Rent vs Own Calculator

Description
Many people debate and have opinions about what is best to do regarding a big capital asset purchase or a home purchase for personal use. This financial analysis template will give you an answer based on your defined assumptions about each, but note that sometimes there are non financial reasons for renting or owning a home / asset. This exercise focuses on only the finance side of things.

Purely from an investment perspective, the winner would be the one that has the cheapest present value of all future costs. What that means is if you look at the entire cash flow of each scenario and discount all the cash flows back to the present value, the one that is larger wins. Yes, larger is the correct term because you want the least negative scenario, and this is inclusive of the home value upon the end of the defined term period. 

Most times you will have a negative present value unless your investment or home appreciation rates are extraordinarily high and outweigh the actual costs of owning your home or renting it over extended periods.

The user can input assumptions about all aspects of each scenario. For example, buying a home is going to have a larger capital expenditure up front as well as ongoing costs to own the home whereas renting a home will have lower upfront costs and the ongoing costs will depend on the expected starting monthly rent, growth rate of rent, and utilities if applicable as well as their growth rate.

I tried to make this model as realistic as possible so all ongoing costs related to each scenario have their own growth rates (owning scenario includes property taxes, insurance, HOA, utilites, and repairs).

Complex Scenario

Note, you can get pretty in-depth with this financial calculator and assume an investment growth rate that is available to grow any cash savings of each scenario. For example, renting means you could invest the down payment you would have had to put on the house and then if the monthly rent/utilities is less than the home mortgage + ongoing costs then that can also be invested.

It could be true that renting is more expensive on a monthly basis in the future at some point. This will depend on growth rates and starting rent, but if so, then it is only fair to also let the 'buy' scenario show that the extra money per month being saved by not renting could also be invested at some rate of return.

There are easy to use input schedules and output visuals that make it clear the final result of each of the potential financial decisions. The resulting decision will greatly depend on the assumptions that exist for your current situation.

For the loan that is used to buy the capital asset or home, you can input a term that is different than the amortization schedule. Whenever the 'term' ends, the cash flow will stop from all scenarios and any investment values or the value of the home will populate in that final year. It will run for up to 30 years.

This template is also included in one bundle:
- All Models Bundle: https://www.eloquens.com/tool/P8Y4TX4v/finance/financial-forecasting-models/financial-models-120-useful-and-usable-logic