REAL NUMBERS

Buy a house, rent and invest, or buy rentals?

Three households with the same income, the same savings and the same monthly budget. One buys the home. One rents a similar house and puts the down payment and every month's difference into an S&P 500 index fund. One rents too and buys rental houses in a cheaper city, up to the 10-mortgage limit. Every year's federal and California income tax is paid, and the score is what each would have if they sold everything and paid the tax. Defaults are from our Episode 4 video (San Jose and Pittsburgh), checked Oct 15, 2026. Change anything.

Your household Household income, $/yr Years

The home Home price, $ Rent for a similar house, $/mo Mortgage rate, % Property tax, % of price Home insurance, $/yr Upkeep, % of price a year Home prices grow, %/yr Rent grows, %/yr

20% down, 2% closing costs, 6% selling costs, 30-year fixed. Upkeep applies to the rental houses too.

The index fund Stock return, %/yr

Total return with dividends. S&P 500, 1996–2025: 10.4% a year.

Rental houses in a cheaper city House price, $ Rent, $/mo Investor loan, points above your rate Property tax, % of price Landlord insurance, $/yr Property manager, % of rent Vacancy, % of the year Prices grow, %/yr Rents grow, %/yr Most houses to finance

25% down, closing costs 2% + half of a 5% transfer tax. A new house is bought when the savings cover the cash and the lender's reserves.

Taxes and view SALT cap drops back to $10,000 in 2030

That's current law. Untick if you think Congress will extend the higher cap.

In today's dollars In future dollars

Default values and sources (checked Oct 15, 2026)

Home price: Zillow Home Value Index, San Jose metro, Sep 2026: $1,535,288. Rental city: Pittsburgh metro, $229,242
Rent: Doorstead, San Jose 3-bedroom single-family median, Jul 2026: $4,517/mo. Rentometer, Allegheny County 3-bedroom house median, Aug 2026: $1,712/mo
Mortgage rate: Freddie Mac Primary Mortgage Market Survey, 30-year fixed, Oct 8, 2026: 7.40%. Investor loans +0.75 points (LendingTree: 0.5–1 point higher)
Growth, 1995–2025: FHFA House Price Index (San Jose 5.86%/yr, Pittsburgh 3.91%/yr); BLS CPI rent (Bay Area 3.80%/yr; U.S. average 3.44%/yr for Pittsburgh, which has no series after 2017); BLS CPI-U 2.52%/yr
Stocks: Fidelity, S&P 500 average annual total return 1996–2025: 10.4%; dividend yield 1.04% (multpl, Oct 13, 2026)
Home: property tax about 1.236% (Santa Clara County 2026–27 estimate; grows 2% a year under Prop 13); insurance $1,868/yr (Coverage Cat, San Jose); upkeep 1% of price a year [assumption]
Rental houses: property tax 27.307 mills × 49.3% common level ratio = 1.35% (Allegheny County); landlord insurance $1,478/yr (Insurance Information Institute); manager 10% (Arbors, Pittsburgh); vacancy 6.9% (Census Housing Vacancy Survey, 2025); transfer tax 5%, usually split; 25% down (Fannie Mae Eligibility Matrix)
Lender rules: Fannie Mae Selling Guide B2-2-03 (at most 10 financed properties) and B3-4.1-01 (6 months of payments in reserve plus 2–6% of the other loans)
Taxes: IRS Rev. Proc. 2025-32 (2026 brackets); One Big Beautiful Bill Act (SALT cap $40,400 in 2026, back to $10,000 from 2030); mortgage interest on up to $750,000; $500,000 home sale exclusion; 25% on depreciation recapture; 3.8% NIIT; rental losses suspended above $150,000 income; 27.5-year depreciation; California 2026 rate schedule (Spidell), capital gains taxed as ordinary income
Household income $400,000 [assumption]

Method: the model runs month by month. Everyone's monthly budget is what owning the home costs that month (loan, property tax, insurance, upkeep); the renters invest whatever rent leaves over, and whoever owes more income tax than the owner invests that much less, so all three spend the same on everything else. Each asset grows at a steady rate, so there are no crashes or booms. The cash-out value sells everything at the end of the year: the home pays 6% selling costs and capital gains tax above the $500,000 exclusion; the fund pays capital gains tax; the rental houses pay 8.5% selling costs, tax on the depreciation taken and capital gains, and their suspended losses are used. Income and tax brackets grow with inflation. Not modelled: the 2026 federal cap on itemized deductions for the 37% bracket and California's itemized-deduction phase-out.

This is a model, not financial advice.