# Rent Versus Buy a Home Calculator

## Estimating the Cost of Buying versus Renting a Home

This calculator can be used to estimate the cost of renting a home versus buying a home. The calculator needs a total of thirteen inputs, including three associated with renting a home:

• The amount of monthly rent paid, which includes all fees associated with the rental unit, but not utilities
• Renter’s insurance, stated on a monthly basis. Depending on the arrangement with the landlord, this insurance could be for the structure as well as the renter’s personal property – which is more common
• A projection of the annual cost increase of the monthly rent

The calculator also needs eight inputs associated with buying the home:

• The purchase price of the home
• The amount of any home loan or mortgage on the property
• The rate of interest paid on the loan or mortgage
• The term of the loan, which is the number of years over which the loan will be repaid
• The annual cost of homeowners insurance
• The annual cost of property taxes, also referred to as real estate taxes
• Annual maintenance cost on the home. Generally, this would range from 1-4% of the home’s value, depending on the condition of the home

Finally, the calculator needs several ownership assumptions, including:

• The number of years before selling the home
• An estimate of the annual appreciation in the home’s value
• Any selling fees, which is a percentage of the home’s selling price

The calculator then provides the user with the following outputs:

• The average cost of renting over the ownership timeline stated on a monthly and total basis. This include both rent and insurance
• The average cost of buying a home over the ownership timeline stated on a monthly and total basis. This includes the home loan, insurance, property taxes, and maintenance
• An estimate of the proceeds from the sale of the home at the end of the ownership timeline. This includes an estimate of the home’s selling price, minus any down payment made on the home, minus the remaining principal of the loan and selling fees
• The net cost of renting and owning a home over the ownership timeline and the difference between these two values

### Should I Rent or Buy a Home?

Admittedly, the default values set on this calculator were made so the monthly cost of renting was close to the same value as buying. The rationale behind this approach was simply to assume a user might want to compare two scenarios that consumed the same amount of their monthly income. While this makes the monthly costs of both scenarios equal, this may not be a good assumption.

For example, instead of assuming the comparison would be made on an economic basis, it might be made on a functional requirements basis instead. Specifically, comparing two options that include three bedrooms and two baths. Regardless of the scenario chosen or whether it is really a fair comparison or not, the calculator will always provide an economic answer to the rent or buy question.

### Variables Used by this Calculator

There was a great deal of hesitancy before releasing this calculator because the number of inputs might be overwhelming for a user. Every attempt was made to keep the input variables to the bare minimum. Some property owners include utilities like electricity, natural gas, or water in the monthly rent payment – although this is getting to be less common. If utilities are included in the rent, they should be either subtracted when inputting the rent into this calculator or added to the cost of buying a home – perhaps being included in the annual Maintenance value. Which brings us to our next point.

One of the nice features of renting is that maintaining the space is the responsibility of the property owner. The rule of thumb for homeowners is to expect to pay between one and four percent of the home’s value in maintenance each year. This means the owner of a home valued at \$400,000 should anticipate maintenance cost of \$4,000 to \$16,000 annually. While this might seem like a lot of money, a home may need to be repainted, or have the roof replaced. Kitchens and bathrooms need to be updated or the home will look outdated to potential buyers.

### Interpreting the Results of Our Calculator

The results presented by this calculator are broken down into four sections. The first is a summary of the costs associated with renting a home. The rent itself is escalated at the Annual Cost Increase rate. All the monthly payments are then summed together to develop the Term Total. The same approach applies in the buying a home section except there are more costs to add together. The third section provides an estimate of the gain or loss on the sale of the home. The last section of results takes the Term Total from renting and the Term Total from buying minus the Sale Gain/Loss on the sale of the home since this is one advantage of owning a home. It has the potential to provide the owner with a gain when it’s sold. The Delta is the difference between buying and renting a home. If this value is positive, that means buying a home was a better deal. If the value is negative, then renting might be the better choice.