Rent vs. Own: The Old Debate in a New Spreadsheet

We just found this on Submedian, which is calling itself a “San Francisco affordable housing blog”. (There is no “affordable” housing in San Francisco, but we’re moving on, and we like your stuff, so you’re on our radar.)


So far this person has gone into detail about the median vs. average issue (we found this blog when they caught our blunder), and now they have put together an excellent, and what must have been extraordinarily time consuming spread sheet (shown above) as a way to determine if it is better to rent or own. If spreadsheets aren’t your thing, remember the New York Times has a nice interactive graph to keep you occupied.

We haven’t had much time to play around with it completely, but thought some of you might. Let us know what you think, if it is accurate, and when it’s going to rain.

From the author’s site regarding this graph, “I’m looking for feedback, so if you see something I left out, or some way to improve it, let me know.” That’s

Off to meetings….

rent vs. own spread sheet [Submedian]

Re-run: NY Times Interactive Graph, Rent vs. Buy [theFrontSteps]

34 thoughts on “Rent vs. Own: The Old Debate in a New Spreadsheet

  1. another calculator

    i’ve found that calculators are interesting, but not enough on their own. thus using several and printing them all. Our brains fonction differently, and there is one of those printouts that will speak to you.

    I dont go that far. I use and I type in plain text the key numbers at 3, 5, 7, 10, 15, 20 and 30 years. and that’s enough for me, along with the monthly cost and a couple job ads for “normal income reference”.

  2. wait. I was just thinking about my first buy and this doesnt add up.

    There a TWO different maths to consider, which are somehow opposite.

    -> you want to live TODAY and for the coming 30 years in the best possible setting


    -> you want to live somewhere ok and build wealth in the long run by steping up when possible (including in sinking markets, when it’s financialy an excellent move: sell low buy low)

    It’s important because renting and owning rarely focus on the SAME property. So comparing the SAME property buy vs rent doesnt make sense – not in this market, where rents are SO disconnected with sale prices.

    what’s your goal in 20years? have built equity on your house? or ride the wave with no equity but the nicest house possible (ie be a permanent renter of your own properties, selling and buying with the market)?

    Those rent vs buy tables dont reflect any of this.

  3. From the author’s site regarding this graph, “I’m looking for feedback, so if you see something I left out, or some way to improve it, let me know.”

    -> from my experience, maintenance costs are more into 1% of the current market value. So in 1990, your house was worth 300K. you were supposed to spend $3000 that year to maintain the value of the house. Now your house is worth 1100K. you are supposed to spend 11K this year to maintain the house value (that’s only ‘cosmetic’ maintenance)

    [I havent checked the spreadsheet cell to see how it’s calculated]

    Add to that 1% another 1% for MAJOR costs. (add a garage, new foundations etc).

    so at 2%, your house is rebuilt from the ground (new EVERYTHING from basement to roof) every 50years, which is a reasonable estimate for the american market.

    (a sensible home owner should have a cash piggybank of 2-4% for immediate use as needed: fixing a leak when found costs only a fraction of fixing the same leak a year later)

  4. Thanks for the shout out Alex. I wasn’t expecting anybody to pay attention to it, so it was a bit of a surprise to see it mentioned here this morning.

    It really wasn’t that time consuming (well ok, maybe it was now that I think about it). I sort of pecked away at it over a number of weeks, and tried to incorporate what I learned from reading all the various blogs. Hopefully I represented their viewpoints well.

    I have taken your point regarding affordable housing in SF under advisement and have changed the blog’s sub header accordingly (At least until I can think of something better). As you might expect from the blog’s name, my goal is to focus on the below median houses which perhaps don’t have the panache or visual style of a gorgeous 3br in Noe, and as a result are under represented in the local RE blogs, but nonetheless are a topic of great interest for presumably half the home buyers in San Francisco, including myself.

    BTW I’m going to stop giving boomtime grief and just go by missionite here from now on. It’s time to consolidate my aliases.


    That’s a great point. I just used 1% because that’s what the default rate was on the NYT graph, but I have taken your advice and made that number adjustable (and yes it is calculated as you describe).

    With regards to your other thought, keep in mind the spreadsheet has a couple of specific goals:

    1. Help resolve discussions about whether owning a specific property made money over renting a comparable property over a given period. Sometimes these ownership periods are very short, and it’s conceivable that the owner spent 0% on maintenance. So I agree that number should be adjustable to taste.

