Buying vs Renting

January 23rd, 2008, 5:23 pm PST by Greg

A while ago, I posted a calculation that I had done on renting a home vs buying one. Those calculations have been intriguing me ever since. I have had several conversations with people about the pros and cons, and and what-if scenarios.

I finally decided that I needed to automate these calculations so I could easily handle the what-ifs. Thus came to be my very own Renting vs Buying Calculator.

Follow that link, have a look, and play with some numbers. The buttons beside text boxes generally calculate/estimate the corresponding value from relevant numbers above. You only really have to fill in the numbers without buttons beside them. The defaults are my current best-guess at the economics of buying/renting a nice condo in suburban Vancouver.

It’s shocking how hard it is to make buying financially better, as long as you assume two important things:

  • House values aren’t going to continue to rise at the outrageous rates they have for the last five years in North America. This is already slowing, and betting your only/largest investment on that assumption is foolish.
  • You have the discipline to invest in something else (mutual funds or what have you) without the pressure of a looming mortgage payment. Automatic monthly withdrawals make this easy, but it has to actually happen.

The only scenario that I can find where buying has a marginal benefit is buying a small detached home (one of the 1970s-era Vancouver specials), and renting a basement suite. Of course, that comes with the extra responsibilities and headaches of being a landlord.

On the other hand, it can be hard to find rental places that are as nice as what you might imagine buying. The rental market seems to generally target “livable”, not “nice”.

Any comments on the calculator are appreciated. It has everything I can think of that should be in there, but some of you might know better than me.

Update 12/2010: has created a similar calculator.

6 Responses to “Buying vs Renting”

  1. Katrina Says:

    So Greg and I are at odds about this.

    I believe that to make this comparison, you have to use an amount of rent that is for a comparable place (at least in “standard of living”) as the place you are considering buying. So I think that you can NOT compare buying a brand new condo on a sky train line with renting our current basement suite. These are not comparable at all in “standard of living”. If you take into account that rent in a place with a comparable standard of living as a new condo (which is more like 2-3x what we’re currently paying), then buying the new condo actually works out to a better financial investment even with a low increase in house value over 20-40 years.

    Also, you have to figure that your rent is going to go up in the 20-40 years that you may be paying off your mortgage. It sure as hell isn’t going to stay the same or go down!

    Anyways, I’ve already offered the basement suite of our non-existent home to Lisa and Brian as part of (*ahem* all of) Lisa’s post-doc salary package. So now we have to buy a house because my post-doc needs a place to live!

  2. Jeb Says:

    I totally agree with Kat. You have to compare comparable places, otherwise you aren’t analyzing at all; you are just rationalizing your pre-made decision. If you want to use the rent on your basement suite as the number in your rent scenario, then in the housing scenario of the detached house with basement suite, you should be living in the basement, and renting the upstairs out to someone.

    It seems pretty intuitive that if you are comparing comparable places, it must cost more to rent than to own. The person renting you the space isn’t doing it because they think you are cute. They are doing it to make money above the cost of ownership. (Or at the very least to have the cost of ownership covered, in which case you are buying them a house)

    I would also second Kat’s point that rent goes up almost every year. Mortgage payments, on the other hand, stay more or less fixed. Well that’s not entirely true. About 20 years from the time you start making them they change drastically. To zero.

    While we are on the subject of me taking Kat’s side, I vote that she gets a dog.

  3. Curtis Says:

    I think the argument is that the commonly held adage that buying is better than renting is not necessarily true in all situations.

    Each situation has it’s own benefits- as a renter, you don’t need to worry as much about home upkeep or property taxes, or home insurance, and your financial well-being isn’t irrevocably tied to home-prices in your neighborhood. (One murder and you’ve lost $10,000!) You have the freedom to take off and find a new place if you so choose. It’s not, of course, comparable with the sort of place that you would own, because as a renter you’re looking for the cheapest sort of place that meets all of your needs.

    As a property owner, you can have a nicer place, and your mortgage acts as a sort of forced savings- you’re paying rent, but instead of going to someone else, it’s actually going in to your own pocket. As well, you don’t have to worry too much about fluctuating rent, although a severe change in interest rates with a variable-term mortgage could make for some bad times.

    It’s really a matter of choice, I think.

  4. Blubba Says:

    I’m trying to figure out if renting is better than selling. I have a rental house that we are considering selling on the thought that investing that money would be better, over the long term, than keeping it. It’s a scary thought, though, to not own property anymore. I do agree with Katrina that you have to compare similar markets, but there are so many additional costs to owning.

  5. Andy Lumb Says:

    So, someone has created a neat chart system that does this comparison. Check it out:

  6. Brian H Says:

    Comparable places may seem intuitive, but mebbe not. Consider, e.g., that you’d better think in terms of about 20 yrs. for staying in your purchased place. So, what kind of place would you expect to be renting 20 yrs. from now? It might be far better than your best possible current purchase. It might not even be in the same city!

    Purchasing is a big time commitment — if staying put that long is a negative for you, put a BIG dollar weight on it and see how your decision comes out!