Is it better to buy or rent? To help you answer this question our model can help you calculate the costs associated with buying vs. cost of renting over time.
Rent vs. Buy Calculator
How we calculate?
The assumptions used to calculate the cost of renting, includes renting a similar home as you would purchase, yearly rate increase and annual return on cash (this is what you assume that you can get on your cash if you don’t put down payment deposit).
The assumptions used to calculate the cost of buying, includes home purchase price, down payment, property tax, homeowners insurance, maintenance fee, housing association dues (HOA), income tax rate, inflation, loan term, and interest rate. Other assumptions include appreciation rate and number of years expecting to stay in your home.
Although cost of buying vs. renting depends on numerous assumptions, some of the key drivers in our model include mortgage rate, income tax rate, how long you are expecting to stay in your home, home price appreciation rate and annual rate of return on cash. Prime 1 Estates has provided you with the baseline but we encourage to adjust the assumptions to your personal situation.
Finally, in the table we provided you with the summary the cost benefits of buying vs. renting. The table includes home value, debt, equity, selling cost (6%) and net cash after number of years expecting to stay in your home vs. saving on renting at same time frame.
Cost of renting similar home
Cost of renting a similar home as you would purchase.
Yearly rent increase (decrease)
The amount that your rent is likely to increase/(decrease) each year.
Annual (after tax) return on cash
Rate of return on your cash if you don’t put down payment. Assume your tax rate is 30% and you think you can get 10% return on the stock market, then you should enter 7%.
This is your home purchase price.
Amount of money you will put down of the purchase price. Typically home buyers pay 20% down payment of the total value of the home, but there are mortgage loans which requires with little as 3% down payment.
Property tax (yearly)
A property tax rate that is a levy on the value of a property.
Homeowners insurance (yearly)
Typically known as hazards insurance, most lenders requires to protect your property from damages such as: fire, burglary, storm, earthquake, personal liability coverage (to protect the homeowner from lawsuits against injuries that occur on the property) and more.
Annual cost of maintaining the property including improvements.
Housing association dues (yearly)
Annual condominium or homeowners’ association fees.
Marginal income tax rate
Income tax rate depends on your income level and filing status.
Impacts costs such as utilities and renovations, which we assume increase at the rate of inflation.
This is a monetary loan that is repaid in regular payments over a set period of time. Loan term usually last between 15 and 30 years. Longer the loan term higher interest rate.
This is the interest rate for the loan you will receive.
Refer to Market Insight: Mortgage Rates to view current and historical interest rates.
Appreciation rate (depreciation)
The amount that your home value is likely to increase/(decrease) each year.
Note: Appreciation is volatile and unpredictable. Use your best assumptions for your local market.
Refer to Market Insight: Real Estate to view current and historical prices.
Expected years in home
Number of years you are expected to stay in the property.
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