Who can do sums? Rent Vs Buying Equation

leftofcentre

OK like the rest of the country i am trying to work out the age old rent vs buying dilemna.

I know everyone has an opinion on this, but what i am wondering is there not an equation you do do to give you an answer?

Here is my logic, say you get a mortgage of 200,000, over the course of the period say 20 years you pay back about the same in interest, so the total repayment is 400,000.

Now compare this too renting, eg rent of 500 a month over the same period, 500 over 20 years = 120,000.

Now all these amounts are only examples, but you get the idea.

The problem is i am crap at maths, and my head hurts trying to work this out. Any clever people here good at the old sums?

I think any equation would need to take into account:
-Inflation
-Running costs of property, maintainance etc
-capital benifits of owning property
-interest eg the interest paid on a mortgage Vs interest paid on savings if you rent.

Now probaully there is too many variables to take into account, but i think its an interesting excercise.

Whats your view?

Zynks

I would go <interest over mortgage life> + <depreciation.apreciation of property value> + <maintenance costs> + <building insurance costs> + <mortgage related insurance/assurance> + <interest tax relief> and compare to <rental cost> + <tax relief>
Next, I would look at estimated net equity at the end of the period (25 or 30 years) and compare it to the monthly savings if they were placed in a low risk investment.

A Random Walk

Try the New York Times
http://www.nytimes.com/2007/04/10/business/2007_BUYRENT_GRAPHIC.html

Obviously excludes Irish specific criteria such as stamp duty or mortgage interest relief, but will give you a rough idea.

For property taxes I would enter insurance/mgmt fee etc.

leftofcentre

Zynks thats an interesting formula, well done. Care to do an example with values?

Eg in Belfast a house that costs £250,000 to buy, would rent for £600 a month.

In Dublin i imagine a house that cost €400,000 to buy might be €1000 a month to rent, but correct me if i am wrong.

The New York times calculator is interesting, according to it renting is half the price over the term, but i can't see where it takes into account the asset value of owning the house.

where you live isnt an asset, its your home whether you it buy or rent it - you must live somewhere. If you own a second property its an asset.

leftofcentre

I get what you mean, but obviously owning a house is an asset. If i sell a house worth 300k and move to thailand, well i am 300k up.

A Random Walk

leftofcentre wrote: »

The New York times calculator is interesting, according to it renting is half the price over the term, but i can't see where it takes into account the asset value of owning the house.

The "Balance of Sale" figure is the asset value minus outstanding mortgage, i.e. equity as we'd call it. Look at the methodology explanation.

ixoy

leftofcentre wrote: »

I get what you mean, but obviously owning a house is an asset. If i sell a house worth 300k and move to thailand, well i am 300k up.

Only if you've paid off the original mortgage in full...