The rent-vs-buy spreadsheet I finally closed

In December I left a roomy three-bedroom rental in a good part of town — walking distance to the shops and the train, $750 a week — and moved my family into a smaller three-bedroom place built in the 1960s, clad in asbestos, in a suburb with a reputation and a crime rate to match. To do it I took on $882,700 of debt at a rate that has already moved twice since I signed. For the last couple of years I’d have told you this was a mistake, and I’d have shown you the spreadsheet to prove it.

Rent is the most you’ll pay

The case for renting is tidy enough that I kept talking myself back into it. Rent is roughly the most you’ll pay in a given year: it’s a known number, and the landlord wears the rates, the insurance, the hot-water system that picks a Sunday to die. A mortgage is the least you’ll pay. The repayment is only the floor — everything else the house decides to need lands on you, uncapped.

So the smart-sounding move was to rent the nicer house and tip the difference into the market. I’d been putting money into Vanguard’s High Growth Index Fund for about eight years; it had done roughly 9–10% a year over the past decade and 8.8% a year since it started in 2002. Against that, the cashflow was lopsided. The nicer rental cost $750 a week. The house we bought costs a bit over $5,000 a month in repayments, plus $150 a fortnight in insurance, plus council rates, plus water, plus whatever a sixty-year-old house quietly demands. The gap was hundreds of dollars a week, every week — and the gap was the entire argument. Invest it for thirty years at 9% and you retire rich without ever once owning a gutter.

This isn’t a fringe view. It’s most of personal-finance internet, and on those numbers it’s correct. The part I kept missing wasn’t in the cashflow.

The thing I’d been getting wrong

A mortgage is a leveraged bet on an asset. The bank put up about $850,000 against my $100,000, and the growth compounds on the whole $950,000 house — not on my deposit. That’s the bit eight years of spreadsheets never quite said out loud to me.

Run it through. The index fund has out-returned Central Coast property per cent — call it 9% against the area’s long-run ~7.5%. On a like-for-like dollar, the fund wins. But the dollars aren’t like-for-like. Seven and a half per cent of $950,000 is a bigger number than 9% of a portfolio that starts at a fraction of that, and stays bigger for a long time, because the bank’s $850,000 is compounding for me too. Nobody will lend me $850,000 at 5.5% to put into ETFs. They’ll line up to lend it to me for a house. That asymmetry is the product.

The honest other edge of it: leverage works just as hard in reverse. A 10% fall in the house is a far larger hit to the slice of it that’s actually mine. I’m not pretending that risk away — I’m saying I finally priced it in on both sides instead of only the one that suited my prior.

What the numbers actually say

So I built the comparison properly. One path: keep renting the nicer house and invest everything — the deposit and stamp duty I didn’t spend, plus the month-to-month difference between owning and renting — into the fund at 9%. The other: buy, and watch equity build as the house grows and the loan shrinks.

The renter starts ahead — about sixty-five grand ahead, before I’ve unpacked a box. That’s what $30,000 of stamp duty buys you: nothing. But on the base case the buyer catches up within two years and is never headed again, finishing around $8.3 million in equity against the renter’s $5.2 million portfolio. The fund returned more per cent the whole way and still lost, because it was never playing with the bank’s money.

The interesting line is the dashed one. Drop the Central Coast’s growth to 6% a year and the result flips: renting and investing wins, narrowly. So the whole decision collapses to a single question — does Central Coast property clear about 6% a year over thirty years? It has done roughly 7.5–8% over the long run. That’s the margin I’m betting on, and it’s the only number that really matters.

And the chart is, if anything, kind to renting. The house’s lead is bigger than it looks, because of the one line in the tax code that quietly does more for owner-occupiers than any of this: a main residence pays no capital-gains tax. The $8.3 million of equity is mine to keep, tax-free, the day I sell — as long as it’s stayed the family home, which is the whole plan. The $5.2 million in the fund isn’t. Cashing out a gain that size triggers CGT, and even halved by the long-term discount it’s a six-figure bill. On an after-tax basis the gap is wider than the chart, not narrower — and that’s before you remember the fund never housed anyone.

Worth being upfront about the maths. These lines are illustrative, not a forecast. They assume 9% on shares, 7.5% (and 6%) on the house, 3% growth in rent and running costs, and a loan of $882,700 at ~5.85%. They’re before an agent’s commission on a future sale — which would trim the house — and before the tax I mention just above. They’re built on one region’s history, and past returns are not a promise. Move any dial a couple of points and the picture moves with it — that’s the honest shape of it.

And the debt itself, paid down the slow way:

Across thirty years at this rate, the interest alone comes to just under a million dollars. “The least you’ll pay” is a generous way to describe a number like that. But it’s the price of the leverage, and the leverage is the point.

The half of that maxim I’d been ignoring

“Rent is the most you’ll pay, a mortgage is the least.” I’d only ever read the first half as an argument for renting — the landlord absorbs the variable costs, so my downside is capped. The second half says the opposite, and it took me an embarrassingly long time to hear it: my repayment is fixed for thirty years. Rent isn’t fixed for thirty minutes.

Rent starts well below the repayment and crosses it around 2041, then keeps going — about $95,000 a year by the time the loan is gone, and still climbing the year after that, and the year after that. My repayment never moves, and then one day it simply stops. Add the two columns up over thirty years and they almost match: roughly $1.85 million in rent against $1.87 million in repayments. Nearly the same money. Except one of those numbers ends, and hands you the house; the other never ends at all.

I won’t pretend owning is genuinely flat — the rates, insurance and maintenance that sit on top of that fixed repayment do creep up with everything else, so my real total outlay only dips under the rent bill near the very end. But the biggest single cost of keeping a roof over us is now fixed, and then disappears, while every dollar of rent I’d have paid instead compounds away for the rest of my life.

The reasons that weren’t in the spreadsheet

Here’s the part I have to be honest about: the leverage argument didn’t actually tip me. It gave me permission. By the time I worked it through properly I’d already half-decided, and I was looking for a reason that let me stop feeling stupid about the cashflow.

What actually tipped me was duller and more human. The rental market here had become a bloodsport — dozens of applications per place, rents climbing every renewal, and the standing reality that someone else got to decide whether my three kids changed schools. I was tired of asking permission to live somewhere. I wanted to put my own weekends into something that stayed mine: the yard, the slow fixing-up, the small improvements that a landlord would only ever see as their windfall. Stability, mostly. The spreadsheet never had a column for any of that, and it turned out to be the column that mattered.

Six months in

The rate has already gone from about 5.5% to 5.85%, so the “fixed floor” I romanticised is doing its own quiet creeping. I’ve spent more than I’d like to admit on ladders, tools, paint and pavers — most of it one-off, all of it the sort of thing a renter simply phones someone about. The asbestos hasn’t moved and won’t, as long as I don’t either. Every uncapped cost I waved away in the renting case has turned up, on schedule, exactly as advertised.

None of it has changed my mind. I closed the spreadsheet back in December and signed anyway, knowing full well I was taking the smaller, older house on the worse street and the uncapped side of the ledger on purpose. The bet was never that owning is cheaper or easier — it plainly isn’t. The bet is that a leveraged asset on the Central Coast clears 6% a year for thirty years, that rent keeps climbing while my repayment one day stops dead, and that whatever the place is worth in the end is mine to keep untaxed — and that I’d rather make those bets from inside the house than from a nicer rental I could be asked to leave.