6 ms·

My wife wants to buy a house, but I'm unable to make life decisions without trying to minmax them. I wasn't satisfied with existing rent vs. buy calculators, so

My wife wants to buy a house, but I'm unable to make life decisions without trying to minmax them. I wasn't satisfied with existing rent vs. buy calculators, so I decided to build my own! I'm not a developer, so I apologize if it's a little rough looking... Some things it takes into account: - The actual rate of return on your down payment and extra costs of a house - Inflation - Itemized deductions on your taxes - The impact of state taxes - Mortgage interest deduction limit and SALT tax deduction limit Let me know what you think or what improvements you would like to see!

reggiepret 5y ago
this is great!! The final cashflow amount of the house graph (in the example) ends in the negative, s this accurate?
- alach11 5y ago
  It is accurate! While the house cashflow is negative in the example, it's at least less negative than the apartment cash flow. Maybe the moral of the story is living with your parents for free is better than either option!
  - jolmg 5y ago
    If this calculator is rent vs buy, why does the graph compare house vs apartment? For both houses and apartments, they can be bought or rented. Are you someplace where one type of home can only be bought and the other can only be rented?
    - alach11 5y ago
      Nah this is just bad terminology on the site. I’ll fix it. In my personal situation I’m deciding between continuing to rent my apartment vs. buying a house.
  - mikepurvis 5y ago
    Depending on your circumstances, it may not be possible to seriously consider it, but another alternative to rent-vs-buy might include various van/camper/coach options, which can be parked for months at a time at "seasonal" campsites, often for $500-1000/month. Obviously equipment like this isn't going to appreciate either, and you'll be subject to all the same maintenance costs of owning, so in some ways it's the worst of both worlds— but it may still be cheaper than trying to rent if you can't or won't enter the market right now and mooching from family isn't an option.
Finnucane 5y ago
Probably want to allow for the possibility of rent rises over time. One thing that I think this actually shows pretty well is the notion that part of the answer depends on how long you intend to stay in a place. If you expect to move in two or three years, it's probably not worth the hassle/expense of buying. If you intend to stay 5+ years in one place, it makes more sense to buy.
- kylestlb 5y ago
  This all depends on geography though. Buying in the bay area and only staying for 2.01 years could get you a pretty hefty ROR assuming you don't remodel anything, considering the supply constraints. Maybe covid & remote work will change that.
  - Finnucane 5y ago
    Maybe. Flipping is a risky business. Returns are not guaranteed. If you're just looking for a place to live, you should really evaluate it on that basis.
    - plank_time 5y ago
      I know something who went bankrupt and got a divorce after flipping condos in chicsgo just before the housing bust. It works until it doesn’t and it’s usually catastrophic.
- HideousKojima 5y ago
  >Probably want to allow for the possibility of rent rises over time. Most definitely, my apartment before buying a home was ~$100/month less than my current mortgage, now (3 years later) the rent for the exact same apartment is ~$300/month more than my mortgage.
- pessimizer 5y ago
  > Probably want to allow for the possibility of rent rises over time. Isn't that counting inflation twice?
madcaptenor 5y ago
This is nice. I definitely played around with some calculators like this when I was deciding to buy a house a few years ago. Off the top of my head, some things I'd add to make this more useful to a wide audience: - I don't know what I pay in state income and sales taxes. But I do know my income and my state's tax rate; income tax could be derived from that. I'm not sure how you'd estimate sales tax, though - you'd have to know how much of my spending is taxable. - I've heard a rule of thumb that home maintenance costs are 1% of the home's value per year; maybe default to that, especially since a first-time home owner doesn't really know what those costs are. However, older houses will require more maintenance and that cost probably scales with square footage, not cost. - you're assuming a 30-year mortgage - I'd put in the ability to change mortgage length. (Also, maybe a link to somewhere where I can find out what mortgage rates are.)
