Overview

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)
  • Term
  • 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.

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