10 ms·

Is It Better to Rent or Buy?

408 points by ovechtrick 12y ago

jleyank 12y ago
I said this when such a thread came up the last time: If you can (easily) switch jobs without moving it might make sense to buy. If you can't, however, renting is the safer option as you can move if/when there is a problem with the job. Domiciles can be rather illiquid at times, which sucks when you need to move for work. It's a separate question if it's worthwhile to buy at all, as that's dependent on geography, present and future market trends, lifestyle choices, ...
- jaredmcateer 12y ago
  Indeed, my wife and I both are pretty much equals when it comes to our careers, we both find them fulfilling and enjoyable, but they are completely different focuses. If one of us were to get a job offer that required us to move, we would have to be certain the other could get a job of equal value there as well or the job offered would have to be about twice as good as the current. So it made the decision to buy much easier and it hardens us against jumping from job to job simply because the grass may look greener.
- hkmurakami 12y ago
  Some people say "oh you can always rent the house out!" but they often forget that once they move away and have to hire a property management firm, the fees that they'll have to pay will erode the rent revenue below breakeven with the mortgage payments (without such a manager, you can frequently break even or better vs mortgage)
  - vonmoltke 12y ago
    First, it depends on the rental market. Unless the local housing market deflates, after several years you should be able to get more than your expenses in rent, even after giving the management company their 10% (or whatever it is in your area). Second, the break-even point is based on the principal to interest split in your payment. That is a function of your loan term and how deep into the term you are.
  - sliverstorm 12y ago
    I don't think people necessarily see that as a perfect solution in which they make a profit. If you can come close to breaking even by renting it out, that gives you more runway with which to sell the place. Reduces the time pressure, so to speak.
  - gnoway 12y ago
    In at least one US State, your property taxes are different if you're living in the home vs. renting it out. In my case, losing the homeowner's exemption would almost double my property taxes. I'm not sure if you get to deduct property taxes for non-homestead property on your federal return either. In my case, losing this deduction would force me to use the standard deduction instead of itemizing. So, a possible double-whammy. edit: note this is for the US.
    - quesera 12y ago
      > I'm not sure if you get to deduct property taxes for non-homestead property on your federal return You can. Property tax goes on Schedule E as a business expense, just like insurance, utilities, repairs, etc. You can also deduct mortgage interest for rental properties.
- analog31 12y ago
  In general, the model doesn't include risk.
- mattm 12y ago
  To add to this, people don't usually lose their jobs in a bubble. If you are losing your job, chances are a lot of other people in your area are also losing their jobs which makes it even harder to sell.
aet 12y ago
I think the NYT has redone this interactive piece like 50 times now.
- mbostock 12y ago
  Surely you jest! The previous version was four years ago (in 2010) and was implemented in Flash. Screenshot: https://twitter.com/driven_by_data/status/469498632027537408 https://twitter.com/driven_by_data/status/469498632027537408
  - aet 12y ago
    My bad
  - polskibus 12y ago
    Congrats for a article on the NYT! I can't see whether D3 is used or not - can you shed some light on what did you use?
    - cwang912 12y ago
      I think he's the guy that created D3, so I'm guessing that's what he used. (Or at least I'm pretty sure...)
  - caseyf7 12y ago
    I'm looking forward to seeing more flash replaced with d3!
al_gore 12y ago
There is nowhere that I particularly want to live that I could possibly afford to buy in, though.
- sliverstorm 12y ago
  Broaden your horizons, perhaps? Manhattan & downtown San Francisco are not the only interesting places in the world.
  - TillE 12y ago
    If one of your major criteria is a walkable city (ie, no car required) within the US, that list is very short and very expensive. Leaving the country broadens your options considerably, but that also adds its own complications.
    - sliverstorm 12y ago
      If you demand walkable, then yes, you are up a creek. The only way to get purely walkable, with your grocer, theater, and night club all within a fifteen minute stroll, is high-density which generally happens in the heart of large cities, and is indeed expensive. But how about bicycle-able? My town is about 5 miles square, very bike-able, and I was able to buy a townhouse at twenty-five.
      - bane 12y ago
        Lots of newer suburbs are being designed with high walkability in mind. My newish suburb is walkable to a movie theater, bike store, huge gym, swimming pools, Tae Kwon Do school, a couple hair salons and a barber, a full grocery, a couple clothing stores, about a dozen restaurants from fast food to high-end dining, a UPS store, an optometrist, a toy store, a ballet school, two coffee shops, a dry cleaners, a bank, a liquor store, weekly farmer's market about 3 or 4 miles of landscaped parks, about 20 miles of trail and just on the edge of walkability is a full 18 hole pro-level golf course. They're planning on adding more stuff to it as well including a full county library and some other odds and ends. There's a nicer development similar to mine about a 15 minute drive that offers a similar environment. My friends live in an older neighborhood that's also just a 5 minute walk from a lively older "main street" style commercial area and likewise get all their shopping and such done that way. They live in a brand new house, but the town is a couple hundred years old and historic. You have to hunt around for them a little, but they're definitely out there.
deleted 12y ago
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- deleted 12y ago
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mcarvin 12y ago
For full disclosure I am a founder of the company but many of the mistakes in math / modeling made in the NYT Tool are corrected at SmartAsset. One example is the tax consequence of ownership - which because of the standard deduction is overestimated for lower value homes (<$250,000).
- steven777400 12y ago
  I just wanted to reaffirm what you're saying about the deduction on lower value homes. When we bought, people were telling us "you get to deduct the interest, it will be a huge impact!" Well, these days thankfully, interest rates are relatively low. We paid a little under $200K for our home, and combined with the married standard deduction, the interest at first barely even pushed us into the itemize category. By next year, it won't suffice to even do that and we'll be back to the standard deduction. The people who were telling us about how great the deduction is were people who all had the means to purchase much more expensive homes, and many of them bought in the past when interest rates were higher and the standard deduction lower. So it was true for them, and continues to be true for certain segments, but is not universally true.
  - ratscabies 12y ago
    I was only able to itemize for the first 5 years. After that, standard deduction ever since.
  - thedufer 12y ago
    It varies widely based on where you live, too. For example, in NYC state/local taxes are high (these are deductible on your federal return) so anyone with a reasonably high income is already beating the standard deduction, making the interest deduction a very large advantage.
marknutter 12y ago
If you buy, you can do whatever the heck you want to with the house or your yard. That's true freedom and to some people - myself included - worth every penny.
- dgabriel 12y ago
  Not true in many, many cases. HOAs, condo boards, zoning laws, and historical societies can control homeowners pretty well.
  - Frozenlock 12y ago
    And you still need to pay taxes (rent) to your municipality (landlord). So if I summarize, you can't do what you want with it and you need to pay your landlord. Why are people calling this 'owning' a house?
    - seanmcdirmid 12y ago
      There are countries that lack property taxes, but they tend to be communist (china) and you are only buying a 99 year lease. Also, the lack of property taxes doesn't work very well, as it encourages speculation and then sitting on then property doing much with it waiting for values to rise. Property taxes enforces mandatory deprecation (you have to make it productive enough to at least pay the tax) and also funds things like roads, infrastructure and schools without shady corrupt deals.
      - Frozenlock 12y ago
        I didn't say anything about the good or bad of taxes, just asking why people are using a word when it shouldn't be. Historical reasons? Delusions? Sales tactics?
        seanmcdirmid 12y ago
        The right to property has never been without responsibility. I can own a house but then I'm responsible for sharing the costs of infrastructure around the house. You would find lower property taxes in the states in areas with little infrastructure (I.e. the bush in Alaska). Even the city state kings of the first communities needed to provide defense and such, taxation is the obvious way to do that. Taxation of property is quite reasonable compared to head taxes.