- hirsin 5y ago
  Maintenance cost likely scales with both size and cost. Size, for obvious reasons, and cost because the labor/materials cost of a repair is likely correlated with housing prices in the area. You then have to account for the portion of cost that's already correlated with size... +1 to mortgage length. We heavily pivoted our decision to buy on getting a 7 year ARM because my friend and I knew we wouldn't grow old together there (wanting to do things like get married and have our own families). A time bomb on the mortgage was a feature, for us, and a cost savings.
  - rory 5y ago
    In my experience as a small-time landlord, maintenance does scale somewhat with cost, but not linearly. A lot of big costs on the materials side (like say, a furnace) are more or less fixed. At least, repairs don't cost 4x as much in a 800k house as they do in a 200k house of the same size.
- BeetleB 5y ago
  > I've heard a rule of thumb that home maintenance costs are 1% of the home's value per year It's a very poor rule of thumb. Contrary to the other comment, these costs don't increase linearly with value of the house. Sure, if I live in an expensive area, it may go up 30%, but not much more. Looking at how much my house has appreciated, I can assure you I pay not much more in maintenance than when I bought it. The 1% rule came about when the median house price was under $200K.
shadowlight 5y ago
Automated state tax generation. Historical house appreciation by state or even better, city. Option to account for income from money in sp500.
phkahler 5y ago
>> My wife wants to buy a house... A pilot once shared with me the rule of the three F's. If it floats, flies, or fornicates, it's cheaper to rent than to own. You may substitute a 4 letter word for that last one. Anyway, you got a wife already so thats one. House don't start with F, so buy.
- camjohnson26 5y ago
  Seems like an oversimplification, usually it depends on other factors like how long you plan to live there.
fennecfoxen 5y ago
This is missing a rate of return on the money you would otherwise use for the down payment, information on whether that return would be taxable or is sheltered in a Roth or similar tax shelter, current and anticipated tax brackets if one sees that income taxed (at both time of sale and possibly retirement), current and anticipated capital gains rates that might apply to the gains from the home sale in the future (if you're over the threshhold)...
- pessimizer 5y ago
  > rate of return the money you would otherwise use for the down payment Really the most important number, but all of these suggestions are crucial to the calculation. Money that doesn't get invested in a house gets invested in other things. Pretend it's in an index fund.
  - deleted 5y ago
    [deleted]
  - motioncuty 5y ago
    But when you take out a morgage you can leverage 800k of the banks money at negative real interrst rates, effectively paying you tens of thousands over the course of the loan and any appreciation of that asset gets multiplied by 5x on your initial down payment.
    - rashkov 5y ago
      Negative because the loan interest rate is below inflation?
      - motioncuty 5y ago
        Yup, mortgages are around 3% and the fed rate is near 0 for the next year or 2. If inflation averages over 3% per year, you are getting paid the difference to borrow.
anotherman554 5y ago
The best/ most powerful rent vs buy calculator I am aware of is the one offered here: https://michaelbluejay.com/house/rentvsbuy.html https://michaelbluejay.com/house/rentvsbuy.html browsing it might give you some ideas of features you can add to your calculator. It's also a small thing but having the choice to select the downpayment based on percentage down might be nice. I don't know why your calculator tells me getting a house is not worth even if it thinks the transaction is profitable. It states my cumulative profit is $29,030 but I shouldn't get a house.
- irrational 5y ago