    2. Help potential buyers make an apples to apples comparison on renting vs. buying from a strictly financial standpoint. Of course there are plenty of reasons to buy having nothing to do with the financials. But since those aren’t quantifiable into a spreadsheet, I have left them off the table.

    And while a specific property might not be simultaneously available for rent and purchase, I think it’s reasonable to expect that for most properties that are for sale there is a comparable property in a comparable location that can be rented.

    I really appreciate your feedback Sophie!

    A person named Jash commented on the blog that the graph is not updateable. I wondered if this was going to be the case. I’m bummed that there is no way to post a globally public updateable spreadsheet on Google Documents. But I’m working on this, and will have a solution by tonight.

    And finally thanks to all for plugging in stepping on to slumming it with my brand new blog. ;)

    [Editor’s note: Glad you came out of the closet for us. ;-) If you decide keeping that blog up and running is too much, you have a place waiting for you here to put those posts…as we said a long time ago.]

  5. good work mission. that was me. i don’t know how to make docs public either or i would have suggested it. i’ll look into it as folks in my office love docs.

  6. Good work on the spreadsheet. This is the right approach to owning vs. renting — get rid of the emotional arguments, and look at the numbers.

    One thing I want to point out is the tax factor when doing the rent vs own analysis. It actually changes the picture for many people.

    1. When you sell your primary residence, your cap gain is tax free up to $250K or $500K (depending on if you are single or married when you sell). Anything beyond that limit will be taxed at long term cap gain rate of 15%. This assumes you stay in your property for a minimum of 2 years. If you don’t, then “no cap-gain perks for you!” :)

    2. The ‘rent profit’ in your spreadsheet will take at least a 15% long term cap gain tax hit for any investment held for more than 12 months, or taxed at whatever regular income tax rate you have for anything held for less than 12 months.

    3. I also want to point out that the renovation and maintenance can be added to the cost basis to reduce future cap gain when you sell the house. For example, if you bought the house for $1mm, and you sold it for $1.5mm, but you had $250K in renovations, then your taxable gain is not $500K, but rather “$1.5mm sales price – $1mm purchase price – $250K renovations = $250K”, on which you don’t pay any tax if you stay in there for 2 years (don’t have to be consecutively)

  7. One thing that I see that I think is an omission is that the rent payment doesn’t have an inflation factor tied to it. Assumably (unless you’re in rent control), your rent will increase over the years. If you only plan to buy and live in the house for 1 -2 years, it’s not that big of a deal. But, if you live in the house for 10 years and compare it to a rental rate that doesn’t change from 10 years ago, that could make buying look much better.


  8. kenny – that’s exactly what I mean. On the spreadsheet, the rental rate remains flat for the entire time.

  9. there is no way to share the spreadsheet to edit it without forcing people to be authenticated. look under share for the permissions. we all need to give you our email or you could grab them off your typepad login system (much preferred)

  10. One of the biggest factors in rent vs. own is your income tax rate. Much more favorable to own if you are paying 46% tax vs. 20% tax.

  11. DGee “Much more favorable to own if you are paying 46% tax vs. 20% tax.”

    that argument always make me :-O in SF. Seems that american taxpayers never heard of a concept called AMT.

    For the tax math, CONSULT with a real CPA. Each of us has his/her own, very own tax scenario, and situations dont translate nor scale. (cpa can cost a reasonable $1000 for a full evaluation of your situation, which can translate into big chinchin back in your pocket at the end of the year)

    (very different in other state/countries with different tax laws re. real estate)

  12. Anon8mizer,

    I have coded in the capital gains exclusions/taxes, and have even calculated the ratio for people who own their home for less then two years. And of course I the calculations are based on marital status.

    I have a real question about doing this on the rent side however: in order for the capital gains to be assessed, there needs to be a taking of profit (i.e. sale of stock, bond, or closing of account). However there are investments (Roth IRA for example) that are fully or partially exempt from capital gains under certain conditions (retirement, down payment), and of course there is no requirement for a renter to sell or close all of their investments at the end of the term of ownership, and really, unless they planned to make a major purchase, or suddenly needed the money, why would they?

  13. Missionite –

    It’s a good point that for some people, their down-payments are in IRA of some flavor… Never realized there was this trick. It just complicates the spreadsheet even further.

