Yesterday the topic of rent vs. buy calculations came up in a thread, and it reminded me I had done something of one on a spreadsheet a few months ago with the intention of sharing it but forgot all about. So, figured, what the heck, lets throw it out there.
I tried to balance keeping it as easy and intuitive as possible, while still making it highly functional… most others I’ve seen only as a little too overly simplified. So, you need to have some understanding of personal finance like opportunity cost, but it takes care of much of the messy and confusing stuff like insurance and annuities.
There were a couple practical allowances for opportunity cost and rental income figures, because both of those represent taxable benefits, but as there are an infinite number of rates those could be taxed at, I leave that for you to ignore or calculate for your situation.
For the comparison here I did a quick search and found two comparables, one for rent, and one up for sale. Both two bed, two baths, in the same building and about the same size. Used todays 5-year fixed rate, and filled in some of the other variables, but you can play with those at your own leisure and you can see for yourself how the results change.
Everything after “Calculations” is generated automatically, you just have to fill in the three input sections. I corrected some formula errors that were pointed out, so hopefully it’s right now, but please pipe up if you find more, or have any other comments, questions, concerns or suggestions on how to make it better.
Me thinks the rental market in Calgary is going a bit soft.
I'm getting an unusually high number of price reduced notifications, and the median for SFH has had quite a bit of movement in the last few weeks, getting very close to dropping another 50 bucks to $1550.
I think ReMAX will have an issue with your calculator, it doesn't always say buy.
Kevin.
Thanks for the calculations.
However I think this is worst case scenario with no property appreciation for 5 years. Although it could be worse if property values decrease at the same time.
The net position owning should include repaid principle which is your equity.
Do correct me if my assumptions are wrong. Cheers!
Worst case I'd figure more like a 25-30% depreciation, I thought I was being generous! But that's why I designed it to allow people to insert their own values.
Repaid principle is included, as it decreases what is owed (loan outstanding figure). You get the net position from taking the net proceeds and subtracting the loan outstanding.
Taking a look at kijiji to find the example, it's sure noticeable how much prices have dropped since the spring. Back then the listings under 1,000/mo were few and far between, now they are probably the majority.
Worst case I'd figure more like a 20-25% depreciation, I thought I was being generous! But that's why I designed it to allow people to insert their own values.
Repaid principle is included, as it decreases what is owed (loan outstanding figure). You get the net position from taking the net proceeds and subtracting the loan outstanding.
What about utilities?
Heat and water was included in the rent, and was also included in the condo fees… so, as far as I could tell things were all even on that front between the options.
I think adding realtor fees really depends if you are going to move or not after 5 years. If the question is buy now or the same place after x years then I would not add realtor fees.
You can get a fixed rate at 4% and variable at 2%!
Although expecting 2% over 5 years is not realstic…
Entering 4% and ignoring realtor fees brings the difference to $239. If you can negotiate a lower purchase price, say $210,000 owning comes out $1843 ahead, assuming a discount is not possible on the rent.
I ran a similar calculation this spring when fixed rates were lower and rents were higher. I capitulated.
You can download it and enter whatever you want into it.
Hi,
The Spreadsheet is comprehensive and helpful. I am just studying to compare the advantages between Rent and Buy. I found there are some other costs and wonder why they are not included in your calculations. Are those cost won’t be happened in the transaction or minor and negligible so unnecessary to be included in the calculations or other reason?
1. Property Transfer / Purchase Tax (1% for 1st $200,000, 2% for remainder)
2. Goods and Services Tax (GST) 5% (payable on newly constructed homes and is often included in the quoted sales price)
3. Provincial Sales Tax (PST) 0-10% (normally included in the quoted sale price)
4. Annual Property Tax 0.5-2.5% of the home’s market value
5. Clearance Certificate paid by seller, depending on complexity of transaction (probably $300 ~ $1000)
6. Property Appraisal Fee (If Mortgage needed, Lender will require, approx. $150 ~ $250)
7. Survey Fee (If Mortgage needed, Lender will require an up-to-date survey. If the Seller does not have one, you will have to pay to have one done, approx. $150 ~ $350)
8. Lawyer’s Fees (Lawyers review the Offer to Purchase, search the title, draw up mortgage documents and tend to the closing details. The fee depends on the complexity of the sale and the type of property. Approx. $500 ~ $800)
9. Home Inspection Fee (Carried out at the purchaser’s request, approx. $450)
10. Property Insurance (Covers the replacement value of the structure of your home and its contents.)
Thanks in advance for enlightenment.