A few big elements seems to be missing here: 1) maintenance costs which can be 1% of home value 2) opportunity cost - how much could i have made by applying the down payment + difference between rent vs mortgage towards other investments? 3) tax benefits of owning vs renting
great points which I will add when I improvise this sheet, or better yet if you have an improved version of the google sheet I have, please share and we can build on it together.. @vpansare
When calculating for Chicagoland and including taxes, maintenance with 5% yearly appreciation and 6% rates, I always end up in red NPV. Almost looks it does not make sense to buy from financial standpoint
Thanks for sharing. I liked your translation of each factor into 8 key numbers, which made it easy to understand. I was curious to know what would be your take on: reinvestment costs associated with property ownership. When we are looking at the historic data and calculating CAGR over 10 years or so, it would be interesting to factor in money that has gone into remodelling the kitchen, fixing water heater, HVAC, termite protection, plumbing needs etc.
Excellent point, there are many such costs associated with owning a home as you highlighted. To incorporate them, one simple way is to incorporate them in the monthly extra (row 6 as a bigger negative monthly expense you anticipate to make).
Thank you for the explanation and sharing the excel. In the Cash flow column , shouldn't we include as a negative the opportunity cost ? i.e. if we take the down payment and place is in a Tbill for example which is considered a guaranteed and safe investment. shouldn't that amount be considered as a negative in the cash flow ? thank you
@haditannous8837 - YES, that would be more accurate, especially the opportunity loss of the downpayment that you paid in year 0 could be massive given current interest rates :)
A few big elements seems to be missing here:
1) maintenance costs which can be 1% of home value
2) opportunity cost - how much could i have made by applying the down payment + difference between rent vs mortgage towards other investments?
3) tax benefits of owning vs renting
great points which I will add when I improvise this sheet, or better yet if you have an improved version of the google sheet I have, please share and we can build on it together.. @vpansare
When calculating for Chicagoland and including taxes, maintenance with 5% yearly appreciation and 6% rates, I always end up in red NPV. Almost looks it does not make sense to buy from financial standpoint
quite possible that it makes it hard to buy for most properties especially when you think of opportunities elsewhere
Thanks for sharing. I liked your translation of each factor into 8 key numbers, which made it easy to understand. I was curious to know what would be your take on: reinvestment costs associated with property ownership. When we are looking at the historic data and calculating CAGR over 10 years or so, it would be interesting to factor in money that has gone into remodelling the kitchen, fixing water heater, HVAC, termite protection, plumbing needs etc.
Excellent point, there are many such costs associated with owning a home as you highlighted. To incorporate them, one simple way is to incorporate them in the monthly extra (row 6 as a bigger negative monthly expense you anticipate to make).
Thank you for the explanation and sharing the excel. In the Cash flow column , shouldn't we include as a negative the opportunity cost ? i.e. if we take the down payment and place is in a Tbill for example which is considered a guaranteed and safe investment. shouldn't that amount be considered as a negative in the cash flow ? thank you
@haditannous8837 - YES, that would be more accurate, especially the opportunity loss of the downpayment that you paid in year 0 could be massive given current interest rates :)
Just to clarify here, are you not calculating an NPV but the difference between NPVs for renting vs buying?
calculating NPV if I were to make a buy decision, i.e. putting a dollar value to this buy decision, not the difference between NPVs
Hi Kunal, I believe it is logically incorrect that you have considered so called "rent saving". Rent saving is hypothetical and is not a cash flow.
@s mahmud - please say more, if you agree rent saving is real, what alternate way would you go about factoring that real savings in cash flow?