hashberry 12y ago
Two important adjustments when using this: "Investment return rate" -- Only 4%? An index fund will return higher than that. "Monthly common fees" -- Required if you are considering buying a condo. This changes the per month rent comparison dollar-for-dollar.
- pessimizer 12y ago
  Get ready for lousy stock returns http://money.cnn.com/2014/05/21/investing/stock-returns-low-shiller/ http://money.cnn.com/2014/05/21/investing/stock-returns-low-... "The Shiller price to earnings ratio was designed by Nobel Prize winning economist Robert Shiller to give investors a sense of whether stocks are cheap or expensive. It compares stock prices, as measured by the S&P 500 index, with inflation-adjusted corporate earnings over the past 10 years. "The magic number at the moment is 25. That's the current Shiller ratio, and it indicates that stocks are on the expensive side. The long-term average, going back more than 130 years, is 16.5. "But the current level is significant for another reason. According to research by Credit Suisse, when the ratio has been between 25 and 26 in the past, stock returns over the next five years have been just 2.7%. That's after adjusting for inflation."
  - hashberry 12y ago
    In the short-term, perhaps. Returns long-term are high than 3%-4%.
    - pessimizer 12y ago
      Depends on which term. Retirement roulette.
- nilkn 12y ago
  > Only 4%? An index fund will return higher than that. Just like homes will always go up?
  - refurb 12y ago
    That's what makes me laugh when I talk to people who are looking to buy a home. Despite the housing crash of 2007, when I ask them what would happen if housing prices go down, they get this disturbed look on their faces and say "nah! not in this city!!".
mbostock 12y ago
Author here. Thought I’d highlight my favorite, perhaps non-obvious feature: the slope of the charts tells you whether the variable is positively or negatively correlated with the cost of buying. And depending on the settings, that slope can change from positive to negative. For example with the defaults, the down payment chart is flat. This means the total cost of buying is relatively unaffected by the size of your mortgage. Felix Salmon pointed out this demonstrates the Modigliani–Miller theorem: http://en.wikipedia.org/wiki/Modigliani–Miller_theorem http://en.wikipedia.org/wiki/Modigliani–Miller_theorem Of course, there’s still a big intangible difference between having debt and not having debt, like your ability to respond to market or income changes. And in an inefficient market, loans can be more or less expensive. Playing with the variables and seeing slopes change from positive to negative or vice versa is interesting, too, because these suggest different optimal decisions. Like as your investment return rate goes up, the down payment slope becomes increasingly positive — meaning when stocks are doing well (and assuming mortgage rates aren’t also going up), it’s better to have a smaller down payment and put more money into investments. To a lesser degree, your marginal tax rate changes the slope of the down payment as well, by discounting the mortgage interest payments. The magnitude of the slope also gives a sense of your risk: you can see how sensitive the equivalent rent estimate is to small changes.
- krschultz 12y ago
  This is a really awesome tool, and as someone in NYC currently debating renting vs buying it is very useful. I used to pass around the old NYTimes Rent V Buyer calculator often when people started thinking about the topic, I definitely will send this one out instead.
- NoMoreNicksLeft 12y ago
  > Of course, there’s still a big intangible difference between having debt and not having debt, Both renters and owners need a place to live in the future, assuming they're not dead. If we exclude those who live with mommy and daddy or mooch off of other people... Well, then whether the debt is formal with a mortgage or not makes little difference. Even renters are on the hook to come up with $1000 for the month of October 2016. It's just not in writing.
Tycho 12y ago
zappo had a list of uk cities comparing rent prices with interest only mortgage price. Some cities eg. Edinburgh showed hardly any difference (for comparable sized properties). What I'm not sure about though is how it compares to a traditional principal and interest mortgage. Obviously your interest payments fall as the mortgage amortises... So then how does total interest compare to money spent on rent in that case? That's what most people would be wondering when it comes to evaluating renting vs buying...
- mbostock 12y ago
  Interest payments are only part of the story. The equivalent rent we calculate provides a much more direct comparison.
- colinramsay 12y ago
  I think you might mean Zoopla? http://www.zoopla.co.uk/press/releases/buying-beats-renting-in-aberdeen-but-it-pays-to-rent-in-london/ http://www.zoopla.co.uk/press/releases/buying-beats-renting-...
  - Tycho 12y ago
    Er... Yes.
wkd415 12y ago
Would love to see this for lease or buying cars...
- jonmb 12y ago
  Leasing is almost always more expensive, but there are some benefits. This page explained it well: http://www.edmunds.com/car-buying/compare-the-costs-buying-vs-leasing-vs-buying-a-used-car.html http://www.edmunds.com/car-buying/compare-the-costs-buying-v...
- frenchman_in_ny 12y ago
  The NYTimes did do it, it's just not as slick as the housing rent vs. buy calculator. http://www.nytimes.com/2013/09/21/your-money/car-leases-grow-more-enticing-but-no-less-expensive.html http://www.nytimes.com/2013/09/21/your-money/car-leases-grow... http://www.nytimes.com/interactive/2013/09/21/your-money/To-Buy-or-to-Lease.html http://www.nytimes.com/interactive/2013/09/21/your-money/To-...
- yen223 12y ago
  In theory, leasing should be much better, since cars don't appreciate in value, negating one of the advantages of owning. In practice, lease prices are so high that it seldom makes sense to lease.
- bane 12y ago
  Buy a reliable cheap car that's easy and cheap to maintain and repair. Pay it off as quickly as possible and run it for 10+ years. Your operating cost per mile over a vehicle lifetime like that gets measured in fractions of a dollar per mile. My almost 13 year old car costs me something like <$.30/mile right now and getting cheaper the older it gets. So far, I've never had a repair that cost more than $300 and gas mileage is comparable to some hybrids. It cost me $12k new and I paid it off in 2 years so my actual purchase cost was something a bit higher, but I didn't let the financer recoup even half of their expected interest off of me.
refurb 12y ago
The calculator is surprisingly accurate based on some math I did late last year when thinking about buying a house. A small (1300 sq ft) house in SF can be bought for $750K in some neighborhoods in the south of the city. The ones in between the fancy ones and the crappy ones. I did a pretty detailed analysis of what everything would cost. Loss of investment income on the down payment, insurance, property taxes, etc. And came out to around $4100. You can rent the same house in SF for around $3750/month, so unless you're assuming a pretty spectacular rise in home values, it doesn't make sense to purchase.
- greedo 12y ago
  I might be missing something, but if house prices rise just 1% annually, your differential would shrink dramatically in favor of ownership.
  - veemjeem 12y ago
    So I live in rent controlled area in the bay area where I pay around $1500 for a 2 bedroom. Using this calculator, it seems like buying almost any kind of home in the bay area would be a very bad decision.
    - jakebellacera 12y ago
      Sure, until you decide to move. Then you'd have to pay market prices. Rent control, in San Francisco at least, is an exception that favors the renter and "punishes" the landlord. Even though the owner can't increase their current tenant's rent, the owner is still making an increase on equity due to the home's value increasing.
  - refurb 12y ago
    In the scenario I modeled, I was assuming around ~3% growth. Rent control definitely favors renting in a lot of situations. If you were at the whim of your landlord, then I could see buying being more attractive, especially in a market where housing prices are going up. The real kicker about owning a house is that housing prices never go up a nice steady 2% or 3% per year. They go up 5% one year, then down 5% the next. If you don't have control over when you sell (loss of a job, etc), that can really hammer you.
snarfy 12y ago
When interest rates are low, prices are high, and when rates are high, prices are low. It's fairly straight-forward. Your payment works out about the same. You should buy when rates are high and prices are low because you can renegotiate the rate later. You can't renegotiate the price. Rates are still pretty low now, and thus I continue to rent.
- b_emery 12y ago
  > When interest rates are low, prices are high, and when rates are high, prices are low. The data says otherwise: "“There’s no strong correlation between interest rates and home prices,” ... The bottom line is other factors (like a stronger economy) have a bigger impact on house prices than changes in mortgage rates." [1] [1] http://www.calculatedriskblog.com/2013/06/house-prices-and-mortgage-rates.html http://www.calculatedriskblog.com/2013/06/house-prices-and-m...