    As for ‘why would they sell their stock holdings’ after the time period under consideration — my point primarily is to help make an apples-to-apples comparison. When one sells a house, the proceeds are ‘real’. So in order to make a real comparison, I thought it’d be good to calculate the real profit/loss from stocks, too, at the end of the period. Otherwise, the profit from investments would be ‘virtual’.

  14. I understand that you are aiming for apples to apples, and I am tempted to employ your suggestion, if only to avoid the appearance of bias. But my fear is that in doing so I am being unfair to the rent side, because the sale of a house requires the payment of capital gains (should you be so fortunate) while there is no similar obligation on the rent side to take in profits. Even more to the point, I can’t imagine why anyone would want to unless it was for a critical issue, such as home purchase, college, divorce, or health, all of which have varying degrees of exclusion from capital gains if in a Roth IRA. I am far from a tax expert but it is my understanding that there are other investment strategies that also result in a reduced tax burden. Answering these questions also makes filling out the spreadsheet rather time consuming, which is another problem I had hoped to avoid.

    I think ultimately the solution I’m going to employ is a breakout box showing a worst case scenario showing the implication of capital gains on the rent side if all profits are realized. That should satisfy the curious while not unduly penalizing those who might choose to continue their investments.

  15. It’s good to see those who are frust[r]ated with housing do something about it and start blogs. Good trend, and very good thera[p]y fo[r] the soul to justify one’s decision or plight for not owning.

    [Editor’s note: There you go again…bashing renters. But we gotta say, now that we’ve read your comments for a long time and appreciate them, know your style and intentions, writing tone, and theory on purchasing, they do tend to garner a laugh. Any future readers (especially renters) that see this comment…brush it off. It’s just BoomTime. But if you feel like attacking, have at it. We know it’s all in good fun at this point, or at least should be. Where’s “Ah Boom” when we need him. ;-) ]

  16. missionite,

    make it really simple. let someone enter their income and filing status, then do all the math in the background with some basic assumptions about typical deductions and sophistication for a person at that income bracket.

    [Editor’s note: Then copyright it, patent it, and lock it up and charge for access so you make some $$ off of all your time and efforts on that damn thing, and all the people checking it out. Sell it to the Feds, and call us to buy a big phat house to put the patent under lock and key.]

  17. Bashing renters? Never! Without renters, who would pay my mortgage? I love renters. I just don’t love them when they come unprepared, and there are 50 other people seeking to rent for 10% more than last year.

    I commend people who do something about their plight, like starting a blog. They could just do nothing. But, it is cathartic to complain online and get support from others who feel like you. Comfort in numbers.

    It’s great the Fed is so dovish, and wants to cut rates for a city who doesn’t even need a rate cut. It’s also great for those with ARMS to get them fixed now that the gov’t is looking to bail them out.

    I love the USA! :)

  18. One omission I believe I see is that property tax paid is 100% deductible, just like mortgage interest expense. Great calc tho.

  19. Missionite.

    how about presenting your spreadsheet in a two step process?

    on the first half, you do the simple math. rent, prop taxes, mortgage etc.

    the next step is an optional cost of maintenance if you plan to do any maintenance at all – and that step could have a “remodelling” box as well. Like 250K the same year you buy and no other cost for the few years to come.

    Then, you take your results from above *NUMBER* , and read a “text” with possible scenarios.


    if you are eligible to get pay your mortgage pretax dollars, enter your tax bracket here (then a box does the math to adjust your *NUMBER*

    If you are eligible for a 2 years occupancy tax free cap gain, enter 1 (single) or 2 (married), (then a box does the math to adjust your *NUMBER*

    etc etc.

    that way, you keep your main rent vs mortgage clean and “simple” – while having plenty of room to add adjustments AND some text to explain each adjustment AND the top part keeps its integrity to show your CPA and get ideas to improve [without step by step it’s hard to see mistakes or figure out if everything was taken into account correctly]

    Also, did somebody mentioned the amortissment of the property? I know our CPA does this somewhere in her maths. (I’m so glad we have her.. that takes one nightmare away from me)

  20. FYi, this would be a patent issue.

    Another FYI, the possiblity of US patent protection will expire one year from first public disclosure (ie posting on your website) and patent protection anywhere else in the world is already lost.

  21. At the end of the day, if you are in a high tax bracket, no where you want to live for the next 3-5 years minimum, and can afford a 10% min downpayment, it is ALWAYS better to buy then rent and lose 100% of your money in after tax dollars each month.

