Buying Vs Renting - A Comparison

[Lepista]

..And how valid it is today for the waverers.

I made this a couple or three years ago, to show the costs of renting vs buying.

At the time, with higher interest rates, and nearly flat HPI, it made sense, over the short term, to rent rather than buy, by quite a margin.

Factoring in the falls since then, and the interest rates we are now seeing, It makes even more sense to rent rather than buy.

Enjoy.

Comments welcomed as to how I could improve the spreadsheet..

EDIT - see herefor the corrected spreadsheet. Can't seem to remove this one from here?

Buying vs. Renting.zip

Buying vs. Renting.zip

Edited April 21, 2010 by Lepista

[Guest_FaFa!_*]

..And how valid it is today for the waverers.

I made this a couple or three years ago, to show the costs of renting vs buying.

At the time, with higher interest rates, and nearly flat HPI, it made sense, over the short term, to rent rather than buy, by quite a margin.

Factoring in the falls since then, and the interest rates we are now seeing, It makes even more sense to rent rather than buy.

Enjoy.

Comments welcomed as to how I could improve the spreadsheet..

NOTE: had to ZIP, spreadsheets not allowed?

Thanks for doing this. Problem is, you assume that someone will put in all of their savings into the deposit, which won't be the case for me. Anyway the spreadsheet says I lose money in almost every situation, just more money by buying.

[Lagarde's Drift]

I am confused. I put an imaginary large cash pot in, and assuming I have plunged all my cash into it. Assuming a HPC of 15% pa I got back £50k more after 2 years and 38k expenditure??

Of course, with a normal sized deposit, one just loses more with buying compared to renting.

£50k cash for £250k house. 15% pa HPC. 2 year term. 15 yr mortgage.

or, £150k cash for the same.

Does this mean that big cash positions should be buying?

Hrm.. if you put in £250k cash for a £250k house it turns even weirder. Is there a problem with the spreadsheet? I am not technically minded with these.

[Rozza]

Nice attempt but fatally flawed

No matter what cash amounts, house prices, mortgage durations or interest rates i put in i lost money, however the spreadsheet is assuming i earn nothing, so if i rent it uses my savings for the rent but if i buy then i have no savings so i pay the mortgage how?

Doesnt make sense, way too complicated and a complete guess, also your interest calculation is wrong as mortgages amortize so the interest payment per month goes down over time (but slowly)

You need to account for for income, as if i have 3k after paying my rent then the figures work out very differently to if i have 5k available

[Lepista]

I am confused. I put an imaginary large cash pot in, and assuming I have plunged all my cash into it. Assuming a HPC of 15% pa I got back £50k more after 2 years and 38k expenditure??

Of course, with a normal sized deposit, one just loses more with buying compared to renting.

£50k cash for £250k house. 15% pa HPC. 2 year term. 15 yr mortgage.

or, £150k cash for the same.

Does this mean that big cash positions should be buying?

Hrm.. if you put in £250k cash for a £250k house it turns even weirder. Is there a problem with the spreadsheet? I am not technically minded with these.

Yes, you're correct. in cell B20, the reference to "B8" should be "D8". For normal conditions, it makes a small difference, the more extreme examples you give made the error obvious. Thanks. I've updated the spreadsheet below.

Buying vs. Renting.zip

Buying vs. Renting.zip

[Lepista]

Thanks for doing this. Problem is, you assume that someone will put in all of their savings into the deposit, which won't be the case for me. Anyway the spreadsheet says I lose money in almost every situation, just more money by buying.

Just put in the figure that you want to use as the deposit. Any additional money will be additional for either case, so will not have any effect on the outcome. Putting it all into the mortgage actually makes the mortgage case look better, as you're effectively saving on the interest repayments.

[Lagarde's Drift]

Just put in the figure that you want to use as the deposit. Any additional money will be additional for either case, so will not have any effect on the outcome. Putting it all into the mortgage actually makes the mortgage case look better, as you're effectively saving on the interest repayments.

Thank you. I find it hard not to lose any money via buying or renting. What is obvious, though, is that to break even when buying a house, one has to buy and hold over the long term. To buy and sell in 2 years, one has to assume a high HPI to just cover the costs.

I wonder what a similar BTL spreadsheet would show.

[Lepista]

Thank you. I find it hard not to lose any money via buying or renting. What is obvious, though, is that to break even when buying a house, one has to buy and hold over the long term. To buy and sell in 2 years, one has to assume a high HPI to just cover the costs.

I wonder what a similar BTL spreadsheet would show.

Yes, it's actually like owning any other "consumable".

You wouldn't expect (usually) to make money when owning or leasing a car... why do we have this insane logic that makes us believe that we should make money from housing??

[AvidFan]

It says I should rent 'cause I only lose 17 grand this way, rather than 140K if I buy outright.

That's me renting then

[roadtoruin]

Thank you. I find it hard not to lose any money via buying or renting. What is obvious, though, is that to break even when buying a house, one has to buy and hold over the long term. To buy and sell in 2 years, one has to assume a high HPI to just cover the costs.

I wonder what a similar BTL spreadsheet would show.

Even in a favourable buying environment, a short-term analysis will usually show more expense in buying. With the front-end costs being so high with moving, stamp duty and legals, anyone not expecting this higher cost has not done their homework. Nobody - unless forced - would sell at the HPC loss you show after 2 years, so the 2-year scenario you portray is essentially a theoretical one to support your view of the inadvisability of buying at this point in the cycle ?

[bigsmelly]

I couldn't find any cell to put in inflation expectations......?

[schmunk]

I think B16 and B21 should be included in the formula in B22? They aren't currently.

