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Money Tradeoff

How much must a rental property gain to beat savings?

Buying it means giving up the interest the cash would have earned sitting still. Here is the yearly growth it needs just to draw level, once purchase costs, loan interest, rates and selling costs have all had their turn.

To match 5.0% in savings, this property must gain

5.49% a year

The property has to gain 5.49% a year to match a 5% savings account over 10 years.

Try
Savings after 10 years
$1,647,009
The property
$1,495,499
Property behind by
$151,510

Your numbers

$1,000,000
$
% a year
$2,000,000
$
$a week

What each option is worth as you go

Each line is what you would walk away with if you sold up that month, after selling costs and after clearing the loan. The property starts below what you put in because buying and selling costs are real money.

The property has to gain 5.49% a year to match a 5% savings account over 10 years.$800k$1.0m$1.2m$1.4m$1.6m$1.8m0y2y4y6y8y10ywhat you put in$1.6m$1.5mbehind by $151,510
Savings at 5%Property growing 5% a yearTap the chart to read any year.
5% a year

The property never overtakes the savings account within this period. Over the period you feed it $445,079 in top-ups.

If growth turns out differently

The property has to gain 5.49% a year to match a 5% savings account over 10 years.-$2.0m-$1.0m$0$1.0m$2.0m0%1%2%3%4%5%6%7%8%9%10%breaks even at 5.49%capital growth a year
Each bar is what the property is worth at the end, minus what the savings account would have been worth. Green means it won. The shaded column is the growth you have assumed.
Show the numbers
Final net worth by capital growth rate, against the savings baseline
GrowthPropertySavingsDifference
0%$269,155$1,647,009-$1,377,855
1%$473,168$1,647,009-$1,173,841
2%$696,194$1,647,009-$950,815
3%$939,792$1,647,009-$707,218
4%$1,205,631$1,647,009-$441,378
5%$1,495,499$1,647,009-$151,510
6%$1,811,308$1,647,009+$164,298
7%$2,155,100$1,647,009+$508,091
8%$2,529,059$1,647,009+$882,049
9%$2,935,514$1,647,009+$1,288,505
10%$3,376,953$1,647,009+$1,729,943

Where the money goes

Every step from your cash to what you walk away with, with the running total after each
ItemEffectAmountRunning total
Your cash
$1,000,000
Purchase costs
-$100,000
Rent collected
+$573,194
Letting fees
-$34,392
Rates, insurance, upkeep
-$268,881
Loan interest
-$715,000
Capital growth
+$1,257,789
Selling costs
-$81,445
Interest on interim cash
-$135,766
What you walk away with
$1,495,499
Each bar starts where the one above it finished. Paying down the loan principal is not a step here: it leaves as cash and comes back as equity, so it cancels out. Only the interest is a cost.
Assumptions and costsloan, fees, growth rates
The loan
%
years
Buying and selling
% of price

Transfer tax or stamp duty, legals, inspections.

% of price
Running it
a year
% of rent
% of price a year
How things grow
% a year
% a year

Applied to rates, insurance and upkeep. Kept separate from capital growth on purpose.

What this does and does not account for

Does this calculation include tax?

No tax of any kind is modelled. There is no income tax on the interest or the rent, no deduction for loan interest or expenses, no capital gains tax and no depreciation.

Tax rules differ in every country and often by state or province, so building one country’s rules in would make the answer wrong everywhere else. Where loan interest is deductible against other income and capital gains are taxed more lightly than interest, the real breakeven growth is lower than the figure here. Treat this as the cautious end of the range and take the rest to an accountant.

What capital growth rate should I assume?

Nobody knows, which is the honest answer and the reason the tool is built around a breakeven figure rather than a forecast. Instead of guessing a rate and trusting the result, read the breakeven and ask whether this particular property, in this particular street, is likely to beat it.

The sensitivity chart is there for the same reason. If the answer flips between plausible rates, the decision is closer than a single number would suggest.

Do the interest rates stay the same for the whole period?

Yes, and they will not in reality. The savings rate and the loan rate both hold still for the entire period, because nobody can say what either will be in year seven.

The loan rate is the one worth testing. Try a rate one or two points higher and see how far the breakeven moves: for a leveraged purchase it moves a long way, which is itself a useful thing to know before signing.

Are the figures adjusted for inflation?

No. Every amount is nominal, so a balance twenty years out buys less than the same number would today.

Both options are flattered by exactly the same effect, so the comparison between them still holds. It is only the absolute amounts that look larger than they are.

Does it account for the risk of each option?

No, and no calculator can. A savings account returns roughly what it says it will. A property might fall in value, sit empty longer than you planned, or need a new roof, and it cannot be sold in an afternoon.

Borrowing magnifies the outcome in both directions. Two options that break even on paper are not the same bet, which is why the breakeven figure is a starting point for the question rather than an answer to it.

What happens to the rent, and to the months that run at a loss?

Rent left over after costs earns the savings rate until the end of the period. Shortfalls you top up cost the savings rate too, because that is what the money would have earned had you not spent it. That is what makes the savings account a genuine opportunity cost rather than just another line on the chart.

If you would borrow to cover a shortfall rather than fund it from savings, it costs more than this assumes and the real breakeven is higher.

Why does the property line start below what I put in?

Because the chart answers "what would I walk away with if I sold today" at every point, and selling costs money. Purchase costs are gone the moment you buy, and the agent and legal fees on the way out are charged at every month on the chart, not just at the end.

It is the same reason a property needs a few years of growth before it is worth what you paid for it.