Moose Math: Rent or Buy Calculation

Before making the decision to buy a house, you should always determine the true financial impact of your decision.

In Canada, we're often led to believe that you are always better off buying and house than renting one. However, much of this argument is predicated on the massive increase in house prices over the past few decades.

About the Calculation

Renting is a simple expense that continues forever and roughly increases with inflation. To make a fair comparison of renting vs. owning, we need to look at a financial decision today and how it impacts the financial situation 25 years from now when the homeowner is theoretically mortgage-free.

If you choose to rent based on an educated financial decision, you should always invest your downpayment and the difference in monthly costs between renting and owning. If you can't seem to save money, you might be better off buying something on that basis alone. But that's like comparing apples to oranges. You're also probably not able to scrape together a down-payment on your own, will run into credit troubles, and live paycheque to paycheque praying that your boss will like you forever. Either way, absent a lot of luck, you are not going to be well-off.

Typically, if the future value of the downpayment is projected to exceed the value of the property over 25 years, you are much better off renting.

If the future value is moderately below the property value you might still be better off renting because you save on maintenance, insurance, and tax costs as a renter.

For most people, if the number is close they would choose to buy if they meet the other Home Ownership Rules. If the Rules are not met, renting is likely to be the better choice.

Moose Math: Rent vs. Own Calculation

Owning Cost = Mortgage Payment + Property Tax + Insurance + Maintenance Costs

Renting Cost = Rent + Insurance + Additional Monthly Savings Requirement

Additional Monthly Savings = [(Total Rent Cost - Ongoing Expenses) = Future Rent Difference x 12 months x 25x Rule = Savings to Cover Future Rent - Future Value of Current Downpayment = Required Savings over 25 years/[(1.005^(300)-1)/0.005]

The big calculation for Additional Monthly Savings is the evaluation where you determine how much money you need to save on top of the rent payment to make up for a paid-off house 25 years down the road.

If the 25x Rule withdrawal on the future value of the downpayment in 25 years is less than the difference between monthly rent and the ongoing costs of a paid-off house, you need to save money every month to make up for that.

I should point out that this calculation assumes house values, expenses, etc. will rise at the pace of inflation for 25 years. Since the mortgage payment shouldn't increase with inflation, the monthly cash flow difference declines over time.

Calculation Examples

My Own Situation

I currently live in the Edmonton area in a duplex that would sell for around $325,000 and rents for $1,600 a month, so I'll share my personal evaluation. I used 4% as my long-term mortgage rate over 25 years.

Own: $1370 mortgage + $236 tax + $80 insurance + $400 maintenance/upkeep estimate = $2,086 with mortgage and $716 ongoing after mortgage is paid

Rent: $1600 rent + $25 insurance + $0 = $1,625

Additional monthly savings = [($1625 rent costs - $716 ongoing expenses) = $909 rental differential x 12 month x 25x Rule = $272,700 in future savings to cover difference - ($65,000 downpayment x (1.06^25) = $278,900) $278,900 > $272,700] = $0 No additional monthly savings needed.

For my situation, owning costs $2,086 and renting costs $1,625 during the 25 year mortgage period so I'm better off renting right now and investing the downpayment. Even a 2.5% mortgage for 25 years with low payments still has me better off renting!

If I choose to own, in 25 years I have a paid off house that costs $716 per month to run. If I rent, my $65,000 downpayment grew to $278,900 after 25 years which will spin off $929 a month. Add in my owning costs of $716 and as long as my rent is under $1,645 (in today's dollars) I'm good to go.

Now, for the bonus, if I saved the cash flow difference each month as well, I would have another $300,000+ in the bank. Add the future value of my downpayment and my total investment account is worth $578,900 in 25 years.

Twenty-five years from now I would rather own a $578,900 investment account than a $325,000 house (all in 2017 dollars). You guessed it, my wife and I are happily renting.

Vancouver Example

It's hardly worth even running the numbers here... A newer 2-bed condo in Burnaby near the SkyTrain sells for around $500,000. You can rent a comparable unit for $1,750.

