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
5 years 9 months ago

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

jesse
Member
5 years 9 months ago

@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
5 years 9 months ago

@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
5 years 9 months ago
@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… Read more »
kansai92
Guest
kansai92
5 years 9 months ago

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
5 years 9 months ago

@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
5 years 9 months ago

@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
5 years 9 months ago

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
5 years 9 months ago

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
5 years 9 months ago

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
5 years 9 months ago

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
5 years 9 months ago

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

curious lurker
Member
curious lurker
5 years 9 months ago

@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
5 years 9 months ago

@VHB:

Up, up and AWAY!!

Mark
Guest
Mark
5 years 9 months ago

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

lowermainlander
Member
lowermainlander
5 years 9 months ago

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
5 years 9 months ago
@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… Read more »
joycer
Member
joycer
5 years 9 months ago

@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
5 years 9 months ago

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
5 years 9 months ago

@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
5 years 9 months ago

@jesse:

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

jesse
Member
5 years 9 months ago
@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… Read more »
jesse
Member
5 years 9 months ago

@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
5 years 9 months ago

@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
5 years 9 months ago

@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.

jesse
Member
5 years 9 months ago

@curious lurker: "But $2250 for a main floor in east van doesn’t sound right."

I agree. I just want to own soooooo badly…

jesse
Member
5 years 9 months ago

@curious lurker: Oops Try this. Preview's not working for me.

vancouverseniorsecon
Guest
vancouverseniorsecon
5 years 9 months ago
VHB is right to look at the 5yr. The US treasury is probably in the early stages of a bubble burst itself. When they talk about rising yields, it means people are paying less than face value for the bonds. Bonds are traded- i think the avg holding time for 30yr treasuries is about 21 days. It is by no means a long term investment for most investors. Vancouver mortgages are traded now too- in the form of mortgage backed securities. They have a relatively low yield, and as interest rates rise the market value of these mortgages will plummet.… Read more »
real_professional
Member
5 years 9 months ago
There is a generation and a half that only knows low interest rates. And, I believe that the lowest interest rates that we saw took place this last October… The XLB.TO, Canadian Long Bond ETF, has broken down(see the chart below) – the flight into bonds that we saw this summer was the last gasp in the bond rally… http://stockcharts.com/h-sc/ui?s=xlb.to In other words, interest rates are rising and that is during a rate pause from the Bank of Canada. Just wait until the inflation numbers start to roll in. If inflation becomes an issue, it doesn't matter if our economy… Read more »
vancouverseniorsecon
Guest
vancouverseniorsecon
5 years 9 months ago

@real_professional

"If inflation becomes an issue, it doesn’t matter if our economy is slow or what the jobless number are – the Bank of Canada will raise rates and will do so without mercy."

yes, our milkshake will be fully drunk.

Troll
Guest
Troll
5 years 9 months ago

@real_professional: OK, first ask yourself, what would happen to the economy if rates rise without mercy? Then ask yourself, what would happen to rates after this change in the economy? This is all you need to know about rates.

Anonymous
Guest
Anonymous
5 years 9 months ago

The rent for a main floor in East Van really depends on location. The link to the house in question is not working for me, so hard to tell where it is for comparative purposes. Where I am, the main floor of a Vancouver special is going to be 1700-2000 (ie. 3bd+).

vancouverseniorsecon
Guest
vancouverseniorsecon
5 years 9 months ago

@troll "OK, first ask yourself, what would happen to the economy if rates rise without mercy"

Ok, someone hasn't been listening. Question: What would happen to the economy if rates rise without mercy. Answer: It will crush the vancouver housing market.

Why will interest rates be raised?

http://www.bankofcanada.ca/en/monetary/inflation_

Troll
Guest
Troll
5 years 9 months ago

@vancouverseniorsecondarymarket: OK, someone hasn't been thinking. Let's try a little thought experiment. IF the rates rise mercilessly, what would happen to the Vancouver RE market? What would that do to the wider economy? Hint: Look at the US. What kind of pressure would that put on rates? Think it through man, it aint as complicated as your 5000 word diatribe.

