Free Rent-or-Own Calculator
Shelter consumes the largest component of most household budgets. The decision whether to rent or own a home is important. A discounted cash flow (DCF) spreadsheet can help.
Home rental costs tend to increase with inflation. Since rents are in the “basket” of goods used by statisticians to measure inflation, this link between rent and inflation is not surprising. First time home ownership triggers new costs, including a home finance loan, home repairs, and property taxes. Many home ownership costs rise over time (home insurance, property tax, home maintenance).
The most significant home ownership cost however - payments on the home finance loan - are unaffected by inflation. Also, unlike rent, a portion of each mortgage payment goes toward building home equity.
The housing purchase analysis model is a discounted cash flow (DCF) spreadsheet exploring the implications of first time home ownership. The model compares shelter costs for two scenarios - a home ownership scenario and a rent-a-home scenario.
First Time Home Ownership
"Scenario 1" of the housing purchase analysis model assumes first time home ownership. Up-front costs include the down payment on the home finance mortgage, home inspection, and legal costs. Ongoing costs include home mortgage payments, utilities, and repairs. Certain expenses increase over time, whereas others do not. The home ownership scenario also considers possible income from a rental suite.
Rent a Home
"Scenario 2" of the housing purchase analysis model compares the expenses to rent a home. This rent-a-home scenario involves no up-front outlays - only ongoing rent. The future cost of rent is assumed to grow with inflation.
Comparison of Rent versus Home Ownership Costs
The Housing Purchase Analysis Model compares rent versus home ownership costs in future years. Shelter-related costs are compared both excluding home equity (indicating the change in "out-of-pocket" costs), and including home equity.