- gutnor 12y ago
  Well it depends how good the rental rate is or how much good your investments are or how different is the increase in rental rate vs house value ... That's where the calculator is useful.
- imjk 12y ago
  Makes sense on the surface, but historically this hasn't been true.
iamthepieman 12y ago
I resisted buying for a long time for mostly flexibility reasons. Eventually, with a 2.85% 15 year rate and a roughly 2.5% home price growth rate it was just stupid not to buy. This is a great tool. I would have to find a rental for nearly half (60%) the going rate in order for renting to make sense in my area.
millstone 12y ago
My wife and I found a great apartment to rent. It was spacious, quiet location, reasonable rent. We were happy for a few years. Then the owners sold the complex, and the new owners set out to remodel everything, very much against our wishes. Construction crews started entering our apartment. They came in while we were out, laying down plastic sheets and moving our furniture around. They sometimes came in while I was sleeping, and while I was getting dressed. It was humiliating: I felt stripped of my privacy and dignity. Buying allows you to control your property, but more significant to me is what renters must endure: arbitrary changes to their home, allowing unfamiliar men to enter their homes uninvited, etc. As a homeowner, nobody enters my home uninvited, unless they have a search warrant!
- up_and_up 12y ago
  > but renters must submit to arbitrary changes, allow men to enter their homes uninvited Before buying our home, my wife and I rented and had a horrible time with our property manager. The climax was coming home on a chilly friday night in November with NO WINDOWS in our bedroom and nice little note stating: "Be back on Monday". The painters were supposed to paint the trim and windows and decided take them out to paint them but not to replace them for the entire weekend. > Buying allows you to control your property Amen
- blub 12y ago
  Which country was this in? I find it incredible...is it everywhere like this?
  - gsnedders 12y ago
    Certainly in most (all) of Europe (even in places with relatively weak, by European standards, tenancy agreements like the UK!) nobody except the tenant can enter the property unless advance notice is given or in case of emergency (e.g., if a pipe bursts, the landlord is entitled to repair it without having to give advance notice).
  - monknomo 12y ago
    If you are in the states and are not in a place with an extremely well established rental market run by professional landlords, it is probably like that. Of course, most places require that landlords give the tenant some amount of notice before entering the home (generally a day or so), but taping a notice to the renter's door that said "remodeling starts tomorrow and will last a month" would probably cover that. Some states have renter's law that says something like "if your rental is unusable because of construction or damage or what have you" that you can seek "equivalent premises at the market rate" and bill your landlord, but I suspect if you do that you'd better start shopping for a new place to live and limbering up your small claims court documentation. //edit The bottom line in the states is that you probably have decent rental protection but will have to sue the guy you are buying a roof from if they don't voluntarily play nice.
lazyant 12y ago
We need one like this but Canada; no tax breaks on mortgage interests or property taxes up here :-(
- refurb 12y ago
  Canada also doesn't have 30-year mortgage terms. The loans are still amortized over 30 years, but you need to renew the mortgage every 5 years or so. If you lock in a super low interest rate, you only lock it in for 5 years (10 years are available as well, but you pay a premium in terms of interest rate).
  - rahimnathwani 12y ago
    This sounds similar to the mortgage market in the UK. Longer term fixed rates exist but the rate reflects the yield curve over the fixed period (not just current spot rates) and there is usually a large redemption penalty. For example, if you sign up for a 4-year fixed rate deal, there might be a redemption penalty of 4% if you close it out in year 1, 3% in year 2 etc.
    - refurb 12y ago
      Canada has the pre-payment penalties as well. Wouldn't surprise me that origins of the Canadian system came from the UK. The US typically doesn't have pre-payment penalties which is another benefit for US homeowners since if you get a mortgage rate of 6% and a 30 yr term and rates drop to 3%, you can simply refinance without pre-payment penalty and lock in a lower rate. You do need to pay mortgage fee with the refinance, but banks often have deals where the costs are pretty low. That said, one has to wonder if the US mortgage rules create perverse incentives for US homebuyers.
Shivetya 12y ago
I will tell you my reason to own a home, large at that, even though I am single. I have seen friends/coworkers have to move after leases were not renewed. I have seen friends/coworkers lose put up with stuff about their rentals I would not tolerate as an owner. Sure it go fixed, but damn. I have also seen them held hostage to rising rents just to renew. Yeah it can be more expensive at times, more work definitely, but I never have to worry about someone else deciding they don't want me living here.
- jakebellacera 12y ago
  Absolutely. I guess lots of people, myself included, choose renting over buying for the main reason that they might find themselves not living in their current location in a couple of years. For me at least, that is the price to pay for the freedom of where I live. I know that once I find a place to settle down I will consider buying, but until then I will rent.
im_a_lawyer 12y ago
30 year mortgage is simply too long for me. I don't have that kind of stability. Mortgage term limit should be 10 years or maybe 15 with 20% down, that would solve a lot of problems. Before you say that I can choose to pay it off in 10 years - I can't. Too many dinks in my area are maxing out on their 30 year mortgages and inflating the cost of housing all around - I wouldn't be able to afford payments on 10 year term loan.
gfodor 12y ago
The problem with this (admittedly very good) calculator is there are two key knobs that require massive amounts of speculation but have a huge impact on the decision: projected return on investment and expected home price growth. Good luck predicting either of these over the next 10 years.
- sarah2079 12y ago
  I wouldn't say this is a problem with a calculator. These two factors make predicting whether renting or buying will be better really hard in some cases, and the page makes that clear. I see it as an interactive tool that helps you explore all the variables involved rather than a calculator designed spit out a clear yes or no answer in every case.
- sgustard 12y ago
  Same with retirement calculators. Step 1, at what age do you plan to die?
jbarham 12y ago
This calculator ignores the fact that the market for real estate buyers is increasingly global but the rental market is local. If you are in your 20's and grew up in a middle class family in Vancouver, Toronto, Sydney, Melbourne or Auckland, and have a middle class job, it is virtually impossible for you to be able to afford to buy a house in the city in which you grew up. E.g., here's a New Yorker article on the impact of the global property market in Vancouver: http://www.newyorker.com/talk/financial/2014/05/26/140526ta_talk_surowiecki http://www.newyorker.com/talk/financial/2014/05/26/140526ta_.... The political fallout from the intergenerational inequality over property ownership in Canada, Australia and NZ is going to be very interesting to watch...
- usaar333 12y ago
  > This calculator ignores the fact that the market for real estate buyers is increasingly global but the rental market is local. How is the calculator ignoring this fact? If you think that increasing globalness will cause home price growth to be higher than inflation/rent growth, you can modify that parameter.
  - jbarham 12y ago
    My point is that for young people who grew up in cities like London or Vancouver, the choice is not buy or rent, the choice is rent or move away from the city they grew up in if they want to be able to buy a house on a middle class salary.
    - usaar333 12y ago
      Are you restricting rent to "living with roommates"? And not allowing for owning to be "rent out to others"? In San Francisco, owning is incredibly expensive. But so is renting an equivalent piece of property. So I'm not grasping why the options are limited to rent or "move away". (aside from exceptions such as renting under rent control)
      - alextgordon 12y ago
blue11 12y ago
Buying a home is not an investment, it's a quality of life improvement. Something that I usually don't see mentioned in rent-vs-buy arguments is that the housing stock that's available for sale can be very different from what's available on the rental market. The two markets are similar only at the low end. If you want something nicer, the chance that you are going to find exactly what you want is very slim. Even "luxury" apartments for example typically have beige carpet, cheap appliances, cheap bathroom fixtures, etc. For a private landlord it doesn't make sense to upgrade the property above the bare minimum either. It's just not cost effective. And if you are looking to rent a single family house your choice will be even more limited. Now, if you buy your home, with some reasonably priced improvements you can improve your level of comfort significantly. Of course, not everybody cares about these things. If you don't care too much about where you live then renting makes perfect sense.
