Buying versus renting and investing the difference.
Better over your horizon
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Buyer net wealth
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Renter net wealth
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The honest version of the rent versus buy question
The lazy version of this debate says renting is throwing money away. That is not true, and it is not how this tool works. The honest comparison sets two paths side by side. On the buying path your deposit becomes equity, your home grows in value, and you carry the ownership costs: mortgage interest, rates, insurance, and maintenance. On the renting path you invest the deposit you did not spend, you pay rent instead of those ownership costs, and whenever buying would have cost you more in a year you invest that surplus too. After your chosen number of years the tool compares the buyer’s equity against the renter’s investment portfolio. Whoever ends with more wealth wins, on these assumptions.
How each side builds wealth in the model
The buyer’s wealth is the projected home value minus the loan still owed. The home grows at your house-growth rate, compounding each year. Ownership cost is estimated as the loan interest plus 1.5 percent of the purchase price for rates, insurance, and upkeep, and that cost is treated as money spent, not recovered. The renter starts with the deposit invested, grows it at your investment return, and each year adds whatever the buyer spent above the rent. It is a deliberately simplified picture, since it does not model principal repayment reducing the loan or rent rising over time, but it captures the core tension: home equity growth against compounding investment returns.
A $800,000 home against renting at $700 a week
Using the defaults, an $800,000 home with a $160,000 deposit leaves a $640,000 loan. At 6.5 percent interest that is $41,600 of interest, plus 1.5 percent of $800,000, which is $12,000, for an annual ownership cost of $53,600. Rent at $700 a week is $36,400 a year, so buying costs $17,200 more each year, and the renter invests that surplus on top of the $160,000 deposit at a 6 percent return. After ten years, with the home growing at 4 percent, the figures look like this.
| Item | Value at year 10 |
|---|---|
| Home value ($800,000 at 4% for 10 yrs) | $1,184,195 |
| Less loan still owed | $640,000 |
| Buyer net wealth (equity) | $544,195 |
| Renter portfolio ($160k plus $17,200/yr at 6%) | $513,245 |
| Buying ends ahead by | $30,950 |
Buying wins here, but only by about $31,000 on $500,000-plus of wealth, which is close enough that the result flips with small changes to the assumptions. That is the real lesson: at typical New Zealand prices and rates, the two paths are often within a rounding error of each other.
The levers that flip the answer
Three inputs move the result more than any other. House growth is the strongest: drop it from 4 percent to 2 percent and renting usually pulls ahead, because the home stops doing the heavy lifting. The mortgage rate is next, since high interest makes ownership expensive and hands the renter a bigger surplus to invest. The investment return is the renter’s equivalent lever; a disciplined renter earning 7 or 8 percent in a diversified fund can beat a flat housing market comfortably. The quiet assumption that matters in real life is discipline. The whole renting case rests on actually investing the deposit and the annual surplus rather than spending them. Most people do not, which is why forced saving through a mortgage is a genuine, if unmodelled, advantage of buying.
Does the calculator include the tax I would pay on investment returns?
No, the renter’s return is modelled gross. In reality a New Zealand investor would pay tax along the way, often through a PIE fund capped at the 28 percent prescribed investor rate, or face the foreign investment fund rules on offshore shares. Owner-occupied home equity, by contrast, grows free of any general capital gains tax. If you want a fair fight, shave a point or so off the investment return to approximate the after-tax figure, which narrows the renter’s advantage.
Why does buying look better the longer I stay?
Two reasons. The heavy upfront costs of buying, legal fees, moving, and the deposit being tied up, get spread over more years, and compounding house growth on a large asset accelerates over time. Over a two or three year horizon those costs dominate and renting usually wins. Over fifteen or twenty years a repaid mortgage and a much larger home value tilt the scales toward owning. Stretch the years input and watch the buyer’s line pull away.