

30+ neighborhood profiles for the city's biggest quadrant

16th Street Heights
DC's Sleeper Neighborhood
Where (Almost) Everyone Knows Your Name
AU Park
One of DC’s Last Frontiers Before the Suburbs
DC’s Northern Neighborhood on the Cusp
DC’s 535 House Neighborhood
Cathedral Heights
Do You Know Where That Is?
Chevy Chase DC
Not to Be Confused With the Other Chevy Chase
Cleveland Park
Coming Back After A Rough Year
Columbia Heights
DC’s Most Diverse Neighborhood, But For How Long?
An Island of Serenity East of the Park
Dupont Circle
The Best of DC (For a Price)
Foggy Bottom & West End
Where the Institutional Meets the International
Forest Hills
Ambassadors and Adventurous Architecture
Foxhall Village
350 Homes Just West of Georgetown
Friendship Heights
A Shopping Mecca With a Few Places to Live
History, Hoyas and H&M
Glover Park
One of DC’s Preppier and More Family-Friendly Neighborhoods
A Posh View From Embassy Row
LeDroit Park
A Quiet Enclave in the Middle of the City
Logan Circle
Trendy Now, But Not By Accident
Mount Pleasant
Sought-After Homes Surround Main Street in Transition
Mount Vernon Triangle
From Seedy to Sought-After
The Long, Skinny Neighborhood at the City’s Northwest Edge
Park View
It’s Not Petworth
Penn Quarter/Chinatown
DC’s Go-Go-Go Neighborhood
Getting a Vibrancy of Its Own
The Duke’s Former Stomping Ground
Shepherd Park
DC’s Garden of Diversity
Spring Valley
A Suburb With a DC Zip Code
Not To Be Confused With Takoma Park
Not Quite Like Its Neighbors
U Street Corridor
The Difference a Decade Makes
Woodley Park
Deceptively Residential
Adams Morgan
No Longer DC’s Hippest Neighborhood, But Still Loved by Residents

See more Northwest DC »

Southwest DC

The little quadrant that could

Southwest Waterfront
A Neighborhood Where A Change Is Gonna Come

See more Southwest DC »

Northeast DC

Profiles of 10 neighborhoods in NE

New Development Could Shake Up Pastoral Peace
A Little Bit of Country Just Inside the District’s Borders
Not to Be Confused With Bloomingdale
Fort Totten
Five Years Could Make a Big Difference
H Street
A Place To Party, and To Settle Down
The Northeast Neighborhood That Few Know About
Michigan Park
A Newsletter-On-Your-Doorstep Community
Evolving from a Brand to a Neighborhood
Ripe for Investment Right About Now
The Difference 5 Years Makes
Big Houses, A Dusty Commercial Strip and Potential

See more Northeast DC »

Southeast DC

6 neighborhoods from Capitol Hill to East of the River

Capitol Riverfront
Still Growing
Hill East
Capitol Hill’s Lesser Known Neighbor
Congress Heights
Gradually Rising
Notable for Its Neighborliness
Historic Anacostia
Future Promise Breeds Cautious Optimism
Eastern Market
A More European Way of Living

See more Southeast DC »