- lnanek2 12y ago
  Depends on what you consider quality of life. Mine mostly depends on short commute time and I don't really care about interior decor beyond there being WiFi, a shower, and a bed. End result is that renting is a much higher quality of life because you have more choice of where to rent and can rent the minimum travel distance to work.
adamkittelson 12y ago
I'd personally find this more useful if I could start with what I'm paying for rent and get a result of "If you can buy a similar home for less than $xxx,xxx then buying is better."
- 33W 12y ago
  You can do this by setting all of the sliders except for the home price, then dialing it in until your rent is shown.
basdevries 12y ago
Tl;dr http://www.fastask.it/is-it-better-to-buy http://www.fastask.it/is-it-better-to-buy
alexeisadeski3 12y ago
This version is better: http://www.nytimes.com/interactive/business/buy-rent-calculator.html?_r=0 http://www.nytimes.com/interactive/business/buy-rent-calcula...
re_todd 12y ago
My uncle bought his house and pays $300/month in a neighbourhood where rent is $1,500/month on a similar home. He is near the end of a 30-year loan, and will retire soon, paying just property taxes and upkeep. Keeping the long-term in mind, it seems better to buy.
- bane 12y ago
  We're 7 years in on a home. Originally we had a 30 year mortgage, a couple of no cost refinances later we're on a 15 year mortgage with a <3% borrowing rate which is almost free money. We've been paying down the principle as well and our monthly mortgage is now about 50-60% of the comparable rents and dropping while rents in my area are rising at 5-6%/yr. We're on track with paying off the loan inside of 2 or 3 years after which we'll be living in a very nice home effectively for free. We're even thinking of doing some basement modifications and renting out the basement as a separate apartment (we never use the basement for anything the house is >5000 sq ft.) which will completely cover our mortgage while it's still required or will bring in income after the house is payed off. Every one of these scenarios would be impossible if we were renting, all of the money we would have payed in rent would have disappeared into smoke and we would have been helping somebody else make their mortgage payments or making them money. And oh yeah, our downpayment on this house was covered with what we made in appreciation on our previous house, plus we payed off two cars with it. We've already made some money on this house as well despite the housing crash. It's recovered the original value and is in the black now.
hagope 12y ago
Has anyone compared this to the Trulia buy versus rent calculator? http://www.trulia.com/rent_vs_buy/ http://www.trulia.com/rent_vs_buy/
secondForty 12y ago
Really neat that you've updated this. One issue: The graphs of grey bars on white background have very little contrast even in different browsers on a nice monitor. The old version of the calculator has much more color contrast between the graphs and background and doesn't have this issue.
kerneis 12y ago
Is this calculator very specific to the American market, or would it also produce accurate estimates for, e.g., France or the UK?
- russgray 12y ago
  I've just used it for the UK. I ignored the currency and just used exact numbers (so what I paid for my house in £ is the number I put into the site as $). Under taxes, I adjusted property tax until the dollar amount was roughly equivalent to my annual council tax, and adjusted the deductible to 0. Under closing costs, I included stamp duty as a buying cost. Insurance, maintenance, etc are all direct conversions. Leaving most of the expected growth sliders in place, and taking into account that I've shortened my mortgage with additional payments, it estimated I'd only be better renting if I could get an equivalent property for about £565. In reality, the smaller house a few doors up rents for about £1500, and Zoopla estimates the rental value of my house at £1600. So, either I live in a really good buying area, or the US calculations don't translate well.
bane 12y ago
Doesn't have the fancy d3 visualization, but here's a better analysis over the long run (30 years). It even stacks the deck against owning at the start by assuming 100% financing. There's a few missing components (mortgage insurance etc.) but even if you add those numbers into this rather detailed analysis, the conclusion doesn't change. It's actually a good enough analysis that you can just added or subtract a few other scenarios from it yourself and until you're describing some very bizarre circumstances, the basic conclusion holds. All the calculations and reasoning are provided here. Buying is unambiguously a better use of your money over the long term. It's not even close. http://assayviaessay.blogspot.com/2014/04/rent-or-buy.html http://assayviaessay.blogspot.com/2014/04/rent-or-buy.html Lots of people here describe renting as having an upside because you can remain location mobile, but that's true of owning as well. The only option at that point isn't to sell your home and then buy one somewhere else, you can also rent out your current home, and buy a second one. You can continue doing that ad nauseum, except now you've convinced other people to pay for your mortgage instead of you. In the end you'll own a few properties and all the people who rented from you will own nothing. Something mentioned in my link but not explicitly in the OP, rent goes up, mortgage payments stay the same or can go down. Over 30 years, your housing burden goes down significantly providing you with increased monthly liquidity. At the end of the day, you own the property at the end and for all years >30 you effectively live for "free" (minus taxes). I urge everybody reading the OP to take a few spare hours and run the numbers themselves and see if the easy conclusion here holds out for them.
- techsupporter 12y ago
  That only works if a few things are true, primarily that you can rent your properties for more than their carrying costs. If you bought and then the bottom drops out--which, potentially, causes you to need to move for work so you have to sell low--then this isn't as feasible. Second, you also take on the risk of being a landlord, so you're now responsible for the maintenance and upkeep on two or more properties and you get the cost of vacancies. True that your housing costs will eventually drop to near-zero (upkeep and property taxes always exist), but renting out your place won't always help you with that. Besides, more and more people are winding up in blasted Homeowners' Associations with deed restrictions that prevent renting entirely or more than a certain, small, percentage of rentals. Ultimately, as you said, the decision is an individual one, but the conclusion is usually far from easy. (Even more bonus fun: Try accidentally being the landlord of someone who decides to cook meth in one of your rentals. Does your investment risk profile consider this? Remember that rentals are, fundamentally, investments, unlike your primary residence which is, first and foremost, your shelter.)
oldspiceman 12y ago
Rent or buy arguments universally skip what I consider the most important factor in any major investment decision: freedom. When you buy a house, you tie up major assets and take on a huge debt load. This provides a massive constraint on your life. You're less likely to take on a risky job opportunity, you're less likely to move for a good opportunity, you're less likely to purchase other things you enjoy, and you put all your eggs in one basket. On the last point, as Americans should know now, real estate is not a sure holder of value. You can easily lose 50-100K if you need to sell your house to move somewhere else but there are no buyers. The flipside of this is you may sell it for the asking price but need to wait a year to do so.
MrBuddyCasino 12y ago
Don't forget the human factor! Though theory says buying a house is not always the best financial move, on average those people are better of when they're old, because they are forced to live more frugal. People that rent an apartment or house usually don't have the discipline to live as frugal as buyers are forced to be.
judk 12y ago
This analysis always misses the most important by far for non-yuppies: the housing mix for renting vs owning is very different. In my neighborhood, you can't rent a house, because everything is owner occupied. Rent vs Own is a boring question. Rent This vs Own That is nearly impossible to quantify.
pilom 12y ago
The New York Times has had this same calculator for years with all the same options and a much better interface: http://www.nytimes.com/interactive/business/buy-rent-calculator.Html http://www.nytimes.com/interactive/business/buy-rent-calcula... Why did they make it worse?
- scott_karana 12y ago
  Worse according to who? I can see the appeal of the old version, but I found the new one more suitable to my needs in every way I can think of.
smackfu 12y ago
Another variable that would be useful is property-tax growth rate. Because sadly that seems to increase pretty constantly.

