Buying a Property - Cost Benefit Analysis
The decision to rent or buy is an age-old debate that is far from simple.
Many considers renting “throwing money away” while buying is an investment. Owning your home gives you a sizeable asset, but it does come at a massive cost, both upfront and over the long run.
Renting offers some financial freedom and more flexibility. Your landlord is responsible for home maintenance & repairs, insurance, property taxes and all other costs.
Considering whether to rent or buy a house? Use the tool below; it's designed to simplify the initial calculations and assist you in making a more informed decision.
NOTES:
* Denotes a recommended value
Numbers in brackets are negative
Property – Price & Rent
Are you going to spend more to renovate or remodel your property?
It is widely accepted that the value of money today is greater than its value in the future. This means that money received at a later time is not as valuable as the same amount received today. This concept is not related to inflation, hence even if inflation is zero, we would still prefer to receive money today than the same amount of money after some time. This is primarily because we can put the money to use today in various ways such as learning a new skill, purchasing a laptop for work, or investing the money to watch it grow.
This tool helps in calculating the present value of future cash flows. The discount rate determines the value of future benefits; a higher discount rate implies that the value of benefits decreases with time. Simply speaking, you may use the interest rate offered by commercial banks on deposits as the discount rate. If you don't want to discount future cash flows, you can set the discount rate to zero.
Loan Information
It is assumed that the loan covers only the property value. Thus, the loan does not cover the upgrade cost
Closing Costs (USD)
Yearly Operating Expenses (USD)
This is a recurring fee property owners pay for managing and upkeep of buildings or communities.
Input
| Property – Price & Rent | |
|---|---|
| Currency | |
| Study period (years) | |
| Property price (USD) | |
| Property upgrade(USD) Are you going to spend more to renovate or remodel your property? |
|
| Average annual house value growth rate | |
| First year rent | |
| Average annual growth rate of rent | |
| Discount rate |
| Loan Information | |
|---|---|
| Loan period in years | |
| Loan period in months | |
| Interest rate | |
| Percentage of down payment It is assumed that the loan covers only the property value. Thus, the loan does not cover the upgrade cost |
| Closing Costs | USD |
|---|---|
| Property transfer tax | |
| Agent commission | |
| Inspection and appraisal fees | |
| Mortgage fees | |
| Attorney fees | |
| Other expenses, please specify |
| Yearly Operating Expenses | USD |
|---|---|
| First year service cost This is a recurring fee property owners pay for managing and upkeep of buildings or communities. |
|
| Expected annual increase in service cost | |
| First year repair & maintenance costs | |
| Expected annual increase in repairs | |
| First year property tax | |
| Expected annual increase in property tax | |
| First year insurance cost | |
| Expected annual increase in insurance cost | |
| Other yearly expenses | |
| Expected annual increase in other expenses |
Output
| Mortgage Calculations | USD |
|---|---|
| Loan | |
| Debt monthly payment | |
| Yearly debt cost (annuity) |
| Running Costs | |
|---|---|
| Service cost | |
| Repairs & renovations | |
| Property tax | |
| Insurance cost | |
| Other expenses |
| Payment Breakdown (nominal) | |
|---|---|
| Invested money | |
| Closing costs | |
| Loan payment | |
| Interest | |
| Running costs | |
| Total cost of ownership (nominal) | |
| Total amount of saved rents (nominal) | |
| Net savings > (Total saved rents minus total cost of ownership). | |
| Will you sell the property? | |
| Estimated property value (nominal) | |
| Net cash flow | |
| Should I Just Save My Money? | |
|---|---|
| Invested money | |
| Saving account after 0 years Assuming the interest rate is equivalent to the discount rate |
| Payment Breakdown (discounted) | USD |
|---|---|
| Total cost of ownership (discounted) | |
| Total amound of saved rents (discounted) | |
| Net savings (discounted) | |
| Will you sell the property? | |
| Estimated property value (discounted) | |
| Net cash flow | |
Cost of Rent vs Ownership ()
Discounted - Cost of Rent vs Ownership in ()
Percentage of Total Investment (Undiscounted)