Moose Math tells us renting wins by a long shot. In 25 years the $100,000 downpayment will be worth $429,000. Saving the difference in monthly expenditures puts your investment account and downpayment at a whopping $1.25 million in 25 years. That'll pay for rent and living expenses!

What if mom and my real estate seller convince me to put only 5% down so I can "get in the market"? Saving the monthly difference in rental versus ownership costs, plus the meagre downpayment would still give me a $1 million portfolio in 25 years. The message is simple, at these prices rent, rent, rent...

Toronto Example

In family friendly Oakville a house sets you back at least $800,000. You can rent a nice place there in a similar hood for $2,400.

Moose Math gives us a massive win for renting. In 25 years, the $160,000 downpayment invested would swell to $686,000. Saving the monthly difference and the downpayment would result in a colossal $2.3 million portfolio. That portfolio would generate over $90,000 a year using the 25x Rule! That alone would pay for retirement and a nice place.

Montreal Example

In the Verdun borough (damn near rural), a renovated and beautiful 3-bed attached house sells for a reasonable $280,000. A similarly gorgeous place rents for just $1,100 a month.

Although Montreal house prices are affordable relative to other large Canadian cities, Moose Math tells us renting is still better because rents are so low.

In 25 years a renter would have a portfolio worth $240,000 if they saved the $56,000 downpayment. Add in the monthly cost difference and the portfolio swells to nearly $600,000! Despite the low purchase costs, after maintenance, insurance, and taxes there is still a nearly $700 monthly advantage to renting.

Moncton Example

An older, but renovated decent home near the university and hospital can be bought for $150,000. Similar rentals run $1,300.

Total monthly ownership costs run at about $1,300 while total renting costs with the required savings runs at $1,430.

Moose Math tells us to buy here—if you meet my other Buying Rules! However, just the transaction costs of moving a few times over your life would make renting a better choice.

For You

If you're thinking about buying, run the numbers in your own area and see what ownership really costs you. I bet you'd be surprised to learn you could be better off renting—sometimes by a lot!

The important part is to invest your downpayment. Investing the monthly difference between owning and renting will often really tilt the advantage to renting.

Comments & Questions

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4 Replies to “Moose Math: Rent or Buy Calculation”

  1. Matthew Siemens says: Reply

    I followed you over from MMM. Really enjoying the new site. Keep it up!

    Have you thought about throwing your calculations in a Google Sheet or something similar to help visitors play with their own numbers?

    1. Mr. Rich Moose says:


      I have been playing around with the calculations in Excel. Admittedly I’m not one of those Excel wizards, so while I’ve got the calculations down correctly it’s certainly not in a presentable format. Google Sheets might be a good option, especially for sharing. I’ll play around with it later this week after catching up on post drafting and completing my tax returns. 🙂

  2. I think your maths are missing the leverage effect. For example, if your house value go up like the inflation (2.5%), your $500,000 house gains $12,500 in value year 1. That’s a 12,5% yield on your $100,000 downpayment.
    I think your have to put down the numbers year-by-year in Excel and factor in inflation for taxes, maintenance, house value and rent (mortgage remains constant). When doing so, results aren’t that obvious.

    1. Mr. Rich Moose says:

      If house prices continue to increase at rates much higher than inflation, then it is clearly better to buy. My assumptions are that houses are fully priced and will not be worth more on an inflation adjusted basis 25 years from now.
      It’s easy to look at levered gains on a house, but don’t forget compounding gains on your downpayment either. $100,000 invested at 8% (nominal) will be worth $1,000,000 in 30 years. Your $500,000 house increasing at 2.5% will also be worth $1,000,000 in 30 years. If you really want, you can also take moderate leverage on your portfolio a increase your gains there.
      Ultimately it’s impossible to predict the better choice with 100% accuracy, but you can make an educated guess based on current information. Current information suggests to me that it’s a really bad idea to buy in southern BC or GTA, less bad in Calgary Edmonton or Ottawa, not so bad in Quebec and some smaller Prairie cities, and I would probably buy in places on the East Coast. Cash flow is important.
      As I’ve said over and over, I would rather own a fat investment portfolio which I only look at once a month than an overvalued house that I have to maintain every weekend.

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