    It is commendable that so many frustrated renters are starting blogs to vent their frustration. Can you imagine being 39-40 years old like Adam Koval at SS, and still renting in Pac Heights for $3,000/month? 10 years of $2,500/month is $300,000 in after tax income down the drain. Life is so short, and I can’t ever imagine being a 40 year old renter if you could have afforded the purchase 10 years ago. I’d probably go crazy. Poor guy.

  22. YourLandLord,

    There are many many many aspects that are not so easy SPECIALY in san francisco.

    First you need to weight the immigration status. If you are not a citizen and depend on a working visa… it’s hard to invest in a city while keeping your suitcase ready to leave. Working visas can translate (I only take easy example) into 6 years of not knowing what tomorrow holds for you. Gone 6 years of rent. Could someone remind us how few the american-born citizen are in this city? (Ok, probably more than in Milpitas.. but generally speaking the BayArea is a big immigration magnet)

    Now you need a good credit history. Nobody can shelter from a big hurt in that domain. Anything can happen, from health, to ex-wife leaving you under a pile of debts.

    Then … should I continue?

    Some people COULD NOT invest when it would have been “wise” or “easier” to buy realestate property. Stop those silly arguments. Why should we always assume that people had 100% control over their situations – and make them responsable for it?

    quoting my grand-pa who tought me a great deal of real estate: some people are eternal renters, and some people are eternal owners. Just make sure you find your own type, find your living arrangement accordingly and be happy! (not said: owners not owning, and renters not renting are NOT living in harmony in their home – and yes, I know personnaly a couple of renters who owned a house somewhat against their will and were miserable at it)

    to go back to the spreadsheet. This is not a deal breaker. But rather a wakeup call for people whose expectations are not so in tune with the market. I dont believe it would convert any renter into owner or vice-versa (as I believe my grand-pa that it’s in your nature), but it can put a delay – or a hurry – over a decision by writing a realistic financial plan for the few years to come.

  23. I knew I should have bought in Utah a long time ago. No joke. You can fly there, rent a car, and be on the slopes in less time than it takes to drive to Tahoe.

    [Editor’s note: Standby. My brother flips houses out there, should have some pics of a couple nice Victorians too for our “walkabout”, among other things, and I almost bought an investment prop there. Bought in NC instead. New construction. But yeah, he’s rubbing it in…and I think it’s finally snowing.]

  24. Kenny – I’ll take Tahoe any day over Utah. Tahoe is 3-3.5 hrs away door to door, and you don’t have to spend $200-400 on a plane ticket, and risk getting getting delayed and more terrible things happen.

    They are building the Ritz Carlton Residences at North Star, and The Resort at Squaw Creek is awesome ( Squaw Mountain is HUGE and is neve crowded, even during the busiest of holidays. And let’s not even talk about how beautiful Tahoe is in the summer. I spent my first summer there this year, and it is even more beautiful than the winter.

    Tahoe is awesome, and I plan on buying a place up there next Spring.

  25. Getting totally off topic, but wtf, it’s Friday. We know a couple good agents in Tahoe should you need assistance. Skiing in Utah is way better. Alta can’t be beat. Lighter, drier snow, and it is a steeper bigger mountain. Feels very Alpen, and reminds me of the days spent in Europe. The Bird is good too. However, variety is the spice of life and Tahoe certainly has that. I do love me some KT of Squaw and the great hiking of Alpine Meadows. The chutes at the Wood are pretty fun too. But Utah runs are longer, steeper, and “bigger”. As for summer, Tahoe hands down. What good is living in SLC right next to a massive body of water that is totally useless. Not to mention the stupid liquor laws they have.

  26. AC, thank you for pointing that out. I didn’t know property tax was also deductible, and I appreciate you bringing this to my attention. I have corrected the spreadsheet accordingly.

  27. Vail back bowls are the best. But Squaw is a world class mountain, that is not crowded and 3 hrs away. It’s all about location, and CONVENIENCE. I would never pay $400-500 to get on a plane, and then drive 2 hrs (Colorado), or 45 min (Utah) to the mountains from the airport.

    This is why I own property in SF. No commute to work, awesome location, and convenience. It’s about owning in Lake Tahoe hands down if you have the disposable income. Summer and Winter, and lifestyle is the best in Tahoe if you are an affluent person living in SF.

  28. I know it can be time-consuming to update your blog but thank you for keeping me informed and entertained!

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