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I used it to calculate if buying my house was a better deal than renting. Turns out over 30 years it was exactly the same.. down to the dollar.

by kenrikm 12y ago

IgorPartola 12y ago
Including the fact that you own the house after the 30 years?
- eevilspock 12y ago
  The calculator of course takes this into account. Both contributions to principle and the appreciated value of the home.
- vijucat 12y ago
  Not sure why you're getting downvoted for this, it's actually a quite relevant point, i.e., the the side-by-side comparison should include the consideration that you get to enjoy rent-free accommodation in the home for a certain number of years (or even generations!) once it's paid for. It gets more complicated when you have to factor in a positive probability for various outlier events such as the house getting bombed in a war, the entire city going Detroit, etc;
  - ryanjshaw 12y ago
    Even more complicated: - owning a house may make it harder for you to decide to move and accept a job/opportunity elsewhere, or to travel -- the impact of which is unquantifiable - for some people, by the time they'd finish paying off a house they'd already reasonably expect their parent's to have passed on and left wealth/property; for these people, particularly entrepreneurs, having free capital in the intervening period would turn out to be more rewarding so rental is a very sensible option - not everybody is born where they want to end up; I've moved between 3 cities and 2 countries in my 12 years as an adult (each time increasing my earnings, opportunities and life experience significantly, like climbing rungs on a ladder), and I'm hoping to move a 4th time so that I can finally have access to the top-rung opportunities other people born in major cities and 1st world countries take for granted -- the idea of owning houses in each of these cities and somehow managing to rent them out as some propose here is absurd to me, I barely have enough time to take care of my basic needs, nevermind run a multi-national property empire, and besides which there a Ultimately as nice as this calculator is, this is a very personal decision.
    - vijucat 12y ago
      > owning a house may make it harder for you to decide to move and accept a job/opportunity elsewhere, or to travel -- the impact of which is unquantifiable Why is it harder? Not sarcastic at all, by the way : it's just that I am in Hong Kong and it's actually quite common for expats here to buy a house, give it out for rent, and never come back to Hong Kong again! In fact, I know of some cases where people have bought flats without even looking at them! (In both cases, someone they know manages rent collection + maintenance, presumably for a small fees?). So I was wondering what is different about the US / wherever you are right now. Yes, it's a very personal decision, those were the exact words I was looking for! I suppose hardcore economists would say that the Utility Function is very personal.
      - mcdougle 12y ago
        If you decide to move, you have to do something with the house. I'm not sure about Hong Kong, but in the US, even once you own the house free-and-clear, a house is still a major expense -- insurance, property taxes, etc. You can sell it or rent it to cover those costs, but both of those options take time and effort. To sell it, you need to market it, negotiate with a buyer, etc. To rent it, you need to market it, pick a good tenant, collect rent, do maintenance and repairs, probably deal with legal matters like eviction, etc. I guess you could just give it away (but doesn't that still involve a bunch of title transfer fees?) or just stop paying taxes and let it get repossessed (but doesn't that destroy your credit?). If you rent, you can just pack up and leave -- the only limits are any terms stated in the lease. All of that said, I'm doing exactly what you mentioned -- I bought a house instead of renting, even though I don't plan to stay here very long (I'm actually thinking of moving again in a few months, once I've been here for a year). But I did it with the explicit intention of renting the house to make a profit once I move -- and I plan to do that with my next place, as well.
        IgorPartola 12y ago
        I currently pay $55/month for someone to worry about collecting rent, finding someone to rent, negotiating, checking credit, etc. for my rental property. It is not very profitable in terms of cash flow, but I am building equity into the house.
  - deleted 12y ago
    [deleted]
  - eevilspock 12y ago
    I think it's being downvoted because the calculator does take this scenario into account, but the commenter (and you) seem to have not looked at it very hard. It clearly recommends that you buy instead of rent in the commenter's (and your) scenario: How Long Do You Plan to Stay: Max this. Investment Rate of Return: Zero this. Because you seem to assume that the renter isn't investing the downpayment, principle payments and any other net savings and won't be able to trade the proceeds for 100% ownership in the home at the end of what would have been the mortgage period. Or set it to -10% (the max negative the calculator allows) if you assume the renter will squander rather than invest the money, with no commensurate happiness return. The result with be buying is better than renting unless you can rent that home at an impossibly low price.
- fennecfoxen 12y ago
  If you're disciplined enough to have actually invested what would otherwise be the down payment, and kept it invested, and reinvested the proceeds, you'd own one house's worth of money after the 30 years and could proceed to buy a house using cash. (Subject to the assumptions of returns and interest rates, etc etc.)
- deleted 12y ago
  [deleted]
ebbv 12y ago
Yeah it was the same for me and that made me raise an eyebrow. At the end of 30 years I will own my home. At the end of 30 years of renting I'd be in the exact same boat I'd be in day 1 renting. The calculator makes a major assumption that if you rent you take your down payment money and invest it. Obviously the investment will be worth a lot after 30 years of interest. But this assumption is based on the false premise that you are sitting there with your down payment ready and it's just a choice of where to put it. In reality, people don't usually save up a down payment until they've already decided to buy. So it's a false comparison. It's also assuming that homes like the one you would buy are available to rent, so "everything else" is equal. Which is also a false assumption. Basically this calculator is set up to make you feel good about paying a rent that's more than a mortgage payment would be. Choosing to rent or buy shouldn't just be a purely financial decision. The real question is are you ready for the responsibility of being a home owner? Do you look forward to the prospect of having a permanent home and investing in it? Or do you just want a place to live and have someone else be responsible for maintenance?
- dragonwriter 12y ago
  > In reality, people don't usually save up a down payment until they've already decided to buy. So it's a false comparison. Even given the first sentence is true, its not a false comparison, given the assumption the reason that people don't save up the money (or just invest it gradually, same thing) is that they have something more valuable than investing to do with the money (i.e., that the decision not to do so unless they are planning to buy a house is rational). If so, the investment value is the correct lower bound on useful use of the money to compare a home purchase to, because what they'd actually do is something else that has greater expected utility (even if that utility isn't in the form of a cash payout in the future.)
  - ebbv 12y ago
    You're choosing one part of my comment in isolation and arguing against it without context. My point was that there's more to the decision than the simple "Will I make more money by investing in stocks than in real estate?" equation that pro-renting people usually point to. Of course stocks are a better return on your investment than real estate from a pure investment perspective. There's more to choosing to buy than simply the pure financial motivation. If your motivation is purely financial then you shouldn't buy a house to live in but buy a house to rent out.

