The Core Logic
This calculator simulates the financial outcome of buying a home versus renting over a set period. It compares the final net worth of an Owner against a Renter by tracking two main assets for each:
- Property Equity (Owner only): The value of the home, which appreciates (or depreciates) over time.
- Investment Portfolio: A separate investment account (like stocks or bonds) that both the Owner and Renter contribute to and which grows at a specified yearly rate.
Final Calculation (End of Period)
At the end of the "Analysis Period," the calculator simulates a final liquidation to compare net worth:
- The Owner "sells" the house. The Selling Costs are tracked as an expense but NOT deducted from the final Net Worth.
- Both the Owner and Renter "liquidate" their investment portfolios.
- The Capital Gains Tax is calculated only on the "growth" (gains) of their portfolios.
- Final Net Worth = (Full Home Value) + (Net Portfolio Value)
Logic: One-Time Expenses
One-time expenses for the owner—specifically Initial Buying Costs, End of Term (Refinancing) Costs, and Final Selling Costs—are NOT deducted from the Owner's Net Worth or Investment Portfolio in this simulation.
It is supposed that when there are no recurring expenses, but only one-time (initial, end of term, sale) costs, those are just handled by the owner with a temporarily less costly lifestyle.
These costs are still tracked in the "Total Expenses" graph and the new "Cost Summary" panel to show the true cost of ownership, but they do not negatively impact the final asset value.
Key Input Fields Explained
General
- Analysis Period (Years): How many years to run the simulation for.
- Yearly Inflation (%): Affects "Additional Yearly Expenses" for both Owner and Renter, increasing them each year.
Purchase Inputs (Owner)
- Home Initial Price: The purchase price of the home.
- Initial Costs (% and Absolute): One-time fees for buying. Note: In the current version of the calculator, these fields are calculated but not deducted from the owner's portfolio or used in the final net worth calculation.
- Yearly Expenses with Fixed Term (Absolute): A fixed yearly cost, typically a mortgage (principal + interest).
- Years for Fixed Term Expenses: Duration of the fixed expense (e.g., 20-year mortgage term).
- Yearly Investment during fixed term: Yearly amount the Owner invests while paying the fixed expense.
- Additional Yearly Expenses (Absolute / %): Ongoing costs of ownership (property tax, maintenance, insurance). The absolute part increases every year with inflation.
- Home Yearly Appreciation (%): Yearly increase in the home's value.
- Expenses at End of Term (% / Absolute): A one-time fee paid from the Owner's portfolio when the "Fixed Term" ends (e.g., refinancing fee).
- Selling Costs (% of Final Price): Costs paid when the house is sold at the end of the analysis period.
- Yearly Investment after fixed term: Yearly amount the Owner invests after the fixed expense (mortgage) is paid off.
Rental Inputs (Renter)
- Yearly Rent (Absolute): Starting yearly rent.
- Rent Increase (%/year): Rent increase every year.
- Additional Yearly Expenses (Absolute): Other rental costs (e.g., utilities, ordinary mantainance), which increase with inflation.
- Yearly Investment: Amount the Renter invests each year.
Investment Inputs
- Initial Portfolio Value (Buyer/Renter): Starting amount of money each person has in their investment account at Year 0.
- Investment Return (%/year): Average yearly growth rate of the investment portfolios.
- Capital Gains Tax (%): Tax rate applied to the gains of investment portfolios when they are sold at the end. This is not applied to the home sale.