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A Better Rent vs. Buy Calculator



June 12, 2009 – Comments (4)

brought to my attention by Hiddenflem, in the discussion below this one.

This calcluator, at the NYT, overcomes a severe problem that nearly every other rent. vs. buy calculator I've ever seen has had. This one allows you to factor in negative appreciation for the home purchased. All the others I'm familiar with only let you assume positive appreciation, or at the worst, 0%.

4 Comments – Post Your Own

#1) On June 12, 2009 at 10:13 AM, dudemonkey (53.50) wrote:

Excellent.  Thanks!

This also doesn't take into account the fact that renters have access to the pool of present and future cash that would have been paid to the bank as interest.  The hope is that we can compound that money faster than the home would appreciate.

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#2) On June 12, 2009 at 12:16 PM, TMFBent (99.29) wrote:

I think it does do this thus the investment return line, applied to the down payment and the difference between rent & mortgage, line

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#3) On June 12, 2009 at 1:16 PM, BradAllenton (31.51) wrote:

Thanks for the post. I have had this conversation a thousand times and could never show people with such a great tool.

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#4) On June 17, 2009 at 12:04 PM, saunafool (< 20) wrote:

Yeah, the NYT calculator has been there for several years now. I can't believe I never linked you to it in the past. It's the best.

What I noticed with the buy vs. rent calculators during the bubble years was that you could set up a buy vs. rent scenario for a house that was, say, $400,000 compared to rent of $2000 a month. If you assumed the house was going to appreciate 7%, the calculator would recommend buying. Fair enough.

Where I could see that the logic of these things clearly broke down was if THE SAME HOUSE was selling for $800,000 and still renting for $2000 per month, the calculators would say buying was an even better deal, as long as you kept the inflated expectation for appreciation.

In fact, as long as you assume 7% annual returns (and certainly if you assume 10% or 14%) then it doesn't matter how much the house costs. It's always a better deal than renting. Of course, were this true, houses would all just immediately be priced at infinity (and weren't they close enough at the top of the bubble, anyway).

I'm hearing the call to prayer, so I've got to go.

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