Rent versus Buy Calculator

 

 

If you want to jump right in to the Rent versus Buy Calculator to test your own assumptions, please download the excel file here

[Mar. 2023 update: version 3.2 of the spreadsheet has been uploaded. Many thanks to Alexander K. and Keith H., kind readers of the site who pointed out the correct way to calculate the tax shield on US mortgage interest payments. The spreadsheet now reflects a comparison between the standard tax deduction and the itemized tax deduction in your scenario.]

 

The Rent Versus Buy Debate

It is often said that “buying is always better than renting” or that “renting is flushing money down the drain”.

The argument is as follows: When you rent, your rent payments help your landlord pay their mortgage, while making you none the richer. However, when you buy a home, your monthly payments go towards your own mortgage, which increases your net worth.

Seems simple, right? Not so fast.

There are several factors which make this decision more complicated to assess:

This is not to say that renting is always better than buying. All I’m saying is that in some situations, renting will be better from a financial standpoint, and in other situations, buying will be better.

To help you make this important financial decision, I’ve built a “Rent versus Buy Calculator”. This is a tool that takes in assumptions for the renting and buying scenarios, and then spits out answers and outputs (including your net worth over time, the total annual cost of each scenario, sensitivity and breakeven analyses, and more).

First things first, please download the rent versus buy calculator here (actually download the excel file as opposed to ‘opening in Google Sheets’).

 

How to Use the Rent Versus Buy Calculator

If you are not an expert at excel, don’t worry! I’ve tried to layout the spreadsheet so that you only need to look at one ‘tab’, and that once you enter a few of your own assumptions, the rest will automatically update for you.

Rent versus buy calculator assumptions.

Click this button to re-calculate the rent vs buy calculator

Use this button to select the chart you want to view

Use this button to generate a PDF report to save your analysis

 

What Answers Will This Rent Versus Buy Calculator Give?

The rent versus buy calculator generates several charts / outputs based on your assumptions.

These outputs will help you to understand whether renting or buying is better over a specific time period, the total costs for you to either rent or buy your home, and how the answers change based on different assumptions.

 

Chart #1: Liquid Net Worth Over Time

Shows how your net worth changes over time in both the renting and buying scenario.

In this example, renting is better than buying at the start, however, buying becomes better after approximately 7.3 years.

This chart shows your net worth over time for the renting and buying scenarios

To be honest, it’s not necessary to look at any of the other charts.

From this chart you can see whether it is better to rent or buy after a given number of years.

The following charts will give you more detail on both the renting and buying options, and walk you through some “what if?” scenarios.

 

Chart #2: Annual Housing Expense

Shows the total costs of either renting or buying your home, in a given year.

The costs are further broken down in the following charts 3 and 4.

This chart shows your annual housing expenses in the renting and buying scenarios

 

Chart #3: Annual Housing Expense (Renting)

Shows the costs to rent your home in a given year.

This is broken down by rent payment, utilities, insurance, and other expenses.

A breakdown of your expenses in the renting scenario

 

Chart #4: Annual Housing Expense (Buying)

Shows the costs of owning your home in a given year.

This is broken down by mortgage payments (principal and interest), mortgage loan insurance, property tax, maintenance, utilities, insurance, condo fees, and other expenses.

A breakdown of your expenses in the buying scenario

 

Chart #5: Sensitivity to Key Assumptions

Shows how the difference in net worth between the renting and buying scenario changes based on different assumptions.

In the current example, net worth in the renting scenario is higher by $4,222 relative to the buying scenario in year 5.

If you are able to buy your home for $225,000 instead of the current assumption of $250,000, the buying scenario would be better than the renting scenario by $1,253 in year 5.

A sensitivity analysis for the difference in net worth for the two scenarios

 

Chart #6: Breakeven Points

Calculates breakeven points between the renting and buying scenarios by changing one assumption at a time.

In the current example, the scenarios breakeven in 7.3 years. If you’d like to breakeven in 5 years instead, the following would have to change:

Breakeven points between renting and buying, based on changing the home purchase price, monthly rent, investment return, home value appreciation, and interest rates

 

Chart #7: In-Year Increase in Liquid Net Worth

Shows how your net worth increases in each year, in percentage terms.