408 points by ovechtrick 12y ago

I said this when such a thread came up the last time: If you can (easily) switch jobs without moving it might make sense to buy. If you can't, however, renting is the safer option as you can move if/when there is a problem with the job. Domiciles can be rather illiquid at times, which sucks when you need to move for work. It's a separate question if it's worthwhile to buy at all, as that's dependent on geography, present and future market trends, lifestyle choices, ...

jaredmcateer 12y ago
Indeed, my wife and I both are pretty much equals when it comes to our careers, we both find them fulfilling and enjoyable, but they are completely different focuses. If one of us were to get a job offer that required us to move, we would have to be certain the other could get a job of equal value there as well or the job offered would have to be about twice as good as the current. So it made the decision to buy much easier and it hardens us against jumping from job to job simply because the grass may look greener.
hkmurakami 12y ago
Some people say "oh you can always rent the house out!" but they often forget that once they move away and have to hire a property management firm, the fees that they'll have to pay will erode the rent revenue below breakeven with the mortgage payments (without such a manager, you can frequently break even or better vs mortgage)
- vonmoltke 12y ago
  First, it depends on the rental market. Unless the local housing market deflates, after several years you should be able to get more than your expenses in rent, even after giving the management company their 10% (or whatever it is in your area). Second, the break-even point is based on the principal to interest split in your payment. That is a function of your loan term and how deep into the term you are.
- sliverstorm 12y ago
  I don't think people necessarily see that as a perfect solution in which they make a profit. If you can come close to breaking even by renting it out, that gives you more runway with which to sell the place. Reduces the time pressure, so to speak.
- gnoway 12y ago
  In at least one US State, your property taxes are different if you're living in the home vs. renting it out. In my case, losing the homeowner's exemption would almost double my property taxes. I'm not sure if you get to deduct property taxes for non-homestead property on your federal return either. In my case, losing this deduction would force me to use the standard deduction instead of itemizing. So, a possible double-whammy. edit: note this is for the US.
  - quesera 12y ago
    > I'm not sure if you get to deduct property taxes for non-homestead property on your federal return You can. Property tax goes on Schedule E as a business expense, just like insurance, utilities, repairs, etc. You can also deduct mortgage interest for rental properties.
analog31 12y ago
In general, the model doesn't include risk.
mattm 12y ago
To add to this, people don't usually lose their jobs in a bubble. If you are losing your job, chances are a lot of other people in your area are also losing their jobs which makes it even harder to sell.

aet 12y ago

I think the NYT has redone this interactive piece like 50 times now.

mbostock 12y ago
Surely you jest! The previous version was four years ago (in 2010) and was implemented in Flash. Screenshot: https://twitter.com/driven_by_data/status/469498632027537408 https://twitter.com/driven_by_data/status/469498632027537408
- aet 12y ago
  My bad
- polskibus 12y ago
  Congrats for a article on the NYT! I can't see whether D3 is used or not - can you shed some light on what did you use?
  - cwang912 12y ago
    I think he's the guy that created D3, so I'm guessing that's what he used. (Or at least I'm pretty sure...)
- caseyf7 12y ago
  I'm looking forward to seeing more flash replaced with d3!

al_gore 12y ago

There is nowhere that I particularly want to live that I could possibly afford to buy in, though.

sliverstorm 12y ago
Broaden your horizons, perhaps? Manhattan & downtown San Francisco are not the only interesting places in the world.
- TillE 12y ago
  If one of your major criteria is a walkable city (ie, no car required) within the US, that list is very short and very expensive. Leaving the country broadens your options considerably, but that also adds its own complications.
  - sliverstorm 12y ago
    If you demand walkable, then yes, you are up a creek. The only way to get purely walkable, with your grocer, theater, and night club all within a fifteen minute stroll, is high-density which generally happens in the heart of large cities, and is indeed expensive. But how about bicycle-able? My town is about 5 miles square, very bike-able, and I was able to buy a townhouse at twenty-five.
    - bane 12y ago
      Lots of newer suburbs are being designed with high walkability in mind. My newish suburb is walkable to a movie theater, bike store, huge gym, swimming pools, Tae Kwon Do school, a couple hair salons and a barber, a full grocery, a couple clothing stores, about a dozen restaurants from fast food to high-end dining, a UPS store, an optometrist, a toy store, a ballet school, two coffee shops, a dry cleaners, a bank, a liquor store, weekly farmer's market about 3 or 4 miles of landscaped parks, about 20 miles of trail and just on the edge of walkability is a full 18 hole pro-level golf course. They're planning on adding more stuff to it as well including a full county library and some other odds and ends. There's a nicer development similar to mine about a 15 minute drive that offers a similar environment. My friends live in an older neighborhood that's also just a 5 minute walk from a lively older "main street" style commercial area and likewise get all their shopping and such done that way. They live in a brand new house, but the town is a couple hundred years old and historic. You have to hunt around for them a little, but they're definitely out there.

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mcarvin 12y ago

For full disclosure I am a founder of the company but many of the mistakes in math / modeling made in the NYT Tool are corrected at SmartAsset. One example is the tax consequence of ownership - which because of the standard deduction is overestimated for lower value homes (<$250,000).

steven777400 12y ago
I just wanted to reaffirm what you're saying about the deduction on lower value homes. When we bought, people were telling us "you get to deduct the interest, it will be a huge impact!" Well, these days thankfully, interest rates are relatively low. We paid a little under $200K for our home, and combined with the married standard deduction, the interest at first barely even pushed us into the itemize category. By next year, it won't suffice to even do that and we'll be back to the standard deduction. The people who were telling us about how great the deduction is were people who all had the means to purchase much more expensive homes, and many of them bought in the past when interest rates were higher and the standard deduction lower. So it was true for them, and continues to be true for certain segments, but is not universally true.
- ratscabies 12y ago
  I was only able to itemize for the first 5 years. After that, standard deduction ever since.
- thedufer 12y ago
  It varies widely based on where you live, too. For example, in NYC state/local taxes are high (these are deductible on your federal return) so anyone with a reasonably high income is already beating the standard deduction, making the interest deduction a very large advantage.

marknutter 12y ago

If you buy, you can do whatever the heck you want to with the house or your yard. That's true freedom and to some people - myself included - worth every penny.

dgabriel 12y ago
Not true in many, many cases. HOAs, condo boards, zoning laws, and historical societies can control homeowners pretty well.
- Frozenlock 12y ago
  And you still need to pay taxes (rent) to your municipality (landlord). So if I summarize, you can't do what you want with it and you need to pay your landlord. Why are people calling this 'owning' a house?
  - seanmcdirmid 12y ago
    There are countries that lack property taxes, but they tend to be communist (china) and you are only buying a 99 year lease. Also, the lack of property taxes doesn't work very well, as it encourages speculation and then sitting on then property doing much with it waiting for values to rise. Property taxes enforces mandatory deprecation (you have to make it productive enough to at least pay the tax) and also funds things like roads, infrastructure and schools without shady corrupt deals.
    - Frozenlock 12y ago
      I didn't say anything about the good or bad of taxes, just asking why people are using a word when it shouldn't be. Historical reasons? Delusions? Sales tactics?
      - seanmcdirmid 12y ago
        The right to property has never been without responsibility. I can own a house but then I'm responsible for sharing the costs of infrastructure around the house. You would find lower property taxes in the states in areas with little infrastructure (I.e. the bush in Alaska). Even the city state kings of the first communities needed to provide defense and such, taxation is the obvious way to do that. Taxation of property is quite reasonable compared to head taxes.

