{"id":1235,"date":"2014-03-08T01:52:18","date_gmt":"2014-03-08T06:52:18","guid":{"rendered":"http:\/\/www.holypotato.net\/?p=1235"},"modified":"2014-10-13T23:21:04","modified_gmt":"2014-10-14T04:21:04","slug":"updated-rent-vs-buy-calculator","status":"publish","type":"post","link":"https:\/\/www.holypotato.net\/?p=1235","title":{"rendered":"Updated Rent-vs-Buy Calculator"},"content":{"rendered":"<p>Thanks to some discussions with people (and <a href=\"http:\/\/www.reddit.com\/r\/PersonalFinanceCanada\/comments\/1zhanv\/should_we_buy_a_house\/\">Redditors<\/a>) I have updated the rent-vs-buy investment method calculator (aka the ultimate rent-vs-buy comparison tool for Canadians). You can see the <b><a href=\"https:\/\/docs.google.com\/spreadsheet\/ccc?key=0AktN0CUf4uaVdHNvWFFzT0VPVFZTdi1ra0dCUC1jU3c\">spreadsheet in Google Drive here<\/a><\/b> (and save a copy to your own Google Drive or download in various spreadsheet formats) or <b><a href=\"https:\/\/www.holypotato.net\/wp-content\/Customizable_Rent_vs_Buy_Investment_Calculator.xls\">click here to download it in Excel format<\/a><\/b>.<\/p>\n<p><a href=\"https:\/\/www.holypotato.net\/?p=1073\">Please see the original page for instructions<\/a>, and the follow-up discussions: <a href=\"https:\/\/www.holypotato.net\/?p=1074\">part 1 on things to consider and discussion questions<\/a>, and <a href=\"https:\/\/www.holypotato.net\/?p=1079\">part 2 on the sensitivity to various inputs changing<\/a>.<\/p>\n<p>If you haven&#8217;t seen this before, it&#8217;s a very detailed and customizable rent-vs-buy calculator. It assumes that all else being equal, you can compare apples-to-apples options for your shelter. If buying costs more, the renter will save the difference in monthly cash flow and invest it. It allows you to model a change in interest rates over time (specifying a rate for years 1-5, 5-10, and 10+), includes the effect of transaction fees, house price appreciation, taxes on the renter&#8217;s investments, and most importantly: investment returns that compound over time.<\/p>\n<p>What&#8217;s new:<\/p>\n<ul>\n<li>The default mortgage rate is now 3.49%, the lowest big-bank 5-year fixed rate my rate-comparing friends at ratesupermarket.ca were able to find. With the move to a 5-year fixed (the most common option chosen) I&#8217;ve updated the back-end mortgage calculations to account for the bizarre 6-month compounding of fixed mortgages in Canada.<\/li>\n<li>The CMHC charges have been updated for the recently announced changes (though those won&#8217;t take effect for another month).<\/li>\n<li>The summary box (scroll over to the right) now also says how much the buying case wins by (in the event that it does) so you don&#8217;t have to look down at the full results table.<\/li>\n<li>The default comparison has been updated. I&#8217;ve just spent a quick half hour searching for comparable listings and found many exact &#8212; <em>same unit<\/em> &#8212; apples-to-apples comparisons, and Toronto&#8217;s price-to-rent is easily over 240X right now<sup>1<\/sup>.<\/li>\n<\/ul>\n<p><script async src=\"\/\/pagead2.googlesyndication.com\/pagead\/js\/adsbygoogle.js\"><\/script><br \/>\n<!-- 468x60, created 7\/4\/08 --><br \/>\n<ins class=\"adsbygoogle\" style=\"display:inline-block;width:468px;height:60px\" data-ad-client=\"ca-pub-1468596978203595\" data-ad-slot=\"4685444840\"><\/ins><br \/>\n<script>(adsbygoogle = window.adsbygoogle || []).push({});<\/script><\/p>\n<p>I have been asked about creating a space for fudge factors (in particular, to model the <a href=\"https:\/\/www.holypotato.net\/?p=1206\">case where the owner gets a roommate or rents out a basement\/secondary suite<\/a><sup>2<\/sup>) and I have not included that and do not feel persuaded to. Having such a field would just invite non-comparable comparisons (like comparing renting a full house to owning half of one with a call option on the rest). It&#8217;s a spreadsheet, so it&#8217;s not hard to account for such cash flows (for instance, just over-write the maintenance fee column with a combination of increased maintenance fees from being a landlord and a negative cash cost item for the rent income), and I would much prefer you think deeply about it by doing it manually than just jumping ahead to the fudge cell to justify buying. <\/p>\n<p><small>1. I was overly fair to the buying case before <em>and renting was still better<\/em> &#8212; a point that was lost on many. The comparison now starts with one such matched pair (in North York). Renting now totally blows buying out of the water. I don&#8217;t want to belabour the Toronto housing bubble issue too much (I&#8217;d rather people focus on the usefulness of the tool and try it out for their own purposes without getting distracted by my situation), but it&#8217;s not even close guys. And I&#8217;m still being too fair by being at the bottom of the range &#8212; many of the condos that were &#8220;only&#8221; 240X had maintenance fees of ~1.4-1.5%, vs the sheet&#8217;s default of 1.1%, and those condo fees don&#8217;t even cover all maintenance\/upkeep needs.<br \/>\n2. <a href=\"https:\/\/www.holypotato.net\/?p=1206\">I already had a short post on this topic<\/a>, but in brief: if it doesn&#8217;t make sense to rent out a whole house, how does renting out half of one suddenly become financial genius?<\/small><\/p>\n<p><b>Update<\/b>: Etienne (<a href=\"http:\/\/www.greaterfool.ca\/2014\/03\/11\/swan-song\/\">who was featured by Garth Turner recently<\/a>) emailed me with the fix for a minor bug: the CMHC premium was being applied to the whole house value rather than just the <em>loan <\/em>value. Fixed as of March 15, 2014. The magnitude of the error depends on the downpayment; for example with 5% down it made the mortgage 0.15% too large, for 10% down it was 0.24% too large.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Thanks to some discussions with people (and Redditors) I have updated the rent-vs-buy investment method calculator (aka the ultimate rent-vs-buy comparison tool for Canadians). You can see the spreadsheet in Google Drive here (and save a copy to your own Google Drive or download in various spreadsheet formats) or click here to download it in [&hellip;]<\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[16,20],"tags":[],"_links":{"self":[{"href":"https:\/\/www.holypotato.net\/index.php?rest_route=\/wp\/v2\/posts\/1235"}],"collection":[{"href":"https:\/\/www.holypotato.net\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.holypotato.net\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.holypotato.net\/index.php?rest_route=\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.holypotato.net\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=1235"}],"version-history":[{"count":0,"href":"https:\/\/www.holypotato.net\/index.php?rest_route=\/wp\/v2\/posts\/1235\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.holypotato.net\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=1235"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.holypotato.net\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=1235"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.holypotato.net\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=1235"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}