Note that the year 1 return for the buying scenario tends to be negative given that the one-time costs of buying / selling a home are typically larger than the increase in housing prices plus the mortgage principal paid down over 1 year.

If you sell your home further down the road, the one-time transaction costs are spread over a longer time period.

In-year percentage return for renting versus buying

 

Chart #8: Cumulative Annual Increase in Liquid Net Worth

Shows the average annual increase in your net worth over a given time period (i.e., a Compounded Annual Growth Rate, or CAGR).

In the current example, the renting scenario has an average annual increase in net worth of 9.6% over the first 5 years, while the buying scenario will only have an average annual increase of 8.9%.

The overall increase in your net worth for the renting and buying scenarios

 

Chart #9: Buy Scenario – Liquid Net Worth Breakdown

Shows the breakdown of your net worth in the buying scenario into two parts: (i) home equity, and (ii) stocks / bonds.

The buying scenario is assumed to accumulate a portfolio of stocks / bonds once the annual costs for buying are lower than the costs to rent.

Try playing around with the model assumptions to make the cost of buying lower (smaller home purchase price, lower mortgage rate, etc.) or the cost of renting higher (higher rent payment, etc.), and you’ll see that the buying scenario begins to accumulate a portfolio of stocks / bonds.

Breakdown of your net worth between stocks / bonds and home equity

 

Chart #10: Buy Scenario – Mortgage Principal Balance

Shows how much you owe on your mortgage at the end of any given year.

Your mortgage principal balance over time

 

What’s Next?

Once you’ve acquainted yourself with how the rent versus buy calculator works, and what answers it can give, you can trying playing around with different scenarios and assumptions to see whether renting or buying is a better financial decision for you.

A few things to keep in mind:

And that’s a wrap!

Thank you for taking the time to check out my rent versus buy calculator. I hope that this comes in handy for when you make the decision to either rent or buy your home.

Please let me know if you have any feedback on how to improve this rent versus buy calculator (either through the comments below or by email at themeasureofaplan@gmail.com). My goal is to make updates to this model as time goes on to make sure that it is as easy to use and is as accurate as possible.

 

Header image photo credit: Gary Smith

       

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Comment Section

29 Responses to “Rent versus Buy Calculator”

  1. Carla Hemsing says:

    Wow. Nice calculator. Will it remain online, or is there a way to download it?

    • Hi Carla,

      Thank you! This will definitely remain online.

      However, you can use the download links in the post to download your own copy of the calculator in excel. If you save it on your own computer you’ll be able to keep it as long as you’d like. This way, you’ll be able to save the scenarios that you’ve looked at.

  2. […] News leads the numbers through the online "rent versus purchase calculator" provided by The measure of a plan a Canadian financial planning site. If you assume that house […]

  3. […] News run the numbers through the online “rent vs. buy calculator” provided by The Measure of a Plan, a Canadian financial planning site. If you assume that home […]

  4. […] News run the numbers through the online “rent vs. buy calculator” provided by The Measure of a Plan, a Canadian financial planning site. If you assume that home […]

  5. GAYETH AL-SALIHI says:

    Hi,

    The tool looks great! But, I can find the “Recalculate model” there. Could you please let me know where to find that?

    Thanks,
    Regards,
    Gayeth

  6. hieu nguyen says:

    Great works and ton of useful information!
    Thank you!

  7. epub compartidos says:

    Thank you for the tool!!! It looks great!

    If I decided that I should buy a house; Is there any similar to calculate if it is better to pay a 20% down-payment instead of a 5%?

    Could be a difference between both scenarios? the mortgage rate? the insurance cost? the chance to invest the money saved in a smaller down-payment?

    • Hey epub,

      Thanks for the comment. You can actually perform that analysis in this tool. Set your assumption at 5% down payment instead of 20%, and the tool will automatically calculate the opportunity cost of the money and the change in mortgage payments.

      If you will have to pay mortgage insurance in the 5% scenario, there are assumption fields to enter in that cost (e.g., perhaps if you take mortgage insurance, you’ll need to add a lump sum cost of $5,000 to your mortgage). In Canada, the mortgage insurance is called CMHC. In the US, there is PMI and a couple of other insurance programs.

