Rent vs buy in Australia: calculate your break-even point

Compare similar homes and the same starting date

A small rental unit and a larger purchased house do not provide the same housing service. If the options differ, say so. Otherwise a calculator may attribute a lifestyle upgrade to the financial merits of buying or a location change to the savings from renting.

Choose actual alternatives where possible: the area, approximate condition, number of rooms and travel requirements. Record asking prices and rent quotes with dates, rather than using a national average as if it described the property available to you.

The RBA’s historical research on renting and buying describes the importance of purchase price, interest, running costs and non-financial preferences. That framework remains useful, but a paper published in 2014 is not a forecast for property prices in 2026. Use current user-verified inputs for the actual comparison.

Source: RBA: Is Housing Overvalued? Introduction, historical comparison framework

Give both paths the same initial cash

Suppose a fictional household is considering an $800,000 home with a $160,000 deposit and $40,000 of purchase costs. Those costs are a placeholder, not an estimate of duty or grants in any state. The buyer needs $200,000 before retaining a separate emergency reserve.

For a fair starting comparison, the renting path also begins with $200,000 available for the modelled alternative use. Omitting the renter’s deposit-sized investment gives buying an artificial advantage. Conversely, giving the renter investment money that the buyer never had makes renting appear better for the wrong reason.

Use actual state duty calculations, legal quotes, inspection costs and lender terms when replacing the placeholder. Grants and concessions depend on eligibility. Do not subtract a payment merely because you saw it advertised for first-home buyers.

Source: MoneySmart: buying a house

Separate mortgage cash flow from the cost of borrowing

With a $640,000 loan at an illustrative constant 6% annual rate over 30 years, a standard monthly principal-and-interest calculation gives about $3,837.12 a month. The whole payment leaves the household bank account, but only part is interest. The remainder reduces debt and builds equity.

Suppose annual ownership costs such as rates, insurance and maintenance are entered as $8,000. The initial annual ownership cash flow is then about $54,045.48, made up of $46,045.48 of loan payments plus $8,000. These are invented scenario inputs, not quoted costs for an Australian city.

If comparable rent is $600 a week, the planning-year rent is $31,200. The initial difference is about $22,845.48 a year, or $1,903.79 a month. A fair model needs to say what happens to that difference, not leave it disappearing from one path. Figures use unrounded monthly calculations internally, then round the displayed results.

The renter must actually invest the difference for that scenario to apply

Many comparisons assume the renter invests both the starting cash and every monthly saving relative to owning. That is a valid modelled behaviour, but it is still a behaviour assumption. If the money is spent, the investment account will not follow that path.

The reverse also matters. If buying is initially cheaper under the entered conditions, the comparison must allow the renter’s investment path to reflect that negative difference rather than pretending the renter saves money every month. Both sides should share one consistent housing budget.

Choose an after-tax, after-fee investment return assumption and explain it. Do not compare an uncertain pre-tax portfolio return with a mortgage rate as if they were equivalent. Short horizons can be particularly sensitive to market losses and transaction costs.

Source: MoneySmart: investing and tax

At the end, compare what is left after exiting

For the buying path, calculate the assumed sale value, subtract the remaining mortgage and deduct selling costs. A property’s headline value is not the amount the household can carry away. The loan balance depends on the actual repayment path and any rate or term changes.

A simple one-year illustration shows why starting costs matter. With the unchanged 6% monthly model, the $640,000 loan balance after 12 payments is about $632,140.73. If the property value remains $800,000 and a fictional 2% selling cost applies, net sale equity is about $151,859.27. That is $800,000 minus $16,000 and minus the loan balance.

For comparison only, the renter’s $200,000 starting investment plus 12 monthly deposits of $1,903.79 would be about $222,845.48 at zero return. This short example excludes rent changes and tax and is not a prediction. It makes the immediate effect of purchase and sale costs visible.

Break-even is conditional, not a promised anniversary

The break-even year is the point at which the modelled net positions cross under the selected inputs. Change rent growth, property growth, maintenance, investment returns or selling costs and the crossing may move or disappear.

