Adkins Capital Management LLC

Rent vs. Buy Financial Analyzer

Methodology By
Troy Morris Adkins
Input Parameters
🏠 Alex — The Buyer
$
20%
3.5%20%40%
6.8%
2%7%12%
3%
1%3%6%
7%
2%6%10%
1.2%
0.3%1.5%3.5%
1.5%
0.5%1.5%3%
0.5%
0.2%0.75%1.5%
0.8%
0.2%1%2%
Applied to original loan balance. Auto-cancels when balance reaches 78% of purchase price (Homeowners Protection Act). Set to 0.2% if not applicable.
3%
0%3%10%
24%
10%24%37%
📈 Troy — The Renter/Investor
$
3%
0%3%8%
$
7%
1%7%15%
⚙️ Shared Parameters
$
Troy invests this full amount. Alex uses it for down payment + closing costs.
10 years
1yr10yr30yr
30 years
10yr20yr30yr
2.5%
0%3%6%
Maintenance costs compound at this rate — repairs track labor & materials costs, not home value appreciation.
$
IRS standard deductions are adjusted annually for inflation — update this field each tax year. TCJA (2017): SALT deductions also capped at $10,000/yr. Tax savings only apply when total itemized deductions exceed this amount.
📈
Troy (Renter) wins by $175,037
Based on current inputs over the selected holding period, renting and investing the difference outperforms homeownership.
Alex — Buyer
Net Worth at Exit
$224,342
Monthly Cost: $3,360 → $3,819
Troy — Renter
Portfolio at Exit
$399,379
Monthly Cost: $2,225 → $2,896
Net Advantage
Difference
+$175,037
Troy leads
📊 10-Year Wealth Trajectory: Alex vs. Troy
Alex (Buyer) Net Worth
Troy (Renter) Portfolio
Breakeven Line
📋 Detailed Financial Comparison
Metric Alex (Buyer) Troy (Renter) Winner
🏠 Alex's Cost Breakdown
📈 Troy's Wealth Breakdown
🔬 Matrix 1 — Home Appreciation vs. Investment Return

Rows = Investment Return Rate  |  Columns = Home Appreciation Rate  |  ★ = Your current assumptions

Renter leads significantly (>$100K)
Renter leads moderately ($25K–$100K)
Renter slight advantage (0–$25K)
Buyer wins
📅 Matrix 2 — Holding Period vs. Mortgage Rate

Rows = Mortgage Rate  |  Columns = Holding Period (Years)  |  ★ = Your current assumptions  |  All other inputs held constant

Renter leads significantly (>$100K)
Renter leads moderately ($25K–$100K)
Renter slight advantage (0–$25K)
Buyer wins
💰 Matrix 3 — Down Payment vs. Investment Return

Rows = Investment Return Rate  |  Columns = Down Payment %  |  ★ = Your current assumptions  |  All other inputs held constant

Renter leads significantly (>$100K)
Renter leads moderately ($25K–$100K)
Renter slight advantage (0–$25K)
Buyer wins
The 5 Key Factors That Determine Who Wins — Alex or Troy
01
Time Horizon
How long you stay matters most
< 5 years → Renting wins Transaction costs overwhelm any appreciation benefit in the short term.

5–10 years → Neutral Outcome depends on market conditions and requires a detailed analysis.

10–15 years → Slight edge to buying Still requires a detailed analysis to confirm.

15+ years → Owning usually wins Equity accumulation and appreciation begin to decisively outpace rent savings.
02
Price-to-Rent Ratio
Home Price ÷ Annual Rent
< 15× → Buy Renting is expensive relative to home values — ownership costs are competitive.

15–25× → Analyze carefully Neither option has a clear advantage — local conditions and your situation determine the outcome.

> 25× → Rent Buying is expensive relative to renting. High-cost markets like San Francisco (31×) and NYC (22×) fall here.
03
Investment Discipline
What you do with your savings
Troy invests savings → Renter wins The entire financial case for renting depends on one condition: the monthly savings versus ownership costs must be captured and reinvested — every month, without exception.