Best place on meth
Guest
Best place on meth
5 years 9 months ago

@Troll:

The BOC rate was in double digits during the late 70's and early 80's when the economy was thoroughly in the crapper.

So much for your theory.

Troll
Guest
Troll
5 years 9 months ago

@Best place on meth: the economy of the 70's and 80's is nothing like today. So much for your lame comparison.

VHB
Member
VHB
5 years 9 months ago

If anyone thinks that, confronted with rising inflation, the BoC would relent even one bps because some overdebted homeowner in Port Moody might feel some pain, then there is serious misunderstanding of the mindset of central bankers.

Anonymous
Guest
Anonymous
5 years 9 months ago

@curious lurker:

"that’s a full house at 49th and victoria for $1800."

.. and it's so good that it doesn't even have photos.

VHB
Member
VHB
5 years 9 months ago

@VHB: And besides, the BoC only controls the short rate. The bond market, which sets the 5-yr rate, cares even less for any poor suffering lower mainlanders.

But, this scenario only happens with rising inflation.

vancouverseniorsecon
Guest
vancouverseniorsecon
5 years 9 months ago

@troll

Alright, you win. I'm stupid. You're smart. I was wrong. You were right. You're the best. I'm the worst. You're very good-looking. I'm not attractive.

You are not going to lose an ass ton of money in real estate over the next five years.

That should come as considerable relief to you. Crisis averted!

VHB: please discontinue this site, post haste. The Troll has spoken.

Troll
Guest
Troll
5 years 9 months ago

@VHB: If anyone thinks that we'll be confronted with rising inflation if the housing market and by extension the wider economy is decimated hasn't been paying attention. Connect the dots bears.

VHB
Member
VHB
5 years 9 months ago

@Troll: a) a Vancouver housing bust is likely not a macro-Canada-wide event. b) if I'm wrong about (a), then consider the fact that we have a flexible exchange rate.

If Canada pulled an Ireland, we would adjust through a much-lower exchange rate, not deflation.

Moreover, the expectation of lower exchange rates would push long bond yields higher in order to compensate for expected f/x losses.

Best place on meth
Guest
Best place on meth
5 years 9 months ago

@Troll:

You're implying rates can't rise in a bad economy and you've been proven wrong.

They did before and they will again.

fixie guy
Guest
fixie guy
5 years 9 months ago

41 Troll Says: "… a string of mangled English …"

Vancouver isn't Canada. Just thought it's worth reiterating. The fed probably won't tailor national policy to keep the local market lit.

vancouverseniorsecon
Guest
vancouverseniorsecon
5 years 9 months ago

@troll

"Connect the dots bears."

Yes, we have clearly been bested on the field of intellectual battle by you.

Gentleman, he is obviously correct.

vancouverseniorsecon
Guest
vancouverseniorsecon
5 years 9 months ago

@troll

"If anyone thinks that we’ll be confronted with rising inflation if the housing market and by extension the wider economy is decimated hasn’t been paying attention. Connect the dots bears."

Hold on a second, you think housing is used to calculate the consumer price index, don't you?

blueskies
Guest
blueskies
5 years 9 months ago

dear troll:

you come across as desperate

there is no way the bond market will crap on your parade

the rest of canada will not allow your re dreams to founder

the lower mainland is immune from reality

i'm willing to bet you weren't around when John Lennon was singing

caveat emptor

BearProblems
Guest
BearProblems
5 years 9 months ago

@Best place on meth: The 80s rate hikes were put in place to cool an overheating economy with wild inflation. So we had a booming economy followed by a bust brought about on purpose by raising rates.

Best place on meth
Guest
Best place on meth
5 years 9 months ago

@BearProblems:

In 1982 the unemployment rate was 13% and the BOC rate was 15%.

Overheating economy, my ass.

At least you got the inflation part right.

WFT?
Guest
WFT?
5 years 9 months ago

This "troll" fellow is clearly not very buys in his RE job. No wonder with sell/lists on track for the worst december in a decate.

Why buy a place when you can rent it for 50% less? Prices stopped going up 6 months ago. Not even speculators are dumb enough to buy now.

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