## Buy vs Rent House in the Bay Area

##### January 10, 2006

Here is a Excel spreadsheet I created to help me with the Buy vs Rent decision in the Bay Area. It takes care of inflation (for rent payments, property taxes, maint. costs, utilities, home insurance, etc.), tax savings from mortgage interest payment, and opportunity costs of the downpayment, closing costs and the monthly payments towards the mortgage. I cut and pasted the table only for the first 6 years but the rest of the figures are for 30 years. I was not able to fit all the 30 years data from Excel here. Let me know if anyone is interested in getting the Excel spreadsheet itself and I will mail it. Please let me know if my calculations are wrong or if any adjustments are necessary.

The calculations show that buying an house for $650000 is equiv. to paying $2100 in monthly rent. Various assumptions are 6.25 mortgage rate (30 term), inflation rate of 2.85%, 1.25% property tax rate, combined tax rate (state + federal) of 34.3%, after tax return on investment of 6.73% (based in current rates offered by the I-bonds) and a 20% downpayment.

Monthly Rent | 25507.10178 | Inflation Rate | 2.850% | Downpayment | 20% | ||

Mortgage rate | 6.200% | After tax return on investment | 6.730% | Purchase Price | 650000 | ||

Mortgage Term | 30 | Initial investment | 150020 | Mortgage Amount | 520000 |

Property tax rate | 1.250% |

Combined tax rate | 34.30% |

Closing costs | 20020 |

Year | 0 | 1 | 2 | 3 | 4 | 5 | 6 |

Rent | 25507.10178 | 26234.05418 | 26981.72472 | 27750.70388 | 28541.59894 | 29355.03451 | 30191.65299 |

Principal Payment | ($6,349.40) | ($6,743.06) | ($7,161.13) | ($7,605.12) | ($8,076.64) | ($8,577.39) | |

Interest Payment | ($32,240.00) | ($31,846.34) | ($31,428.27) | ($30,984.28) | ($30,512.76) | ($30,012.01) | |

Total Mortgage | ($38,589.40) | ($38,589.40) | ($38,589.40) | ($38,589.40) | ($38,589.40) | ($38,589.40) | |

Property Taxes | 8356.5625 | 8594.724531 | 8839.67418 | 9091.604895 | 9350.715634 | 9617.21103 | |

Insurance | 800 | 822.8 | 846.2498 | 870.3679193 | 895.173405 | 920.685847 | 946.9253937 |

Maintainence costs | 1200 | 1234.2 | 1269.3747 | 1305.551879 | 1342.760108 | 1381.028771 | 1420.388091 |

Utilities | 1200 | 1234.2 | 1269.3747 | 1305.551879 | 1342.760108 | 1381.028771 | 1420.388091 |

Tax Deductions | ($43,064.96) | ($42,979.81) | ($42,879.05) | ($42,761.40) | ($42,625.53) | ($42,470.00) | |

TaxSavings | ($14,771.28) | ($14,742.08) | ($14,707.51) | ($14,667.16) | ($14,620.56) | ($14,567.21) | |

After Tax Owner's exp | ($35,465.88) | ($35,827.05) | ($36,203.03) | ($36,594.53) | ($37,002.30) | ($37,427.10) | |

Renter's savings | $9,231.82 | $8,845.32 | $8,452.33 | $8,052.94 | $7,647.26 | $7,235.45 | |

Future value | 1058630.602 | $61,037.43 | $54,794.36 | $49,058.25 | $43,792.88 | $38,964.47 | $34,541.54 |

Total Future Value | $1,510,227.03 | $451,596.42 |

Inflation adjed FV | $650,000.00 | |

Breakeven monthly rent | 2125.591815 | |

Approximate breakeven rent - $2100.00 |