Rent VS. Buy Mortgage Calculator

There are a lot of Mortgage calculators already out there, but the problem is they don’t necessarily take into consideration all the details that affect the Rent vs. Buy decision. Most of them are overly simplified, or worse – they’re US based and make assumptions on tax write-offs that aren’t available to the Canadian buyer.

With that in mind Joycer has a created a more detailed mortgage calculator that lets you try out a number of situations and variables to factor into your rent vs. buy decision, particularly here in Vancouver. We’ve put the calculator on it’s own page, with all the details.

Go to http://VancouverCondo.info/rentvsbuy to check it out.

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Anonymous
Guest
Anonymous

Looks nice! But I don't see anywhere to specify appreciation (or depreciation) of your property.

jesse
Member

@Anonymous: If you need appreciation to make the rent vs buy calculation favour owning u r doing it rong.

For condos and suburban detached anyways.

joycer
Member
joycer

@Anonymous:

I decided not to speculate about the value of the home, but instead at the very end I give the implied housing return in order to make the two scenarios equal. For example, the data that loads with the calculator shows that the owner would be behind by $59218.54 at the end of the 4 years. For the $500,000 home that means the owner would need an 11.84% or more increase in price to come out ahead of the renter (implied return).

patriotz
Member

@Anonymous:

But I don’t see anywhere to specify appreciation (or depreciation) of your property.

When real investors decide what return they'd get from buying a stock at the current price, they don't assume future appreciation or depreciation. That would be a circular valuation – buying something simply because you think someone will pay you more for it. That's also known as the "greater fool" theory.

The exception Jessie is talking about is not really assumption of appreciation per se but assumption of increased earnings (rental value) due to future densification of present non-dense properties, which is analogous to assuming earnings growth for a stock.

kansai92
Guest
kansai92

For the last hundred years home prices paced with inflation.

I don't see any kind of appreciation for the next 3 to 5 years.

Want to be optimistic, stick in 2%.

Just to add to the section about basement suites.

If the owner is going that route, then the renter's scenario

would be renting a main floor suite only, not an entire house.

Most owners of detached houses that do this still don't realize

all they are doing is renting a main floor suite from the bank

for 35 years.

Haven't looked at the calculator yet but does it factor in

opportunity cost of the downpayment?

joycer
Member
joycer

@kansai92:

does it factor in opportunity cost of the downpayment?

Yes, the downpayment is subtracted from the savings so it is not invested for the owner.

Example:

Savings 100,000

Down payment 50,000

Closing costs 10,000

Rate of return 0.05

Years to rent 1 (keeps the math simple)

The renter would make $5000 in interest while the owner only has $40,000 left over (Savings – down payment – closing costs) to invest at 5% so they would make only $2000. The owner is now behind by $3000.

jesse
Member

@joycer: This is a cool utility. I think it's great for those who want to do the math properly though it won't help people who think real estate only goes up or feel the overwhelming need to own even if it's more expensive.

Your tool can't hope to compete with an asset forecast to perpetually increase in value that's leveraged 20:1, nor can it compete with nagging spouses and parents!

blur2
Guest
blur2

I hope we don't have to apologize in the future like this guy:

"I'm sorry that I didn't send an e-mail or work a little harder to get that fixed so the calculator can allow for the possibility of reality," Kosoff says — the reality that housing prices sometimes decline.

http://www.npr.org/blogs/money/2010/10/22/1307569

blur2
Guest
blur2

NY Times has a graphical calculator that can account for rise and fall of RE value.

http://www.nytimes.com/interactive/business/buy-r

Yalie
Guest
Yalie

For the last hundred years home prices paced with inflation.

I don’t see any kind of appreciation for the next 3 to 5 years.

Want to be optimistic, stick in 2%.

Let's call a spade a spade. Want to be optimistic? Stick in 0% per year for the next 5 years. Now if you want to be realistic, that's a different story.

jesse
Member

For a lark I plugged in the numbers for this place that just sold for $800K in east van.