  I wonder if it is purposefully biased towards renting so he can use it to convince his wife to rent when he says that she wants to buy.
- alach11 5y ago
  The determination of whether to buy the house is based on the calculated rate of return. So even if you make a profit, if the time horizon is large you’d be better off investing that money in stocks. The UI doesn’t make that clear enough.
  - barrkel 5y ago
    Houses are both leveraged investments (in a non-productive depreciating asset, I know, I know) and a forced savings mechanism. Investment in stocks by average people is not leveraged, and nor is there a forcing function that makes you put money into the stocks every month or you end up homeless. These two functions have some value - especially the latter.
  - majormajor 5y ago
    > The determination of whether to buy the house is based on the calculated rate of return. So even if you make a profit, if the time horizon is large you’d be better off investing that money in stocks. Can you give a more detailed example? What time horizon are you picturing? After you pay off the house you lose the leverage advantage of returns on selling a house you bought with a mortgage vs selling stocks, but you also stop having to pay the mortgage at all while you'd still be renting, likely at a far higher market rate, so looking at the post-mortgage-payoff curves, it's hard for me to see where the invested down payment + (mortgage + tax + upkeep - minus - rent) returns would be expected to be high enough to make up for that. (The more rational counterargument, though, would likely be around diversification? Better to have land + stocks then just one...)
simonw 5y ago
I'd love it to provide some mechanism for guestimating my taxes (maybe based on the state or city I live in) - I was too lazy to dig out a tax return to fill out those fields, which meant I couldn't easily use the calculator.
- ghaff 5y ago
  Especially outside of major cities, there are about a gazillion towns that have different tax rates that go to paying the local schools, emergency services, and town administration. Maybe there are APIs for that sort of information but I don't know.
  - simonw 5y ago
    That's why I want a guesstimate - give me a rough idea of how the tool works and that will convince me to dig out a tax return and fill in the fields for the most accurate estimate possible.
plank_time 5y ago
Some decisions aren’t mathematical. Sometimes it’s better to make a decision based on whether or not it makes sense for the family as opposed to dollars and sense. If your wife wants to buy a place, I suggest finding a compromise to figure out how to make both parties happy.
- seoaeu 5y ago
  At the same time, you should be highly skeptical of anyone encouraging you to make what might be the single largest purchase of your life without carefully working through the financials. Maybe your preferred option will cost you an extra $50,000 over the next decade and you decided to go with it anyway. That's totally fine as long as it is a conscious choice. If the difference is $500,000 then perhaps you should consider how strongly you actually care about renting vs. buying...
codegeek 5y ago
Nice project but if you are serious about buying a home, don't just look at numbers. Figure out what you and your wife want for yourself in next 2-5-7 years. If you see you guys staying in 1 place and build a family further, buying a home may not be a bad idea considering your finances are in shape (good credit, have 20% downpayment etc etc). I would say rule of thumb is 7 years in 1 place. If you are going to live in same place for 7+ years, buy with 20% down and total cost not >25-30% of monthly pay.
someelephant 5y ago
Life opportunity cost. When you buy a house you are making a big commitment. It will guide the path of your life. These days with remote work that's less and more of an issue. What if you would be happier living in the south of France?
ransom1538 5y ago
The home only expenses (down payment, home owners, etc) when you chose rent should be converted to a standard rate of return of VOO (index of SP 500) for the 15 years. THIS would be the greatest calculator ever built ever.
sjg007 5y ago
If your wife wants to buy a house… buy the house.
deleted 5y ago
[deleted]

