Rent Vs Buy Analysis

Rent vs. Buy

Rent vs. buy is a very important financial decision which you have to make. Earlier the property prices use to appreciate quite a lot and investor were quite assured that the prices will go up only. Things have changed in the last few years, now the property prices can even come down and appreciation is also not that much.

In the current scenario, it’s very important to understand the financial viability of renting vs. buying a house, a wrong decision can cost a lot of money. You can use our rents vs. buy calculator and arrive at your decision.

What is the rentvs. buy Calculator?

Rent vs. Buy Calculator is a tool which will help you decide whether you should buy a property for living purpose or continue in rent. You can input various parameters given in the above field and you will get the output.

The calculator evaluates your input and represents the data in the form of graph and tabular form, which show the difference between profit and loss in both aspects i.e. Rent or Buy.

How does Rent vs. Buy calculator work?

You just have to submit some general inputs –

Property Details

1. Add cost of property, the total valuation of the property.
2. Select Government charges on property, which includes the cost of registration and stamp duty for the property which expressed as a percentage (%). [optional]
3. Select annual increase in property cost, how much (in percentage) you think the cost of theproperty will increase after every year. [optional]
4. Add own money paid, the amount of property financed by you.
5. Add annual maintenance cost, the maintenance cost of your property which incurs annually. *Annual increase in maintenance cost is assumed 5%

Funding Details[optional]

1. Review Loan amount, you can change it as per your requirement (it can be 0 also). Else, it will automatically take the value i.e. Loan amount = Cost of property + Govt. charges on property – Own money paid.
2. Select home loan interest rate, which is charged by your bank on your home loan (if taken)
3. Select no. of years, under which you will repay your loan.
4. Select bank interest rate, instead of investing in property, if you deposit the money in the bank then how much you may earn from interest. *Tax deduction is assumed to be 30%

Rent Details

1. Add Property rent (per month), how much is the monthly rent of that property.
2. Select annual increase in rent (%), how much do you expect to increase in monthly rent every year? [optional]
3. Select no. of months of security deposit, how many times the monthly rent is the security deposit for this house.[optional]

How to interpret the result?

When you provide your input data, you will get your result. Where you will see -

1. A graph showing the representation of own house and rent expenses of every year.
2. A tabular representation of the data with two columns showing own house expenses and rent expenses of every year.

To understand the interpretation, first understand how our calculator, calculates the value

In Own house expenses –

Our calculator considers four factors i.e. –

1. Annual capital appreciation (step – 3)
2. The Annual interest you are paying through Home loan EMI (step -7)
3. The Annual loss of interest from FD, if you invested the money in FD instead of property. (step -9)
4. Annual maintenance cost (step – 5)

The formulae is,

Own house expense = Annual capital appreciation – (Annual interest paid in home loan + Annual loss of interest) – Annual maintenance cost

In Rent Expenses –

Our calculator considers three factors i.e.

1. • Total annual rent (step – 10)
2. • Amount of security deposit (step – 12)
3. • The Annual loss of interest from FD, if you invested the money (security deposit) in FD instead of renting the house. (step – 9) *The amount is calculated after deducting 30% tax.

The formulae is,

Rent expense = ¬¬- (Annual rent + Annual loss of interest on security deposit)

If you see values with negative (-) sign that means these are the expenses or cash outflows, which you are paying from your pocket. In other words, there will be no gain in that year from that property.

When values start representing with a positive (+) sign that shows from that particular year you will start earning from that property.