Michigan rent vs buy calculator

The comparison this tool makes

It adds up what renting costs over the years you say you will stay, adds up what owning costs across the same period, then subtracts the equity you would walk away with after selling. Whichever net figure is lower wins.

That structure matters. Owning is not compared to renting on monthly cost, which is the comparison that makes buying look bad, nor on the idea that rent is money thrown away, which is the comparison that makes buying look good. It is compared on total money spent, minus what you get back at the end.

The equity figure is the part most quick comparisons omit. It is the future value of the home, less the mortgage balance still outstanding, less the cost of selling.

The worked example at the defaults

The tool opens on $2,100 monthly rent, a $400,000 home, $80,000 down, 6.5%, a seven-year stay and 3% annual home value growth.

Buying is ahead by roughly $116,000 on those inputs. Add Texas property tax at 1.71% and owning costs about $2,926 a month instead, the net cost rises to about $108,700, and buying is ahead by roughly $68,000. Still ahead, and by a much smaller margin. Property tax is the input people most often skip, and the state pages carry the published effective rate for each one.

Now cut the stay from seven years to two. The $80,000 down payment is still spent, the 6% selling cost is still charged, almost none of the balance has been repaid, and two years of 3% growth is not enough to cover it. Renting wins comfortably. This is why the length of stay is the first input to get right and the last one to guess at.

A second example: the same inputs with no growth

Appreciation is the input doing the most invisible work, so set it to zero and change nothing else.

Over the same seven years the home is still worth $400,000 at the end. Equity after the 6% selling cost falls from about $217,100 to about $130,700, the net cost of owning rises to about $147,200, and buying is ahead by roughly $29,000 rather than $116,000. Now add Texas property tax on top of that and the answer turns over: owning nets out at about $195,100 against $176,400 of rent, so renting is ahead by roughly $18,700.

On the default purchase, in a high property tax state, the whole case for buying over seven years is resting on the home rising in value. That is not an argument against buying. It is a description of what the money is actually betting on, and it is why the growth field deserves to be tested rather than accepted.

Why does the answer swing so hard on the length of stay?

Because the large costs of owning are concentrated at the two ends.

You pay the down payment and the closing costs at the start, and roughly 6% of the sale price at the exit. Those are fixed regardless of how long you stay, so the shorter the stay the fewer months there are to spread them over. Meanwhile early mortgage payments are mostly interest, so the balance barely moves in the first few years.

Growth in value is the only force pushing the other way, and it needs time to work. Three per cent a year on $400,000 is about $12,000 in year one, which does not cover a 6% selling cost on its own.

There is no universal break-even number of years, and we do not publish one, because it depends on the rent, the price, the rate, the tax rate and the growth assumption. Run your own figures and step the years field down until the answer flips. That crossover, for your inputs, is the only number that means anything.

The assumptions baked in, named as assumptions

Two of the inputs are not inputs at all. They are conventions the model applies, and you should know what they are:

• Upkeep at 1% of the home value a year. A widely used rule of thumb, not a survey of your house. An older property, a large lot or a bad roof year will exceed it, sometimes badly. A new build under warranty may not reach it.
• Selling costs at 6% of the sale price. This covers agent commission and typical seller-side costs. Commission structures have been changing, and your figure may well be lower.

Both are stated in the caveats under the result rather than buried. Neither is a measurement, and if you have real quotes the honest thing is to treat this tool as a frame and redo the arithmetic with your own numbers.

Two conventions where this model is wrong

Two further conventions sit inside the calculation, and both of them favour owning.

The mortgage balance is reduced in a straight line across 360 months. A real loan does not amortise that way: early payments are mostly interest, so after two or three years the actual balance is considerably higher than this model assumes, and the equity figure here is correspondingly generous. The approximation is close to harmless on a long stay and does real work on a short one. If the tool still shows owning ahead on a two or three year horizon, that is the straight line talking rather than the house.

The loan is also always priced over 30 years. There is no term field, so a 15-year purchase cannot be compared here, and the monthly cost of owning is the 30-year one whatever you intend to do.

Rent moving the other way is easy to size by hand. Held flat, seven years at $2,100 is $176,400. Rising at 3% a year it would come to about $193,000, roughly $16,700 more, which is close to the size of the Texas property tax swing above.

What the model deliberately ignores

• The return on the down payment. This is the strongest argument for renting and the model does not count it. Eighty thousand dollars invested for seven years instead of sunk into a deposit is a real alternative, and leaving it out flatters buying.
• Rent increases. Rent is held flat for the whole period. In reality it usually rises, so the model understates the case for buying. These two omissions push in opposite directions, but they do not neatly cancel.
• Tax treatment. No mortgage interest deduction, no property tax deduction, no capital gains exclusion on a primary residence. Most filers take the standard deduction and get nothing from the first two, which is why the tool leaves them out rather than assuming an itemiser. The rules are in our tax section.
• Home insurance, HOA dues and mortgage insurance. None of the three are in the owning cost.
• Property tax when no state is chosen. Left out entirely, which flatters owning. Choose a state and it is applied at the published effective rate.
• Transaction costs at purchase. Closing costs on the way in are not deducted. Our closing cost calculator covers those separately.

Is the down payment better off invested?

It is the right question and this tool will not answer it for you.

Buying concentrates a large sum in one undiversified, illiquid asset that you also live in, and it is leveraged, which magnifies movement in both directions. Renting and investing the difference keeps the money liquid and diversified, and over long periods equities have historically returned more than housing. It also requires actually investing the difference, which is where the argument usually falls apart in practice.

Housing carries advantages a spreadsheet struggles with: a fixed-rate mortgage fixes your largest expense for decades while rent does not, and the forced saving of principal repayment happens whether or not you are disciplined. Those are real, and they are also not free.

What to ask before you trust the result

• What are the actual tax bills on this parcel, taken from the county record rather than a state average
• What is the insurance quote for this address, not for this state
• What are the association dues, and by how much have they risen over the last five years
• What did the property last sell for, and when
• What would this house rent for

The last one is the most useful and the least asked. Set the annual rent a house would command against its asking price. Where a house would rent for far less than it costs to own it each month, the model is leaning on appreciation to make its case, and you have already seen how much of the answer that single assumption carries.

The mistakes worth avoiding

• Do not guess the length of stay optimistically; use the realistic number
• Enter your county property tax rate if you know it, not just the state average
• Get a real insurance quote rather than assuming the default
• Check whether 1% upkeep is plausible for the age of the property
• Test the answer at 0% appreciation as well as 3%
• Ask what the down payment would be doing otherwise

Testing the appreciation field at zero is the most instructive thing you can do here. Growth is an assumption about the future, and a model that only ever runs at 3% is telling you what you asked it to say. Broader context on where housing costs sit is in our mortgage guides.

This is a model built on stated assumptions. It is not a forecast and not advice. See the disclaimer.