I used it to calculate if buying my house was a better deal than renting. Turns out over 30 years it was exactly the same.. down to the dollar.

by kenrikm 12y ago

I used it to calculate if buying my house was a better deal than renting. Turns out over 30 years it was exactly the same.. down to the dollar.

IgorPartola 12y ago

Including the fact that you own the house after the 30 years?

eevilspock 12y ago
The calculator of course takes this into account. Both contributions to principle and the appreciated value of the home.
vijucat 12y ago
Not sure why you're getting downvoted for this, it's actually a quite relevant point, i.e., the the side-by-side comparison should include the consideration that you get to enjoy rent-free accommodation in the home for a certain number of years (or even generations!) once it's paid for. It gets more complicated when you have to factor in a positive probability for various outlier events such as the house getting bombed in a war, the entire city going Detroit, etc;
- ryanjshaw 12y ago
  Even more complicated: - owning a house may make it harder for you to decide to move and accept a job/opportunity elsewhere, or to travel -- the impact of which is unquantifiable - for some people, by the time they'd finish paying off a house they'd already reasonably expect their parent's to have passed on and left wealth/property; for these people, particularly entrepreneurs, having free capital in the intervening period would turn out to be more rewarding so rental is a very sensible option - not everybody is born where they want to end up; I've moved between 3 cities and 2 countries in my 12 years as an adult (each time increasing my earnings, opportunities and life experience significantly, like climbing rungs on a ladder), and I'm hoping to move a 4th time so that I can finally have access to the top-rung opportunities other people born in major cities and 1st world countries take for granted -- the idea of owning houses in each of these cities and somehow managing to rent them out as some propose here is absurd to me, I barely have enough time to take care of my basic needs, nevermind run a multi-national property empire, and besides which there a Ultimately as nice as this calculator is, this is a very personal decision.
  - vijucat 12y ago
    > owning a house may make it harder for you to decide to move and accept a job/opportunity elsewhere, or to travel -- the impact of which is unquantifiable Why is it harder? Not sarcastic at all, by the way : it's just that I am in Hong Kong and it's actually quite common for expats here to buy a house, give it out for rent, and never come back to Hong Kong again! In fact, I know of some cases where people have bought flats without even looking at them! (In both cases, someone they know manages rent collection + maintenance, presumably for a small fees?). So I was wondering what is different about the US / wherever you are right now. Yes, it's a very personal decision, those were the exact words I was looking for! I suppose hardcore economists would say that the Utility Function is very personal.
    - mcdougle 12y ago
      If you decide to move, you have to do something with the house. I'm not sure about Hong Kong, but in the US, even once you own the house free-and-clear, a house is still a major expense -- insurance, property taxes, etc. You can sell it or rent it to cover those costs, but both of those options take time and effort. To sell it, you need to market it, negotiate with a buyer, etc. To rent it, you need to market it, pick a good tenant, collect rent, do maintenance and repairs, probably deal with legal matters like eviction, etc. I guess you could just give it away (but doesn't that still involve a bunch of title transfer fees?) or just stop paying taxes and let it get repossessed (but doesn't that destroy your credit?). If you rent, you can just pack up and leave -- the only limits are any terms stated in the lease. All of that said, I'm doing exactly what you mentioned -- I bought a house instead of renting, even though I don't plan to stay here very long (I'm actually thinking of moving again in a few months, once I've been here for a year). But I did it with the explicit intention of renting the house to make a profit once I move -- and I plan to do that with my next place, as well.