hashberry 12y ago

Two important adjustments when using this: "Investment return rate" -- Only 4%? An index fund will return higher than that. "Monthly common fees" -- Required if you are considering buying a condo. This changes the per month rent comparison dollar-for-dollar.

pessimizer 12y ago
Get ready for lousy stock returns http://money.cnn.com/2014/05/21/investing/stock-returns-low-shiller/ http://money.cnn.com/2014/05/21/investing/stock-returns-low-... "The Shiller price to earnings ratio was designed by Nobel Prize winning economist Robert Shiller to give investors a sense of whether stocks are cheap or expensive. It compares stock prices, as measured by the S&P 500 index, with inflation-adjusted corporate earnings over the past 10 years. "The magic number at the moment is 25. That's the current Shiller ratio, and it indicates that stocks are on the expensive side. The long-term average, going back more than 130 years, is 16.5. "But the current level is significant for another reason. According to research by Credit Suisse, when the ratio has been between 25 and 26 in the past, stock returns over the next five years have been just 2.7%. That's after adjusting for inflation."
- hashberry 12y ago
  In the short-term, perhaps. Returns long-term are high than 3%-4%.
  - pessimizer 12y ago
    Depends on which term. Retirement roulette.
nilkn 12y ago
> Only 4%? An index fund will return higher than that. Just like homes will always go up?
- refurb 12y ago
  That's what makes me laugh when I talk to people who are looking to buy a home. Despite the housing crash of 2007, when I ask them what would happen if housing prices go down, they get this disturbed look on their faces and say "nah! not in this city!!".

mbostock 12y ago

Author here. Thought I’d highlight my favorite, perhaps non-obvious feature: the slope of the charts tells you whether the variable is positively or negatively correlated with the cost of buying. And depending on the settings, that slope can change from positive to negative. For example with the defaults, the down payment chart is flat. This means the total cost of buying is relatively unaffected by the size of your mortgage. Felix Salmon pointed out this demonstrates the Modigliani–Miller theorem: http://en.wikipedia.org/wiki/Modigliani–Miller_theorem http://en.wikipedia.org/wiki/Modigliani–Miller_theorem Of course, there’s still a big intangible difference between having debt and not having debt, like your ability to respond to market or income changes. And in an inefficient market, loans can be more or less expensive. Playing with the variables and seeing slopes change from positive to negative or vice versa is interesting, too, because these suggest different optimal decisions. Like as your investment return rate goes up, the down payment slope becomes increasingly positive — meaning when stocks are doing well (and assuming mortgage rates aren’t also going up), it’s better to have a smaller down payment and put more money into investments. To a lesser degree, your marginal tax rate changes the slope of the down payment as well, by discounting the mortgage interest payments. The magnitude of the slope also gives a sense of your risk: you can see how sensitive the equivalent rent estimate is to small changes.

krschultz 12y ago
This is a really awesome tool, and as someone in NYC currently debating renting vs buying it is very useful. I used to pass around the old NYTimes Rent V Buyer calculator often when people started thinking about the topic, I definitely will send this one out instead.
NoMoreNicksLeft 12y ago
> Of course, there’s still a big intangible difference between having debt and not having debt, Both renters and owners need a place to live in the future, assuming they're not dead. If we exclude those who live with mommy and daddy or mooch off of other people... Well, then whether the debt is formal with a mortgage or not makes little difference. Even renters are on the hook to come up with $1000 for the month of October 2016. It's just not in writing.

Tycho 12y ago

zappo had a list of uk cities comparing rent prices with interest only mortgage price. Some cities eg. Edinburgh showed hardly any difference (for comparable sized properties). What I'm not sure about though is how it compares to a traditional principal and interest mortgage. Obviously your interest payments fall as the mortgage amortises... So then how does total interest compare to money spent on rent in that case? That's what most people would be wondering when it comes to evaluating renting vs buying...

mbostock 12y ago
Interest payments are only part of the story. The equivalent rent we calculate provides a much more direct comparison.
colinramsay 12y ago
I think you might mean Zoopla? http://www.zoopla.co.uk/press/releases/buying-beats-renting-in-aberdeen-but-it-pays-to-rent-in-london/ http://www.zoopla.co.uk/press/releases/buying-beats-renting-...
- Tycho 12y ago
  Er... Yes.

wkd415 12y ago

Would love to see this for lease or buying cars...

jonmb 12y ago
Leasing is almost always more expensive, but there are some benefits. This page explained it well: http://www.edmunds.com/car-buying/compare-the-costs-buying-vs-leasing-vs-buying-a-used-car.html http://www.edmunds.com/car-buying/compare-the-costs-buying-v...
frenchman_in_ny 12y ago
The NYTimes did do it, it's just not as slick as the housing rent vs. buy calculator. http://www.nytimes.com/2013/09/21/your-money/car-leases-grow-more-enticing-but-no-less-expensive.html http://www.nytimes.com/2013/09/21/your-money/car-leases-grow... http://www.nytimes.com/interactive/2013/09/21/your-money/To-Buy-or-to-Lease.html http://www.nytimes.com/interactive/2013/09/21/your-money/To-...
yen223 12y ago
In theory, leasing should be much better, since cars don't appreciate in value, negating one of the advantages of owning. In practice, lease prices are so high that it seldom makes sense to lease.
bane 12y ago
Buy a reliable cheap car that's easy and cheap to maintain and repair. Pay it off as quickly as possible and run it for 10+ years. Your operating cost per mile over a vehicle lifetime like that gets measured in fractions of a dollar per mile. My almost 13 year old car costs me something like <$.30/mile right now and getting cheaper the older it gets. So far, I've never had a repair that cost more than $300 and gas mileage is comparable to some hybrids. It cost me $12k new and I paid it off in 2 years so my actual purchase cost was something a bit higher, but I didn't let the financer recoup even half of their expected interest off of me.

refurb 12y ago

The calculator is surprisingly accurate based on some math I did late last year when thinking about buying a house. A small (1300 sq ft) house in SF can be bought for $750K in some neighborhoods in the south of the city. The ones in between the fancy ones and the crappy ones. I did a pretty detailed analysis of what everything would cost. Loss of investment income on the down payment, insurance, property taxes, etc. And came out to around $4100. You can rent the same house in SF for around $3750/month, so unless you're assuming a pretty spectacular rise in home values, it doesn't make sense to purchase.

greedo 12y ago
I might be missing something, but if house prices rise just 1% annually, your differential would shrink dramatically in favor of ownership.
- veemjeem 12y ago
  So I live in rent controlled area in the bay area where I pay around $1500 for a 2 bedroom. Using this calculator, it seems like buying almost any kind of home in the bay area would be a very bad decision.
  - jakebellacera 12y ago
    Sure, until you decide to move. Then you'd have to pay market prices. Rent control, in San Francisco at least, is an exception that favors the renter and "punishes" the landlord. Even though the owner can't increase their current tenant's rent, the owner is still making an increase on equity due to the home's value increasing.
- refurb 12y ago
  In the scenario I modeled, I was assuming around ~3% growth. Rent control definitely favors renting in a lot of situations. If you were at the whim of your landlord, then I could see buying being more attractive, especially in a market where housing prices are going up. The real kicker about owning a house is that housing prices never go up a nice steady 2% or 3% per year. They go up 5% one year, then down 5% the next. If you don't have control over when you sell (loss of a job, etc), that can really hammer you.

snarfy 12y ago

When interest rates are low, prices are high, and when rates are high, prices are low. It's fairly straight-forward. Your payment works out about the same. You should buy when rates are high and prices are low because you can renegotiate the rate later. You can't renegotiate the price. Rates are still pretty low now, and thus I continue to rent.