      Good luck!

  8. Div Interest says:

    Another great calculator. One thing I would add is transportation. I live in a large city and one of the major differences is rent allows me to use public transit or walk to work (summer) instead of having to pay for a car or 2 if we were to move to the suburbs for a house.

    • Thanks Div Interest.

      As it stands, you can model in these types of impacts in the assumption field for “other monthly payments” in either the rent scenario or the buy scenario. This can be used as a catch-all for anything that hasn’t already been considered.

      For example, in the buying scenario you could add a monthly payment of $150 per month in extra transportation costs. This would make the renting scenario look better in comparison.

  9. Marshall says:

    Hello – this spreadsheet is exactly what i was going to attempt to build. Emphasis on attempt! Love it and thanks for putting in the time. However – i can’t change any data in the highlighted input cells. Editing is enabled as are macros. I can’t even get to “options” it is the whole sheet is locked somehow. Any advice?

    • Hi Marshall,

      Thanks for the comment, and sorry to hear that you’re having an issue.

      I just tested it out by following the google drive link, downloading the spreadsheet, and opening in excel. It works OK for me. After clicking “enable editing” and “enable macros” at the top, I can edit all cells.

      Which version of excel are you using? Are you on a PC or Mac?

      Can you try one more time? If it doesn’t work, please send me an email at themeasureofaplan@gmail.com and perhaps I can try to send you the file directly.

  10. Ayo says:

    This is a very great tool! Thanks so much! it really answers a whole lot of questions I had and I have a clearer picture.
    P.S. Excel wise, your tool just educated me more. 🙂

  11. Paul says:

    Hi – Would the tax calculations change due to new 2019 tax laws?

  12. Paul says:

    My result is after 4.1 years, buying becomes the better option. However, my confusion is that cell G68 (Dashboard Tab) is still a positive number, indicating my net worth when renting is still higher at the end of year 4. I know it says “end of year” in row 60, but are they in fact the end or the beginning of the year? If I break even early in year 4, cell G68 should show a negative number (higher net worth in buying scenario)?

  13. Amy says:

    Love this and all the wonderful posts and resources on your site.

    Wondering if you could make a Commercial real estate calculator for leasing VS buying? Much appreciated.

    • Hi Amy, thanks for the kind words!

      I typically try to create tools that can be useful for a wide audience, so unfortunately I don’t think I’ll undertake the project of building a commercial real estate calculator.

      Perhaps you could try to re-work / re-label this existing spreadsheet to fit your needs?

  14. Michi says:

    This spreadsheet is exactly what I needed. Thanks so much for putting it together.

  15. Emily says:

    Hey, Thanks for the amazing calculator and really all of the work you have done putting this whole website together! Just a couple of questions.

    1. I’m not really sure where to find an accurate number for the annual home value appreciation (nominal) for where I live (Victoria, BC). Or even how to calculate this if I can pull together something like the average annual price of a comparable dwelling. Let me know your thoughts 🙂

    2. Is the model sensitive to situations where either through gifts or incentive programs you are able to access additional money to put towards a downpayment that you would not have access to through normal saving and investing.

    Cheers!

  16. Tim Joseph says:

    Thanks for the great Rent vs Buy spreadsheet. It is very helpful and insightful.

    Have you considered also creating a Buy vs Buy spreadsheet? I think it could be very helpful to enable an individual to compare the value of buying one home versus another home. It could also just as easily compare the value of one high financing home purchase approach versus another lower financing + investing approach for the same home purchase.

  17. […] in the future, you can think through major financial plans or decisions — whether that’s renting versus buying your home, forecasting your retirement age, or just getting a general grip on where your net worth trajectory […]

  18. Richard says:

    Thank you very much for putting this together!! How would things change in the case where one takes out money from stock savings to buy a property as all cash and then invests every month the amount that would have been the rent payment back into stocks? Could one use the workbook for that case?

  19. […] Rent versus buy calculator — a spreadsheet to crunch the numbers on whether renting or buying is the better financial decision […]

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