Rent Vs Buy Comparson

To Rent or Buy. A question that never seems to have answers, and happens to be center of many debates when family and friends get together. And I have a had more than my share of that conversation.

A friend of mine, Subbu, started this spread sheet analyzing the Home Buying decision a while back and shared it with me. I had a few more questions and what ifs that I wanted to understand. So I decided to expand on this. I am sure a lot of you have questions on this topic. This is an attempt to settle this by the numbers.

Found and even better one from New York Times here use that

Well not really, but to provide a tool to debate with hard numbers, different assumptions and projections for the future.

Below, you will find that document published. I have protected most of the formulae so you wont be able to modify them. But the fields marked green in the first page are editable to allow you to test out different assumptions about the future.

The original interactive google spread sheet document can be found can be found here.

The one thing this document does not cover is the emotional aspects of owning your own home, the memories and the ups and downs that might come with it. Attempting that would be an exercise in futility.

The analysis, starts with the following assumptions

1. You have X amount of money for down payment, specified in Case 1, Down Payment Amount.
2. You have a monthly allocation of Y amount, specified in Case 1,  Maximum Allocation
3. Price home you want to buy
4. Rent you expect to pay for the house if you were to rent.

From here we look at different scenarios, change in price of the house, change in rent, change in interest rates, Expected appreciation for the house as well as the expected rate of return for money you might invest outside of the house.

You can always customize the different cases/scenarios from there, like 

1. delaying the buying decision for a few years if you think the house prices are too high
2. model an increase in interest rates X year from now, if you delay buying the house.
3. What if you decide to rent for the rest of your life.
4. Different rates of appreciation for the house
5. Different rates of return for your investment money.
6. Different inflation rates for rent and other expense.

The following is just a read only view of the document. If you want to try modifying the scenarios and the values, you want to use the above link to the original google sheets, make your own copy or download it to Excel and you can make modifications and try out different scenarios.

Use the Inputs tab below the graph to try out different scenarios.

Have fun trying it out. If you have any questions or corrections on the formulae I have used or  suggestions to improve, do let me know.

Copyright (c) Sarvi Shanmugham