The formula
Net cost = everything paid − the equity you are left with
Where it comes from
Comparing the mortgage payment with the rent is the quickest way to get this wrong: it leaves out the deposit, the buying costs, the ownership costs and what the property is worth at the end. All four are counted here on the buying side, and on the renting side it is counted that the deposit and buying costs stay invested and earning, which is the real alternative.
How to work it out by hand
- On the buying side add the deposit, the costs, every payment and the annual ownership costs
- Subtract what the property will be worth minus the mortgage still outstanding
- On the renting side add every payment of rent, with its annual increase
- Subtract what the invested deposit would have earned over that time
What is worth knowing
The answer depends above all on three figures nobody knows: property appreciation, rent increases and the return on your savings. Move any of the three by a couple of points and the winner changes. The honest use is not to find the answer but to see how far each assumption has to move before the result flips. And it leaves out what no calculator measures: the mobility renting gives and the stability owning gives.