Rent and invest the difference in a buy vs rent comparison

What 'the difference' actually is

There are two differences. The first is the lump sum: the cash an owner spends up front on the down payment, closing costs and moving, which a renter does not need to spend. The second is the monthly gap: when owning costs more per month than renting, the renter keeps that extra cash.

Take an illustrative $600,000 home with 20% down at 4.5% over a 25-year amortization, Alberta-style costs, and a comparable $2,300 rental. The lump sum is $126,380. The first-month gap is $3,757 for the owner against $2,325 for the renter, or $1,432. Both numbers come from the calculator and are planning inputs, not market data.

How the renter's portfolio builds

The renter starts with the $126,380, adds the monthly gap and earns an assumed 5.5% a year, before tax, in this example. Rent rises 3% a year while many owner costs rise more slowly, so the gap narrows over time but never reverses in the ten years modelled.

Against the owner, who is ahead?

In the same example the owner's net worth at year ten is $460,065 after selling costs, against the renter's $418,379, so owning leads by $41,686. At five years the two are within $4 of each other, and before that the renter leads. The renter's early advantage comes from the lump sum compounding while the owner pays closing costs and absorbs the front-loaded costs of the mortgage.

The home's price growth, 3.5% a year on a $600,000 asset, is what carries the owner ahead later. The renter's portfolio earns 5.5% on a smaller base, but the home earns 3.5% on a much larger one, and the owner's debt is being repaid out of the housing budget.

How much depends on the return

Because the renter's outcome rides on the investment return, small changes matter. The table shows the ten-year result at different returns, with the owner's net worth fixed at $460,065:

• Break-even return in this example: about 6.77% a year, before tax
• Below that return, the owner finishes ahead after ten years; above it, the renter does
• The renter's return is uncertain and can be negative in any single year, so a stable average hides real risk

Taxes and registered accounts

The base case ignores tax on investment growth. If the renter holds a taxable account, some growth is lost each year. With an effective tax drag of 15% of annual returns, the renter ends the ten years at $393,341, and the owner's lead grows to $66,724. With a 25% drag, the renter has $377,499 and the lead is $82,565.

Renters can reduce that drag using TFSA, RRSP and FHSA room. These accounts are not reserved for owners, and the FHSA specifically lets qualifying first-time buyers save for a home. Whether your own situation looks like the zero-tax case or one of the taxed ones depends on how much room you have and what you hold. The guide to down payment sources goes further.

The discipline assumption

The model assumes the renter invests the entire difference every month and never touches it. Real behaviour varies. A mortgage works as a forced saving plan, while a renter must choose to save, which is easier said than done. To see how much rides on that, suppose the renter invests only the starting $126,380 and spends the monthly gap. At 5.5% that lump sum grows to about $215,875 over ten years, roughly $244,190 behind the owner's $460,065.

The honest version of the question is therefore two-part: would you invest the difference, and could you hold it through market declines? The guide on forced savings and home equity examines the owner's side of this.

Running your own version

Use the rent and invest tool to set the starting cash, monthly gap, return and tax drag that fit you. Then compare the result with the main calculator, and review investment return assumptions to decide what range is reasonable for you.