Troy spends savings → Buyer wins by $200K+ If the renter spends rather than invests, homeownership wins decisively. Forced equity is a powerful wealth-building mechanism for those without investment discipline.
04
Market Assumptions
Appreciation vs. Investment Returns
The buy vs. rent decision is fundamentally a bet on whether home price growth will outpace diversified equity returns.

Historically, stocks have won Over most 10-year windows, S&P 500 returns have outpaced home appreciation — giving the disciplined renter the edge in 32 out of 36 modeled scenarios.

High appreciation flips the result At 6%+ annual home appreciation with investment returns at 7% or below, buying outperforms. Use the Sensitivity Matrix tab to model your specific assumptions.
05
Tax Benefits
Deductions for owners
Capital gains exclusion Up to $250K (single) or $500K (married) in home sale gains are excluded from federal tax — a powerful advantage for long-term owners in appreciating markets.

Mortgage interest deduction Available on loans up to $750K, but post-TCJA many Midwest homeowners no longer benefit from itemizing — the $29,200 married standard deduction often exceeds total itemized deductions.

SALT cap Property tax deductions are capped at $10,000/year under the 2017 Tax Cuts & Jobs Act.
Methodology Notes & Disclosure

① Calculation Method — Pure Cash Flow

This calculator uses a pure cash flow method rather than the presentation's 8-step subtraction approach.

Alex's net worth = sale proceeds − remaining mortgage − closing costs + tax savings. This is simply what Alex walks away with after selling. No further adjustments needed — Alex's equity already reflects every dollar she spent on the home through mortgage amortization.

Troy's portfolio = initial $115K compounded + actual monthly cash savings invested. Troy genuinely saved the full difference between Alex's total monthly outflow and Troy's rent — including the principal portion — and invested it every month.

The presentation's Step 6 subtraction (cumulative extra costs) is not applied here because it creates a double count: principal is simultaneously credited to Troy's portfolio as investable savings and subtracted from Alex's net worth as a penalty — even though Alex received that same principal back as equity. The pure cash flow method eliminates this by keeping Alex's equity and Troy's portfolio as two fully independent, accurate calculations.

② Tax Savings — TCJA (2017) Applied

The companion presentation (Slide 7) shows $55,764 in tax savings, calculated using pre-TCJA full itemization — mortgage interest plus property taxes multiplied by the marginal tax rate, with no limits applied.

This calculator applies correct post-TCJA (2017) law: property tax deductions are capped at $10,000/year (SALT cap), and the homeowner only receives a tax benefit on the amount by which itemized deductions exceed the standard deduction for their filing status (user-adjustable).

For a married Midwest homeowner at the base case assumptions, itemized deductions do not exceed the $29,200 standard deduction — producing $0 in incremental tax benefit. This is consistent with the presentation's own Slide 7 footnote, which states that many Midwest homeowners no longer benefit from itemizing post-TCJA.

Methodology Note: This calculator is the interactive companion tool to "The Economics of Homeownership: A Comparative Analysis of Renting vs. Buying" by Troy Morris Adkins, Adkins Capital Management LLC. It follows the presentation's analytical framework and assumptions, with two improvements: a pure cash flow method that eliminates double-counting of principal, and post-TCJA tax law correctly applied. Both changes produce a more accurate real-world result than the presentation's simplified figures. Three additional refinements are applied: (1) Maintenance costs compound at the general inflation rate rather than home appreciation — repairs track labor and materials, not market value. (2) The capital gains exclusion ($250K single / $500K married) is applied at sale for holdings of 2+ years, at the standard 15% long-term capital gains rate on any taxable gain above the exclusion. (3) PMI is included when down payment is below 20%, with automatic cancellation when the loan balance reaches 78% of original purchase price.

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