Rent vs. Buy Calculator
Buying a real estate property can be a positive investment. However, renting a real estate property while putting aside a portion of your savings into investments such as mutual funds and stocks can also be a very profitable solution. Using our rent vs. buy calculator will help you understand and learn different options according to your current financial status.
Difference between Buying and Renting
One should look at buying a real estate property from an investment perspective. In most cases, the value of a real estate property will grow over time. (Assuming the population and economy expand over time) For most people, they are required to borrow a loan from a financial institute, known as a mortgage, to pay for the real estate properties they wish to buy. Most people have set aside a portion of their savings to be used as the down payments towards their homes. The more down payments you have, the fewer loans you need to borrow, and therefore, the less interest you need to pay.
From an investment perspective, the value of your home, after inflation, needs to be greater than the total combined amount of the down payment, interest, and mortgage payments during the amortization period. For example, if you spend a total of $100,000 in down payment, $200,000 in interests, and $250,000 in mortgage payments, the value of your home needs to be greater than $550,000 at the time you finish your mortgage payments. Having a mortgage is not always a positive investment.
Renting, on the other hand, gives you the opportunity to spend the down payment you have saved towards to an investment portfolio (mutual funds, stocks, retirement plans...etc.) which could potentially outperform the growth of a home if you were to put the money in as the down payment. However, the higher rate of growth also means the higher risks associated with such investment. Homes, typically, do not grow as fast as stocks.
Three Ways to Invest
With your financial input, we will generate a detailed rent vs. buy evaluation report showing you the estimated outcome of the following options:
- 1. Pay for mortgage and put in your savings as the down payment. (M1)
- 2. Pay for mortgage but put in your savings into an investment portfolio (M2)
- 3. Rent and put in your savings into an investment portfolio
Before you begin, please pay close attention to the following information we need from you:
- Monthly Budget - The amount of money you have available a month that you can put in as mortgage or rent payments.
- Available Cash - The amount of savings you have that you can put in as the down payment towards a home or into an investment portfolio.
- Estimated Investment Gain - The estimated average growth of the investment portfolio created using your available cash.
- Estimated Mortgage Interest - The percentage of interest on the mortgage loan provided by your financial institution.
- Estimated Property Tax - Estimated taxes you need to pay every year on the real estate property. This value is usually determined by a percentage of the value of the real estate.
- Estimated Mortgage PMI - PMI stands for Private Mortgage Insurance, and is the extra amount of money you need to pay as long as the mortgage loan amount is more than 80% of the value of the real estate property.
- Estimated Insurance per Month - The amount of money you need to pay a month in home insurance. This value is determined by your home insurance provider.
- Estimated Home Inflation - The estimated average growth of your real estate property.
- Estimated Home Value Cap - The value on a real estate property does not keep on growing all the time.