b_emery 12y ago
> When interest rates are low, prices are high, and when rates are high, prices are low. The data says otherwise: "“There’s no strong correlation between interest rates and home prices,” ... The bottom line is other factors (like a stronger economy) have a bigger impact on house prices than changes in mortgage rates." [1] [1] http://www.calculatedriskblog.com/2013/06/house-prices-and-mortgage-rates.html http://www.calculatedriskblog.com/2013/06/house-prices-and-m...
gutnor 12y ago
Well it depends how good the rental rate is or how much good your investments are or how different is the increase in rental rate vs house value ... That's where the calculator is useful.
imjk 12y ago
Makes sense on the surface, but historically this hasn't been true.

iamthepieman 12y ago

I resisted buying for a long time for mostly flexibility reasons. Eventually, with a 2.85% 15 year rate and a roughly 2.5% home price growth rate it was just stupid not to buy. This is a great tool. I would have to find a rental for nearly half (60%) the going rate in order for renting to make sense in my area.

millstone 12y ago

My wife and I found a great apartment to rent. It was spacious, quiet location, reasonable rent. We were happy for a few years. Then the owners sold the complex, and the new owners set out to remodel everything, very much against our wishes. Construction crews started entering our apartment. They came in while we were out, laying down plastic sheets and moving our furniture around. They sometimes came in while I was sleeping, and while I was getting dressed. It was humiliating: I felt stripped of my privacy and dignity. Buying allows you to control your property, but more significant to me is what renters must endure: arbitrary changes to their home, allowing unfamiliar men to enter their homes uninvited, etc. As a homeowner, nobody enters my home uninvited, unless they have a search warrant!

up_and_up 12y ago
> but renters must submit to arbitrary changes, allow men to enter their homes uninvited Before buying our home, my wife and I rented and had a horrible time with our property manager. The climax was coming home on a chilly friday night in November with NO WINDOWS in our bedroom and nice little note stating: "Be back on Monday". The painters were supposed to paint the trim and windows and decided take them out to paint them but not to replace them for the entire weekend. > Buying allows you to control your property Amen
blub 12y ago
Which country was this in? I find it incredible...is it everywhere like this?
- gsnedders 12y ago
  Certainly in most (all) of Europe (even in places with relatively weak, by European standards, tenancy agreements like the UK!) nobody except the tenant can enter the property unless advance notice is given or in case of emergency (e.g., if a pipe bursts, the landlord is entitled to repair it without having to give advance notice).
- monknomo 12y ago
  If you are in the states and are not in a place with an extremely well established rental market run by professional landlords, it is probably like that. Of course, most places require that landlords give the tenant some amount of notice before entering the home (generally a day or so), but taping a notice to the renter's door that said "remodeling starts tomorrow and will last a month" would probably cover that. Some states have renter's law that says something like "if your rental is unusable because of construction or damage or what have you" that you can seek "equivalent premises at the market rate" and bill your landlord, but I suspect if you do that you'd better start shopping for a new place to live and limbering up your small claims court documentation. //edit The bottom line in the states is that you probably have decent rental protection but will have to sue the guy you are buying a roof from if they don't voluntarily play nice.

lazyant 12y ago

We need one like this but Canada; no tax breaks on mortgage interests or property taxes up here :-(

refurb 12y ago
Canada also doesn't have 30-year mortgage terms. The loans are still amortized over 30 years, but you need to renew the mortgage every 5 years or so. If you lock in a super low interest rate, you only lock it in for 5 years (10 years are available as well, but you pay a premium in terms of interest rate).
- rahimnathwani 12y ago
  This sounds similar to the mortgage market in the UK. Longer term fixed rates exist but the rate reflects the yield curve over the fixed period (not just current spot rates) and there is usually a large redemption penalty. For example, if you sign up for a 4-year fixed rate deal, there might be a redemption penalty of 4% if you close it out in year 1, 3% in year 2 etc.
  - refurb 12y ago
    Canada has the pre-payment penalties as well. Wouldn't surprise me that origins of the Canadian system came from the UK. The US typically doesn't have pre-payment penalties which is another benefit for US homeowners since if you get a mortgage rate of 6% and a 30 yr term and rates drop to 3%, you can simply refinance without pre-payment penalty and lock in a lower rate. You do need to pay mortgage fee with the refinance, but banks often have deals where the costs are pretty low. That said, one has to wonder if the US mortgage rules create perverse incentives for US homebuyers.

Shivetya 12y ago

I will tell you my reason to own a home, large at that, even though I am single. I have seen friends/coworkers have to move after leases were not renewed. I have seen friends/coworkers lose put up with stuff about their rentals I would not tolerate as an owner. Sure it go fixed, but damn. I have also seen them held hostage to rising rents just to renew. Yeah it can be more expensive at times, more work definitely, but I never have to worry about someone else deciding they don't want me living here.

jakebellacera 12y ago
Absolutely. I guess lots of people, myself included, choose renting over buying for the main reason that they might find themselves not living in their current location in a couple of years. For me at least, that is the price to pay for the freedom of where I live. I know that once I find a place to settle down I will consider buying, but until then I will rent.

im_a_lawyer 12y ago

30 year mortgage is simply too long for me. I don't have that kind of stability. Mortgage term limit should be 10 years or maybe 15 with 20% down, that would solve a lot of problems. Before you say that I can choose to pay it off in 10 years - I can't. Too many dinks in my area are maxing out on their 30 year mortgages and inflating the cost of housing all around - I wouldn't be able to afford payments on 10 year term loan.

gfodor 12y ago

The problem with this (admittedly very good) calculator is there are two key knobs that require massive amounts of speculation but have a huge impact on the decision: projected return on investment and expected home price growth. Good luck predicting either of these over the next 10 years.

sarah2079 12y ago
I wouldn't say this is a problem with a calculator. These two factors make predicting whether renting or buying will be better really hard in some cases, and the page makes that clear. I see it as an interactive tool that helps you explore all the variables involved rather than a calculator designed spit out a clear yes or no answer in every case.
sgustard 12y ago
Same with retirement calculators. Step 1, at what age do you plan to die?

jbarham 12y ago

This calculator ignores the fact that the market for real estate buyers is increasingly global but the rental market is local. If you are in your 20's and grew up in a middle class family in Vancouver, Toronto, Sydney, Melbourne or Auckland, and have a middle class job, it is virtually impossible for you to be able to afford to buy a house in the city in which you grew up. E.g., here's a New Yorker article on the impact of the global property market in Vancouver: http://www.newyorker.com/talk/financial/2014/05/26/140526ta_talk_surowiecki http://www.newyorker.com/talk/financial/2014/05/26/140526ta_.... The political fallout from the intergenerational inequality over property ownership in Canada, Australia and NZ is going to be very interesting to watch...

usaar333 12y ago
> This calculator ignores the fact that the market for real estate buyers is increasingly global but the rental market is local. How is the calculator ignoring this fact? If you think that increasing globalness will cause home price growth to be higher than inflation/rent growth, you can modify that parameter.
- jbarham 12y ago
  My point is that for young people who grew up in cities like London or Vancouver, the choice is not buy or rent, the choice is rent or move away from the city they grew up in if they want to be able to buy a house on a middle class salary.
  - usaar333 12y ago
    Are you restricting rent to "living with roommates"? And not allowing for owning to be "rent out to others"? In San Francisco, owning is incredibly expensive. But so is renting an equivalent piece of property. So I'm not grasping why the options are limited to rent or "move away". (aside from exceptions such as renting under rent control)
    - alextgordon 12y ago

blue11 12y ago

Buying a home is not an investment, it's a quality of life improvement. Something that I usually don't see mentioned in rent-vs-buy arguments is that the housing stock that's available for sale can be very different from what's available on the rental market. The two markets are similar only at the low end. If you want something nicer, the chance that you are going to find exactly what you want is very slim. Even "luxury" apartments for example typically have beige carpet, cheap appliances, cheap bathroom fixtures, etc. For a private landlord it doesn't make sense to upgrade the property above the bare minimum either. It's just not cost effective. And if you are looking to rent a single family house your choice will be even more limited. Now, if you buy your home, with some reasonably priced improvements you can improve your level of comfort significantly. Of course, not everybody cares about these things. If you don't care too much about where you live then renting makes perfect sense.

lnanek2 12y ago
Depends on what you consider quality of life. Mine mostly depends on short commute time and I don't really care about interior decor beyond there being WiFi, a shower, and a bed. End result is that renting is a much higher quality of life because you have more choice of where to rent and can rent the minimum travel distance to work.

adamkittelson 12y ago

I'd personally find this more useful if I could start with what I'm paying for rent and get a result of "If you can buy a similar home for less than $xxx,xxx then buying is better."