      - IgorPartola 12y ago
        I currently pay $55/month for someone to worry about collecting rent, finding someone to rent, negotiating, checking credit, etc. for my rental property. It is not very profitable in terms of cash flow, but I am building equity into the house.
- deleted 12y ago
  [deleted]
- eevilspock 12y ago
  I think it's being downvoted because the calculator does take this scenario into account, but the commenter (and you) seem to have not looked at it very hard. It clearly recommends that you buy instead of rent in the commenter's (and your) scenario: How Long Do You Plan to Stay: Max this. Investment Rate of Return: Zero this. Because you seem to assume that the renter isn't investing the downpayment, principle payments and any other net savings and won't be able to trade the proceeds for 100% ownership in the home at the end of what would have been the mortgage period. Or set it to -10% (the max negative the calculator allows) if you assume the renter will squander rather than invest the money, with no commensurate happiness return. The result with be buying is better than renting unless you can rent that home at an impossibly low price.
fennecfoxen 12y ago
If you're disciplined enough to have actually invested what would otherwise be the down payment, and kept it invested, and reinvested the proceeds, you'd own one house's worth of money after the 30 years and could proceed to buy a house using cash. (Subject to the assumptions of returns and interest rates, etc etc.)
deleted 12y ago
[deleted]

ebbv 12y ago

Yeah it was the same for me and that made me raise an eyebrow. At the end of 30 years I will own my home. At the end of 30 years of renting I'd be in the exact same boat I'd be in day 1 renting. The calculator makes a major assumption that if you rent you take your down payment money and invest it. Obviously the investment will be worth a lot after 30 years of interest. But this assumption is based on the false premise that you are sitting there with your down payment ready and it's just a choice of where to put it. In reality, people don't usually save up a down payment until they've already decided to buy. So it's a false comparison. It's also assuming that homes like the one you would buy are available to rent, so "everything else" is equal. Which is also a false assumption. Basically this calculator is set up to make you feel good about paying a rent that's more than a mortgage payment would be. Choosing to rent or buy shouldn't just be a purely financial decision. The real question is are you ready for the responsibility of being a home owner? Do you look forward to the prospect of having a permanent home and investing in it? Or do you just want a place to live and have someone else be responsible for maintenance?

dragonwriter 12y ago
> In reality, people don't usually save up a down payment until they've already decided to buy. So it's a false comparison. Even given the first sentence is true, its not a false comparison, given the assumption the reason that people don't save up the money (or just invest it gradually, same thing) is that they have something more valuable than investing to do with the money (i.e., that the decision not to do so unless they are planning to buy a house is rational). If so, the investment value is the correct lower bound on useful use of the money to compare a home purchase to, because what they'd actually do is something else that has greater expected utility (even if that utility isn't in the form of a cash payout in the future.)
- ebbv 12y ago
  You're choosing one part of my comment in isolation and arguing against it without context. My point was that there's more to the decision than the simple "Will I make more money by investing in stocks than in real estate?" equation that pro-renting people usually point to. Of course stocks are a better return on your investment than real estate from a pure investment perspective. There's more to choosing to buy than simply the pure financial motivation. If your motivation is purely financial then you shouldn't buy a house to live in but buy a house to rent out.