Price $800K

Equivalent rent: $2250/mo

Mortgage rate: 4%

Basement suite rented for $900/mo

Return on cash: 3%

This scenario breaks even. I really want to buy so I made the numbers work to have rent vs buy in the current environment come out a wash 😉

VHB
Member
VHB

Don't look now, but the 5-yr is up about 12 bps today. link.

curious lurker
Member
curious lurker

@jesse:

If the basement suite is rented out for $900, doesn't that mean the rent should be lower too?

2250 – 900 = $1350 should be the rent cuz if the owner can rent out the basement, so can the renter?

Is it really breakeven with such a scenario?

Best place on meth
Guest
Best place on meth

@VHB:

Up, up and AWAY!!

Mark
Guest
Mark

Hey, where is the calculator? It seems only a description.

lowermainlander
Member
lowermainlander

Clicked on "Launch Mortgage Calculator"; nothing happens. Tried at home and work. Both Safari and Firefox. Using Macs. Anyone have any ideas?

joycer
Member
joycer

@curious lurker:

To be equivalent it would mean that the owner is getting the top floor only so the rent should reflect the cost to rent the top floor of the same home. Otherwise the scenarios are not equivalent (the renter is renting more space than the owner).

I wanted a way to show how the two scenarios would unfold. In one situation I could buy a house and rent the basement out, in the other I could rent the main floor of the same house. In this way the standard of living is the same, but the calculator will tell you who will have more assets at the end of it. I'm not sure if $2250 is reasonable for a main floor only in East Van (I'm guessing not?).

joycer
Member
joycer

@lowermainlander:

You could try this:
http://javatester.org/version.html

I will tell you if java is working on your browser, you may need to update/install a more recent version (there are links to Oracle's site on the site above).

Anonymous
Guest
Anonymous

Sorry for an OT post, but this was interesting: A story about Rudy Nielsen, real estate mogul from here in BC, being a bit bearish. If you look at the 'Related Gallery: How to time the market' at the bottom of the story, the last frame indicates Mr. Nielsen believes the market will bottom out in 2012.

http://money.ca.msn.com/banking/mortgages/article

Anonymous
Guest
Anonymous

@blur2:

"NY Times has a graphical calculator that can account for rise and fall of RE value."

But only deals with US-style 30yr mortgages.

kansai92
Guest
kansai92

@jesse:

Ha, love to see a $800K house where the rent for the main is $2250.

jesse
Member

@curious lurker: "Is it really breakeven with such a scenario?"

Upstairs is rented for $2250, downstairs is rented for $900. To compare directly, a renter family would only rent the upstairs. I accounted for the $900 by putting in a negative value in the maintenance column. The scenarios we are comparing are:

1) Rent upstairs, and have tenant downstairs who pays rent to landlord separately. The suite does not factor at all into the rent side of the calculations.

2) Buy and live upstairs, have tenant(s) downstairs who pays rent to me. The suite rent therefore factors into the own side of the calculations.

I think the two scenarios are roughly comparable in terms of utility.

jesse
Member

@kansai92: The point I'm making is a that a value investor aka patriotz and someone else with rose-coloured glasses will use joycer's calculator with wildly different scenarios. The one I presented may be unrealistic but that doesn't prevent someone typing in any values they want. They will make the numbers work; garbage in garbage out.

A lot of what goes on in bubbles is people convincing themselves what their greed wants them to believe.

curious lurker
Member
curious lurker

@jesse:

I can't open your original posting on ret, it's giving me database errors.

But $2250 for a main floor in east van doesn't sound right.

http://vancouver.en.craigslist.ca/van/apa/2032776
that's a full house at 49th and victoria for $1800.

I'm seeing craigslist ads for main floors in east vancouver aplenty in the 12-1300 range.

I don't think your numbers work.

$2500 gets you a full house at 25th and Cambie on Craiglist. for your total of 3100 you can rent houses in north and west van.

Best place on meth
Guest
Best place on meth

@joycer:

>>>I’m not sure if $2250 is reasonable for a main floor only in East Van (I’m guessing not?).<<<

No, not for an average place.

$1700 is more realistic.

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