Opportunity cost · ending wealth · free
Rent vs Buy — Investor Edition
Not 'should I buy a home' — should this capital buy a rental at all, or go somewhere else? Compare ending wealth over your hold, with the opportunity cost of your down payment priced in.
Educational calculators — always consult a licensed professional before making financial decisions.
The property you're considering buying.
The capital you'd tie up. Typically 25%+ for investment property.
Your own assumption for the alternative — e.g. a diversified index fund.
Gross rent before expenses.
Investment property rate.
US long-run average ~3–4%.
Tax, insurance, maintenance, management. Exclude mortgage.
Adds to the capital you tie up.
One-time, before renting.
~5% is a common baseline.
How fast rents rise.
How fast costs rise.
~7% is typical here.
30-year terms are typical.
Longer holds favour property — transaction costs amortise.
Property Wins By
$42,665
Over 10 years, starting from $101,500 of capital
Buying the Rental
Investing Instead
Both paths compound at your alternative rate for fairness: the property reinvests positive cash flow at that rate, and the alternative also receives any cash you'd have spent covering property shortfalls. Pre-tax — it excludes income tax, depreciation, and tax on investment gains, which differ by investor. Estimate only; consult a licensed professional.
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The question most rental calculators refuse to ask
Nearly every rental calculator tells you what a property returns. Almost none tell you whether that return is good — because "good" only exists relative to what else your money could be doing. A rental producing 6% a year sounds fine until you notice the same capital might have earned 8% elsewhere with no tenants, no roof, and no 3am phone calls. That gap is the opportunity cost of your down payment, and it's the whole subject of this calculator.
Why property often wins anyway: leverage. Put 25% down and your appreciation compounds on the full property value, not just the slice you paid for. Three percent appreciation on the whole asset is roughly twelve percent on your down payment before costs. Add mortgage paydown — tenants quietly converting your debt into equity every month — and property can beat an unlevered alternative even on unimpressive yields. Leverage is the structural edge. It is also, honestly, the structural risk: it magnifies losses with exactly the same efficiency.
Why the hold period decides the argument. Real estate charges you several percent to buy and several more to sell; an index fund charges almost nothing. Those costs savage short holds. But over a long one, leverage, paydown, and rent growth compound in property's favour while the one-time friction amortises into irrelevance. The answer commonly flips somewhere in the middle — so test several horizons instead of trusting one.
How this stays fair. Both paths compound at the same alternative rate: the property reinvests its positive cash flow there, and the alternative receives every dollar you'd otherwise have spent covering the property's shortfalls. Without that symmetry the comparison quietly flatters one side — the usual sin in property-versus-market arguments. Two honest caveats: this is pre-tax, and it can't price the things that don't fit in a spreadsheet — an index fund never needs a new roof, but it also never lets you add value with a renovation. For the full property view see the rental property ROI calculator.
How it works
Enter the rental deal
Price, down payment, rate, rent, and operating expenses for the property you're weighing.
Set your alternative
The annual return you'd expect if you invested the same capital elsewhere instead.
Compare ending wealth
See which path leaves you wealthier over your hold, and the annualized return of each.
Property vs an unlevered alternative: the structural trade-offs
| Factor | Rental property | Alternative investment |
|---|---|---|
| Leverage | Appreciation compounds on full value | Returns on cash invested only |
| Debt paydown | Tenants build your equity | None |
| Transaction costs | Several % to buy and to sell | Near zero |
| Liquidity | Months to sell | Days |
| Effort | Tenants, repairs, management | Passive |
Leverage is why property can beat a higher-returning alternative — and why it magnifies losses just as efficiently. Pre-tax comparison.
Frequently asked questions
How is this different from a normal rent vs buy calculator?+
A consumer rent-vs-buy calculator asks whether you should buy the home you live in instead of renting it. This is the investor version: it asks whether buying a rental property to let out beats simply investing the same capital somewhere else. The question isn't housing — it's what your money should be doing. That makes the opportunity cost of your down payment the central variable rather than an afterthought.
What is the opportunity cost of a down payment?+
It's the return your down payment would have earned if you hadn't tied it up in a property. A rental that returns 6% a year isn't obviously good or bad in isolation — it depends entirely on what else that capital could have done. If an alternative investment would have returned 8%, the property is destroying value relative to the alternative despite showing a positive return. Most rental calculators ignore this comparison entirely.
Why does property often win despite low rental yields?+
Leverage. When you put 25% down, your appreciation compounds on the full property value, not just the capital you contributed — so 3% appreciation on the whole asset is roughly 12% on your down payment before costs. Add tenant-funded mortgage paydown, which quietly converts debt into equity, and property can beat an unlevered alternative even with modest yields. The flip side is that leverage magnifies losses just as efficiently.
How does this comparison stay fair?+
Both paths compound at the same alternative rate. The property path reinvests each year's positive cash flow at that rate; the alternative path receives not just the initial capital but also any money you'd have spent covering the property's negative cash flow. Without that symmetry the comparison would quietly flatter one side — a common flaw in property-versus-market arguments.
Why does the hold period change the answer so much?+
Real estate carries heavy transaction costs — several percent to buy and several more to sell — which punish short holds badly. An index fund has almost none. But over a long hold, leverage, mortgage paydown, and rent growth compound in property's favour while those one-time costs amortise away. The answer frequently flips somewhere in the middle, which is why it's worth testing several horizons rather than trusting a single number.
Does this include taxes?+
No — it's a pre-tax comparison. Tax treatment varies enormously by investor and jurisdiction: depreciation, how rental losses offset other income, capital gains on sale, and the tax on investment gains all depend on personal circumstances. Modelling it generically would create false precision. Use the dedicated depreciation and capital-gains tools for the tax layer, and speak to a professional.
Price the opportunity cost before you commit.
Back to the calculator ↑Cost ranges and rates here are checked against contractor quotes and published industry data. If a number still looks off, email Support@RealCostIQ.com and we'll review and fix it.