Should I buy a house or rent and invest the difference?

The decision depends on multiple factors including home appreciation rates, investment returns, tax implications, and time horizon. Use the Buy vs Rent ROI Calculator to compare your specific scenario. Generally, buying becomes advantageous if home appreciation exceeds 3-4% annually and you plan to stay 5+ years. Renting and investing may win if investment returns exceed 7-8% and home prices are stagnant.

How do capital gains taxes affect buying vs renting?

Home sales have favorable tax treatment with exemptions of $250,000 (single) or $500,000 (married) on capital gains for primary residences. Investment gains from renting are taxed at 0%, 15%, or 20% based on income. Eight states (Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Wyoming) have no state capital gains tax. The calculator accounts for both federal and state taxes.

What costs are included in homeownership calculations?

Complete homeownership costs include: mortgage principal and interest, PMI (if down payment under 20%), property taxes, homeowners insurance, HOA fees, maintenance (typically 1-1.5% of home value annually), utilities, buyer closing costs (typically 3.5%), and selling costs (typically 6-10%). Property taxes and maintenance scale with home appreciation.

How does the rent and invest strategy work?

The renting strategy invests the down payment and closing costs you would have spent on buying (minus security deposit) plus any monthly savings when rent is cheaper than homeownership costs. Investments compound monthly at your expected return rate (historical stock market average is 7%). Returns are taxed at long-term capital gains rates when enabled.

What is a good home appreciation rate to use?

Historical U.S. home appreciation averages 3-4% annually long-term, though this varies significantly by location and time period. Hot markets may see 5-8% appreciation, while some areas experience 0-2%. Use local market data for accuracy. The calculator allows sensitivity analysis to test different appreciation scenarios.

When does buying make more financial sense than renting?

Buying typically wins when: (1) you plan to stay 5+ years to offset transaction costs, (2) home appreciation matches or exceeds investment returns, (3) rent-to-price ratio is high (monthly rent exceeds 0.5% of home price), (4) you can deduct mortgage interest and property taxes, and (5) you're in a low-tax state. Use the calculator to test your specific numbers.

Buy vs Rent Calculator - ROI Comparison Tool with Tax Analysis

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