reggiepret 5y ago

this is great!! The final cashflow amount of the house graph (in the example) ends in the negative, s this accurate?

alach11 5y ago
It is accurate! While the house cashflow is negative in the example, it's at least less negative than the apartment cash flow. Maybe the moral of the story is living with your parents for free is better than either option!
- jolmg 5y ago
  If this calculator is rent vs buy, why does the graph compare house vs apartment? For both houses and apartments, they can be bought or rented. Are you someplace where one type of home can only be bought and the other can only be rented?
  - alach11 5y ago
    Nah this is just bad terminology on the site. I’ll fix it. In my personal situation I’m deciding between continuing to rent my apartment vs. buying a house.
- mikepurvis 5y ago
  Depending on your circumstances, it may not be possible to seriously consider it, but another alternative to rent-vs-buy might include various van/camper/coach options, which can be parked for months at a time at "seasonal" campsites, often for $500-1000/month. Obviously equipment like this isn't going to appreciate either, and you'll be subject to all the same maintenance costs of owning, so in some ways it's the worst of both worlds— but it may still be cheaper than trying to rent if you can't or won't enter the market right now and mooching from family isn't an option.

Finnucane 5y ago

Probably want to allow for the possibility of rent rises over time. One thing that I think this actually shows pretty well is the notion that part of the answer depends on how long you intend to stay in a place. If you expect to move in two or three years, it's probably not worth the hassle/expense of buying. If you intend to stay 5+ years in one place, it makes more sense to buy.

kylestlb 5y ago
This all depends on geography though. Buying in the bay area and only staying for 2.01 years could get you a pretty hefty ROR assuming you don't remodel anything, considering the supply constraints. Maybe covid & remote work will change that.
- Finnucane 5y ago
  Maybe. Flipping is a risky business. Returns are not guaranteed. If you're just looking for a place to live, you should really evaluate it on that basis.
  - plank_time 5y ago
    I know something who went bankrupt and got a divorce after flipping condos in chicsgo just before the housing bust. It works until it doesn’t and it’s usually catastrophic.
HideousKojima 5y ago
>Probably want to allow for the possibility of rent rises over time. Most definitely, my apartment before buying a home was ~$100/month less than my current mortgage, now (3 years later) the rent for the exact same apartment is ~$300/month more than my mortgage.
pessimizer 5y ago
> Probably want to allow for the possibility of rent rises over time. Isn't that counting inflation twice?

madcaptenor 5y ago

This is nice. I definitely played around with some calculators like this when I was deciding to buy a house a few years ago. Off the top of my head, some things I'd add to make this more useful to a wide audience: - I don't know what I pay in state income and sales taxes. But I do know my income and my state's tax rate; income tax could be derived from that. I'm not sure how you'd estimate sales tax, though - you'd have to know how much of my spending is taxable. - I've heard a rule of thumb that home maintenance costs are 1% of the home's value per year; maybe default to that, especially since a first-time home owner doesn't really know what those costs are. However, older houses will require more maintenance and that cost probably scales with square footage, not cost. - you're assuming a 30-year mortgage - I'd put in the ability to change mortgage length. (Also, maybe a link to somewhere where I can find out what mortgage rates are.)

hirsin 5y ago
Maintenance cost likely scales with both size and cost. Size, for obvious reasons, and cost because the labor/materials cost of a repair is likely correlated with housing prices in the area. You then have to account for the portion of cost that's already correlated with size... +1 to mortgage length. We heavily pivoted our decision to buy on getting a 7 year ARM because my friend and I knew we wouldn't grow old together there (wanting to do things like get married and have our own families). A time bomb on the mortgage was a feature, for us, and a cost savings.
- rory 5y ago
  In my experience as a small-time landlord, maintenance does scale somewhat with cost, but not linearly. A lot of big costs on the materials side (like say, a furnace) are more or less fixed. At least, repairs don't cost 4x as much in a 800k house as they do in a 200k house of the same size.
BeetleB 5y ago
> I've heard a rule of thumb that home maintenance costs are 1% of the home's value per year It's a very poor rule of thumb. Contrary to the other comment, these costs don't increase linearly with value of the house. Sure, if I live in an expensive area, it may go up 30%, but not much more. Looking at how much my house has appreciated, I can assure you I pay not much more in maintenance than when I bought it. The 1% rule came about when the median house price was under $200K.

shadowlight 5y ago

Automated state tax generation. Historical house appreciation by state or even better, city. Option to account for income from money in sp500.

phkahler 5y ago

>> My wife wants to buy a house... A pilot once shared with me the rule of the three F's. If it floats, flies, or fornicates, it's cheaper to rent than to own. You may substitute a 4 letter word for that last one. Anyway, you got a wife already so thats one. House don't start with F, so buy.

camjohnson26 5y ago
Seems like an oversimplification, usually it depends on other factors like how long you plan to live there.

fennecfoxen 5y ago

This is missing a rate of return on the money you would otherwise use for the down payment, information on whether that return would be taxable or is sheltered in a Roth or similar tax shelter, current and anticipated tax brackets if one sees that income taxed (at both time of sale and possibly retirement), current and anticipated capital gains rates that might apply to the gains from the home sale in the future (if you're over the threshhold)...

pessimizer 5y ago
> rate of return the money you would otherwise use for the down payment Really the most important number, but all of these suggestions are crucial to the calculation. Money that doesn't get invested in a house gets invested in other things. Pretend it's in an index fund.
- deleted 5y ago
  [deleted]
- motioncuty 5y ago
  But when you take out a morgage you can leverage 800k of the banks money at negative real interrst rates, effectively paying you tens of thousands over the course of the loan and any appreciation of that asset gets multiplied by 5x on your initial down payment.
  - rashkov 5y ago
    Negative because the loan interest rate is below inflation?
    - motioncuty 5y ago
      Yup, mortgages are around 3% and the fed rate is near 0 for the next year or 2. If inflation averages over 3% per year, you are getting paid the difference to borrow.