Try a zero-growth property scenario, a lower portfolio-return scenario and a higher mortgage-rate scenario separately. Then consider a combined adverse case. Avoid calling three chosen assumptions optimistic, likely and pessimistic unless you have a sound basis for assigning probabilities.

If the chart only checks whole years, the displayed crossing is approximate. A result saying “year nine” does not establish that selling on a specific date in year nine produces a gain. Real transactions involve timing, negotiations and costs that a smooth model cannot capture.

Renting and owning carry different practical risks

Renters may face lease changes, moving costs or limits on altering the home. Owners face maintenance decisions, property-specific risks, debt commitments and the cost of moving. The relative value of stability and flexibility depends on work, family and health needs.

Write down how long you reasonably expect to stay. A person likely to relocate soon may value flexibility differently from a household needing a stable school location. These preferences are real even when they cannot be converted into a reliable dollar amount.

MoneySmart’s buying guidance encourages considering repayments that remain comfortable, rather than treating the maximum approved loan as the right amount to borrow. A calculator’s net-wealth advantage is not useful if the monthly cash flow leaves no room for essential costs or foreseeable changes.

Source: MoneySmart: buying a house

Know what Elaris includes and what you must supply

The rent-versus-buy tool uses the same housing cash-flow budget for both paths. It amortises the loan monthly, uses entered ownership costs and estimates sale equity after the remaining debt and selling costs. The renter’s model includes the entered starting cash and ongoing difference.

You must supply verified purchase costs, rent, rates and assumptions. The tool does not automatically assess duty, grants, lender approval, capital gains tax, changing interest rates or every ownership expense. It also does not retrieve live local prices or forecast property growth.

Save the assumptions and the date of the quotes. Before acting, check the property and contract with the relevant professionals and confirm financing. Use the calculator to identify what needs checking, then revisit the result when one of the material inputs changes.

Stress the monthly budget before debating the final wealth chart

Using the fictional $640,000 loan and the same 30-year term, an illustrative 7% rate produces a monthly repayment of about $4,257.94 instead of about $3,837.12 at 6%. That is roughly $420.81 more each month, before changes to ownership costs. These are constant-rate calculator scenarios, not a forecast of lender rates.

Ask how that extra amount would be met in the household budget. If it eliminates the reserve for repairs or annual bills, the near-term risk deserves attention even when the long-term property-growth chart looks favourable. Repeat the exercise for the renting path with a clearly labelled rent increase. A fair comparison acknowledges cash-flow pressure on both sides rather than treating either housing arrangement as permanently stable.

FAQ: Is rent dead money?

Rent pays for housing during the rental period. Loan interest and ownership running costs also pay for services or financing rather than automatically increasing equity. A fair comparison asks what each path costs and leaves behind, instead of treating one payment label as proof of waste.

FAQ: How much house-price growth should I assume?

No single growth rate can be promised for your property or time horizon. Enter several clearly labelled scenarios, including weak growth, and see how much the conclusion depends on them. If only one strong-growth assumption makes the purchase affordable, that dependence deserves attention.

FAQ: Should the home’s full value count in my retirement portfolio?

It can appear in net worth, but a home you continue living in is not automatically available for groceries. If the plan involves selling, downsizing or equity release, model that separately with costs and timing. Keep accessible retirement investments distinct.

FAQ: What is the most common comparison mistake?

Comparing rent with the full mortgage payment, then ignoring equity, the renter’s starting capital or the monthly difference. Use the same cash resources and spending budget on both sides. Otherwise the result can mainly reflect an accounting mismatch.

Sources and editorial notes

Sources checked 23 October 2026. Worked examples are fictional illustrations. Rules, eligibility and product terms can change; use the official source for your circumstances.

• MoneySmart: buying a house ↗
• RBA: Is Housing Overvalued? Introduction, historical comparison framework ↗
• MoneySmart: investing and tax ↗

General information, not an individual financial or legal assessment. AI-assisted drafting with source checks; independent professional review has not been completed. How we prepare our guides · Suggest a correction