Edited April 21, 2010 by schmunk

[Lagarde's Drift]

Even in a favourable buying environment, a short-term analysis will usually show more expense in buying. With the front-end costs being so high with moving, stamp duty and legals, anyone not expecting this higher cost has not done their homework. Nobody - unless forced - would sell at the HPC loss you show after 2 years, so the 2-year scenario you portray is essentially a theoretical one to support your view of the inadvisability of buying at this point in the cycle ?

Partially correct. I changed the scenario to 5, 10, 12, 15, 20 and 25 year times. All of them required at least some HPI; any HPC, or even flat prices would be bad. We all know this, of course, but it does surprise me to find that the required HPI % is so high.

I also know a good number of friends and family who have bought properties with a view to moving and /or selling in 2 or 3 years. Regardless of owner-occupier or BTL, they all are relying on a very large HPI over the next few years! I think a lot of people put more thought into the colour of the car / sofa / wall paint they buy than the actual purchase of property. Or maybe it's just the lot that I hang out with.

[toodimm]

Nice sheet, but I think that maybe some of your bias has seeped into the cells. I don't think that there is a person in the country who would choose to own £350,000 house if instead they could rent if for £805 per month!

[Lepista]

Nice sheet, but I think that maybe some of your bias has seeped into the cells. I don't think that there is a person in the country who would choose to own £350,000 house if instead they could rent if for £805 per month!

That is exactly where I am at the moment. I rent a house that would be on the market, for that rent.

[Lepista]

I think B16 and B21 should be included in the formula in B22? They aren't currently.

Well spotted - corrected in this version

Nice sheet, but I think that maybe some of your bias has seeped into the cells. I don't think that there is a person in the country who would choose to own £350,000 house if instead they could rent if for £805 per month!

Just for you, in this version, I've put in some extreme figures the other direction. even doing this, the breakeven time period, with some modest HPC of only 2% falls per year, is just under 13 years!!!!

In both instances, the losses are huge, at just over £200,000 (average of about £16,000 loss per year).

Of course, renting is just dead money, isn't it?

any Bulls care to comment on the analysis...?

[Lepista]

Oops, here's the spreadsheet. Don't know why it didn't attach.

Buying vs. Renting.zip

Buying vs. Renting.zip

[roadtoruin]

Partially correct. I changed the scenario to 5, 10, 12, 15, 20 and 25 year times. All of them required at least some HPI; any HPC, or even flat prices would be bad. We all know this, of course, but it does surprise me to find that the required HPI % is so high.

I also know a good number of friends and family who have bought properties with a view to moving and /or selling in 2 or 3 years. Regardless of owner-occupier or BTL, they all are relying on a very large HPI over the next few years! I think a lot of people put more thought into the colour of the car / sofa / wall paint they buy than the actual purchase of property. Or maybe it's just the lot that I hang out with.

I don't want to sound like a BTLer (a species I detest) but in your 15 to 25 year scenarios, did you: 1. uprate the rental through time 2. factor in having to move 4 or 5 times when changing rented house ? Also, I live in an average-cost rental area, and an £800pm house sells for around £230K, so how realistic is the 350K for £800pm benchmark starting point ?

[Lepista]

I don't want to sound like a BTLer (a species I detest) but in your 15 to 25 year scenarios, did you: 1. uprate the rental through time 2. factor in having to move 4 or 5 times when changing rented house ? Also, I live in an average-cost rental area, and an £800pm house sells for around £230K, so how realistic is the 350K for £800pm benchmark starting point ?

The whole point of the spreadsheet is that you can personalise it to your circumstances.

Just change the green calls to whatever numbers you feel suit. Think rents will rise significantly? change the "rent increase %age per year" cell to what you feel is right.

I've developed it as a tool for people to use, not to say "this is what is going to happen".

It's useful to show that renting, in a HPC or flat house price environment, is not dead money.

[Si1]

2. factor in having to move 4 or 5 times when changing rented house ?

how about factoring in having to commute long distances due to being tied to anowned house, instead of being able to easily move with work?

[Lepista]

how about factoring in having to commute long distances due to being tied to anowned house, instead of being able to easily move with work?

Or not being able to take that plum job because your relocation costs are too high...

[Neil B]

Good spreadsheet. However in the real world there isnt an option to buy anymore - theres no mortgages left to support the rediculous asking prices so there is only hobsons choice for the majority: Rent

[Neil B]

how about factoring in having to commute long distances due to being tied to anowned house, instead of being able to easily move with work?

That opens a whole can of worms - a huge amount of mortgages taken out in the last 10 years were interest only. As those have been scrapped now never to return (or only with hard evidence of an investment plan secured against it) no-one will be able to move. Ever. Renting truly is freedom for the next 25 years.

[pablopatito]

I rent a £250k house for £1k a month. I earn £180 a month after tax from my savings, so my net cost of renting is £820. I have about £90k in savings/deposit. If I bought the house I'd pay £636 per month interest in the first year of a capital repayment mortgage, that figure would fall to £558 after five years (whereas I expect rent to increase).

So I am currently seriously worse off renting (to the tune of £184 per month and rising), even before considering what HPI will be over the next five years. Renting is dead money to me.

I guess it all depends on your personal financial and geographical situation.

[Lepista]

I rent a £250k house for £1k a month. I earn £180 a month after tax from my savings, so my net cost of renting is £820. I have about £90k in savings/deposit. If I bought the house I'd pay £636 per month interest in the first year of a capital repayment mortgage, that figure would fall to £558 after five years (whereas I expect rent to increase).

So I am currently seriously worse off renting (to the tune of £184 per month and rising), even before considering what HPI will be over the next five years. Renting is dead money to me.

I guess it all depends on your personal financial and geographical situation.

How much extra would you pay in household insurance, life insurance, home improvements, and maintenance, per year?