rent versus own spreadshseet

The New York Times has a webpage that actually does a decent job with this issue. Not sure if you need to be a subscriber to access it.

Hopefully the cut and paste of the link works on SE

www.nytimes.com/2007/04/10/business/2007_BUYRENT_GRAPHIC.html?_r=4#

tku

if any others pls feel free to send also - tku all

Someone did one in Google docs a while ago. If I recall it got very elaborate.

BTW: If I recall correctly, the NYT one has some issues that people pointed out -- like if the market goes down then up. I think it gets the answer generally right, but there are some details wrong.

This is a model I saw posted on a earlier discussion
Financial assumptions:

1) Real property prices and rents increase at the rate of income, or 0.7% per year adjusted for inflation.

2) The S&P 500 increases at a real rate of 8.0% per annum.

These being true, it is ALWAYS better to rent property than to buy, if you invest the down payment in the S&P 500. Watch:

Say you make $100,000. This implies that you can spend up to $2,333.33 per month in total housing expenses (28%).

An 80/20, 30-year fixed $375,000 mortgage at 6% gives you monthly mortgage payments of $2,248.31.

Assume that taxes and common charges amount to a VERY CONSERVATIVE 10% of total mortgage payments, or $224.83 per month.

A $375,000 mortgage implies a purchase price of $468,750, and a down payment of $93,750.

If rented an apartment for the amount of the mortgage payment, you will have paid $903,455.33 in rent over 30 years if it increases 0.7% per year.

If you invest the down payment in the S&P 500 for 30 years, $943,374.08 at the end of 30 years, for a total net profit of
$39,918.75. To that, however, add your yearly maintenance and tax payments $2,697.96, increasing 0.7% per year and accruing 8.0% per year over 30 years, and you will have earned an additional $330,084.36, making your total profit $370,003.11.

Now do the same thing for your house. If your $468,750 home appreciates at a real annual rate of 0.7%, at the end of 30 years you will have a home worth $577,863.68, for a profit of $109,113.68. Add to that the original loan of $375,000 - the rest of the equity you will have built - and you get a gross profit of $484,113.68. But you would have paid $434,393.21 in interest, so your real profit is $49,720.47. In addition, you will have spent $90,343.15 in tax and maintenance, making your GRAND TOTAL PROFIT a whopping NEGATIVE $40,622.68.

You rent for the amount of your mortgage, all values go up linearly in line with historic data over time, and you will wind up with a total profit of $370,003.11. Whereas if you buy a home you will wind up with a loss of $40,622.68.

This of course excludes special assessments and all the transaction costs associated with owning real estate: brokers' fees, conveyance tax, etc. It also ignores the tax effect on dividends. But dividends and capital gains tax rates are currently the same (and can't be predicted in the future). The only further benefit from owning is the $250,000/$500,000 tax exemption. But it is doubtful that $410,625.79, which is the absolute value of the difference between the owner's loss and the renter's gain.

Renting is FAR better in the long-term than buying. All the figures and assumptions I used are real and verifiable. Do your own calculations: rent for the price of your mortgage payment, invest the down payment and maintenance and property taxes in the S&P 500 at the real rate of increase of 8.0%, increase your property value, rent, taxes and maintenance payments at the real rate of 0.7%, deduct the mortgage interest paid, and you will see IT IS ALWAYS MORE BENEFICIAL TO RENT.

gtsong - I generally agree with you but you can't say "always." If you buy at the bottom of a cycle and sell at the top (market timing) then owning can be much better. What if you buy a foreclosure or an estate sale? Or if you buy a "fixer upper" and your renovations (or reconfiguration) adds new value, then owning can make more sense then renting.

gtsong is there a way someone can get that analysis in a spreadsheet so I can play with the numbers?

or me . . . thanks

Here's my question -- how many people here, according to the NYTimes calculator, buy an apartment (in NYC) only at a price which buying is better than renting? Or how long (how many years) do they give it until it is 'better' to own than rent?

My decision to buy has nothing to do with rent vs. own. I'll buy when I find the place I want at a price I think is ok.

Trulia is not that great, but their rent vs buy calculator is pretty comprehensive.