33W 12y ago
You can do this by setting all of the sliders except for the home price, then dialing it in until your rent is shown.

basdevries 12y ago

Tl;dr http://www.fastask.it/is-it-better-to-buy http://www.fastask.it/is-it-better-to-buy

alexeisadeski3 12y ago

This version is better: http://www.nytimes.com/interactive/business/buy-rent-calculator.html?_r=0 http://www.nytimes.com/interactive/business/buy-rent-calcula...

re_todd 12y ago

My uncle bought his house and pays $300/month in a neighbourhood where rent is $1,500/month on a similar home. He is near the end of a 30-year loan, and will retire soon, paying just property taxes and upkeep. Keeping the long-term in mind, it seems better to buy.

bane 12y ago
We're 7 years in on a home. Originally we had a 30 year mortgage, a couple of no cost refinances later we're on a 15 year mortgage with a <3% borrowing rate which is almost free money. We've been paying down the principle as well and our monthly mortgage is now about 50-60% of the comparable rents and dropping while rents in my area are rising at 5-6%/yr. We're on track with paying off the loan inside of 2 or 3 years after which we'll be living in a very nice home effectively for free. We're even thinking of doing some basement modifications and renting out the basement as a separate apartment (we never use the basement for anything the house is >5000 sq ft.) which will completely cover our mortgage while it's still required or will bring in income after the house is payed off. Every one of these scenarios would be impossible if we were renting, all of the money we would have payed in rent would have disappeared into smoke and we would have been helping somebody else make their mortgage payments or making them money. And oh yeah, our downpayment on this house was covered with what we made in appreciation on our previous house, plus we payed off two cars with it. We've already made some money on this house as well despite the housing crash. It's recovered the original value and is in the black now.

hagope 12y ago

Has anyone compared this to the Trulia buy versus rent calculator? http://www.trulia.com/rent_vs_buy/ http://www.trulia.com/rent_vs_buy/

secondForty 12y ago

Really neat that you've updated this. One issue: The graphs of grey bars on white background have very little contrast even in different browsers on a nice monitor. The old version of the calculator has much more color contrast between the graphs and background and doesn't have this issue.

kerneis 12y ago

Is this calculator very specific to the American market, or would it also produce accurate estimates for, e.g., France or the UK?

russgray 12y ago
I've just used it for the UK. I ignored the currency and just used exact numbers (so what I paid for my house in £ is the number I put into the site as $). Under taxes, I adjusted property tax until the dollar amount was roughly equivalent to my annual council tax, and adjusted the deductible to 0. Under closing costs, I included stamp duty as a buying cost. Insurance, maintenance, etc are all direct conversions. Leaving most of the expected growth sliders in place, and taking into account that I've shortened my mortgage with additional payments, it estimated I'd only be better renting if I could get an equivalent property for about £565. In reality, the smaller house a few doors up rents for about £1500, and Zoopla estimates the rental value of my house at £1600. So, either I live in a really good buying area, or the US calculations don't translate well.

bane 12y ago

Doesn't have the fancy d3 visualization, but here's a better analysis over the long run (30 years). It even stacks the deck against owning at the start by assuming 100% financing. There's a few missing components (mortgage insurance etc.) but even if you add those numbers into this rather detailed analysis, the conclusion doesn't change. It's actually a good enough analysis that you can just added or subtract a few other scenarios from it yourself and until you're describing some very bizarre circumstances, the basic conclusion holds. All the calculations and reasoning are provided here. Buying is unambiguously a better use of your money over the long term. It's not even close. http://assayviaessay.blogspot.com/2014/04/rent-or-buy.html http://assayviaessay.blogspot.com/2014/04/rent-or-buy.html Lots of people here describe renting as having an upside because you can remain location mobile, but that's true of owning as well. The only option at that point isn't to sell your home and then buy one somewhere else, you can also rent out your current home, and buy a second one. You can continue doing that ad nauseum, except now you've convinced other people to pay for your mortgage instead of you. In the end you'll own a few properties and all the people who rented from you will own nothing. Something mentioned in my link but not explicitly in the OP, rent goes up, mortgage payments stay the same or can go down. Over 30 years, your housing burden goes down significantly providing you with increased monthly liquidity. At the end of the day, you own the property at the end and for all years >30 you effectively live for "free" (minus taxes). I urge everybody reading the OP to take a few spare hours and run the numbers themselves and see if the easy conclusion here holds out for them.

techsupporter 12y ago
That only works if a few things are true, primarily that you can rent your properties for more than their carrying costs. If you bought and then the bottom drops out--which, potentially, causes you to need to move for work so you have to sell low--then this isn't as feasible. Second, you also take on the risk of being a landlord, so you're now responsible for the maintenance and upkeep on two or more properties and you get the cost of vacancies. True that your housing costs will eventually drop to near-zero (upkeep and property taxes always exist), but renting out your place won't always help you with that. Besides, more and more people are winding up in blasted Homeowners' Associations with deed restrictions that prevent renting entirely or more than a certain, small, percentage of rentals. Ultimately, as you said, the decision is an individual one, but the conclusion is usually far from easy. (Even more bonus fun: Try accidentally being the landlord of someone who decides to cook meth in one of your rentals. Does your investment risk profile consider this? Remember that rentals are, fundamentally, investments, unlike your primary residence which is, first and foremost, your shelter.)

oldspiceman 12y ago

Rent or buy arguments universally skip what I consider the most important factor in any major investment decision: freedom. When you buy a house, you tie up major assets and take on a huge debt load. This provides a massive constraint on your life. You're less likely to take on a risky job opportunity, you're less likely to move for a good opportunity, you're less likely to purchase other things you enjoy, and you put all your eggs in one basket. On the last point, as Americans should know now, real estate is not a sure holder of value. You can easily lose 50-100K if you need to sell your house to move somewhere else but there are no buyers. The flipside of this is you may sell it for the asking price but need to wait a year to do so.

MrBuddyCasino 12y ago

Don't forget the human factor! Though theory says buying a house is not always the best financial move, on average those people are better of when they're old, because they are forced to live more frugal. People that rent an apartment or house usually don't have the discipline to live as frugal as buyers are forced to be.

judk 12y ago

This analysis always misses the most important by far for non-yuppies: the housing mix for renting vs owning is very different. In my neighborhood, you can't rent a house, because everything is owner occupied. Rent vs Own is a boring question. Rent This vs Own That is nearly impossible to quantify.

pilom 12y ago

The New York Times has had this same calculator for years with all the same options and a much better interface: http://www.nytimes.com/interactive/business/buy-rent-calculator.Html http://www.nytimes.com/interactive/business/buy-rent-calcula... Why did they make it worse?

scott_karana 12y ago
Worse according to who? I can see the appeal of the old version, but I found the new one more suitable to my needs in every way I can think of.

smackfu 12y ago

Another variable that would be useful is property-tax growth rate. Because sadly that seems to increase pretty constantly.