The model compares the net value generated by buying a home vs. renting one, until mortgage pay-off, assuming availability of the same initial sum of money. Target home price assumed as starting sum for the “Rent” scenario and target home price less down-payment assumed for the “Buy” scenario.
The procedure requires:
- selecting a target home price and a target rent price for properties of comparable size and location (or same property);
- replacing default numbers with data tailored to your personal situation, for more accurate results.
More specifically, data to be entered include, for the “Buy” scenario:
- Target Home Price
- Buying Closing Costs (% of home cost)
- Annual Property Tax, Home Insurance, Maintenance (% of home value)
- Annual Property Appreciation %
- Down-payment %
- Mortgage Rate (fixed/variable)
- Selling Closing Costs (sale assumed at the end of mortgage term at the estimated appreciated value)
And for the “Rent” scenario:
- Target Monthly Rent
- Security Deposit
- Renter’s Insurance (% of annual rent)
- Annual Rent Appreciation %
Based on the above, the model calculates mortgage repayment schedule and value generated during the time horizon for the 2 scenarios, taking into account all costs plus return on the invested liquidity.