anotherman554 5y ago

The best/ most powerful rent vs buy calculator I am aware of is the one offered here: https://michaelbluejay.com/house/rentvsbuy.html https://michaelbluejay.com/house/rentvsbuy.html browsing it might give you some ideas of features you can add to your calculator. It's also a small thing but having the choice to select the downpayment based on percentage down might be nice. I don't know why your calculator tells me getting a house is not worth even if it thinks the transaction is profitable. It states my cumulative profit is $29,030 but I shouldn't get a house.

irrational 5y ago
I wonder if it is purposefully biased towards renting so he can use it to convince his wife to rent when he says that she wants to buy.
alach11 5y ago
The determination of whether to buy the house is based on the calculated rate of return. So even if you make a profit, if the time horizon is large you’d be better off investing that money in stocks. The UI doesn’t make that clear enough.
- barrkel 5y ago
  Houses are both leveraged investments (in a non-productive depreciating asset, I know, I know) and a forced savings mechanism. Investment in stocks by average people is not leveraged, and nor is there a forcing function that makes you put money into the stocks every month or you end up homeless. These two functions have some value - especially the latter.
- majormajor 5y ago
  > The determination of whether to buy the house is based on the calculated rate of return. So even if you make a profit, if the time horizon is large you’d be better off investing that money in stocks. Can you give a more detailed example? What time horizon are you picturing? After you pay off the house you lose the leverage advantage of returns on selling a house you bought with a mortgage vs selling stocks, but you also stop having to pay the mortgage at all while you'd still be renting, likely at a far higher market rate, so looking at the post-mortgage-payoff curves, it's hard for me to see where the invested down payment + (mortgage + tax + upkeep - minus - rent) returns would be expected to be high enough to make up for that. (The more rational counterargument, though, would likely be around diversification? Better to have land + stocks then just one...)

simonw 5y ago

I'd love it to provide some mechanism for guestimating my taxes (maybe based on the state or city I live in) - I was too lazy to dig out a tax return to fill out those fields, which meant I couldn't easily use the calculator.

ghaff 5y ago
Especially outside of major cities, there are about a gazillion towns that have different tax rates that go to paying the local schools, emergency services, and town administration. Maybe there are APIs for that sort of information but I don't know.
- simonw 5y ago
  That's why I want a guesstimate - give me a rough idea of how the tool works and that will convince me to dig out a tax return and fill in the fields for the most accurate estimate possible.

plank_time 5y ago

Some decisions aren’t mathematical. Sometimes it’s better to make a decision based on whether or not it makes sense for the family as opposed to dollars and sense. If your wife wants to buy a place, I suggest finding a compromise to figure out how to make both parties happy.

seoaeu 5y ago
At the same time, you should be highly skeptical of anyone encouraging you to make what might be the single largest purchase of your life without carefully working through the financials. Maybe your preferred option will cost you an extra $50,000 over the next decade and you decided to go with it anyway. That's totally fine as long as it is a conscious choice. If the difference is $500,000 then perhaps you should consider how strongly you actually care about renting vs. buying...

codegeek 5y ago

Nice project but if you are serious about buying a home, don't just look at numbers. Figure out what you and your wife want for yourself in next 2-5-7 years. If you see you guys staying in 1 place and build a family further, buying a home may not be a bad idea considering your finances are in shape (good credit, have 20% downpayment etc etc). I would say rule of thumb is 7 years in 1 place. If you are going to live in same place for 7+ years, buy with 20% down and total cost not >25-30% of monthly pay.

someelephant 5y ago

Life opportunity cost. When you buy a house you are making a big commitment. It will guide the path of your life. These days with remote work that's less and more of an issue. What if you would be happier living in the south of France?

ransom1538 5y ago

The home only expenses (down payment, home owners, etc) when you chose rent should be converted to a standard rate of return of VOO (index of SP 500) for the 15 years. THIS would be the greatest calculator ever built ever.

sjg007 5y ago

If your wife wants to buy a house… buy the house.

deleted 5y ago

[deleted]