I was going to create a spreadsheet to determine whether buying or renting makes more sense in different scenarios. But then I found this excellent buy vs. rent calculator from Vancity. Here’s how it works:

We calculated your breakeven point by examining how long it would take to create enough equity in your home to exceed the value of investing your cash on hand. We also accounted for differences in your monthly rent and house payments. If your rent payment is less than your net house payment, we add that monthly savings to your investment. If your house payment is less than your rent payment we subtract that amount from your investment. You may notice that on the schedule at the bottom of this report the investment value can be reported as negative. This happens if your house payment is significantly lower than your rent payment. It illustrates that if you continue to rent the extra cost of renting would, in effect, use up your cash on hand.

It can take into account all sorts of fees, mortgage fees, closing fees, annual property taxes, GST on a new home, maintenance/condo fees. The home appreciation rate can be varied as well as the future sales commission. For the investment used to compare with, one can vary the investment return and the inflation rate.

Just make sure that if you include utilities in the “maintenance/condo fees” field that you also include it in the “monthly rent payment” field. The only reason to put utilities in at all is if the amount is at all different in the rental property vs. the owned property.

Note also that there is a bug in their charting which causes the chart to not extend past the 10-year time frame. Scroll down to view the detailed numbers for all years.

Just plugged in some values using the rent that I am paying now ($1050) and the price of a comparable apartment in Vancouver. A quick scan on mls.ca shows that I’d have to spend *at minimum* $280,000 for a place of comparable size, with around $200 in condo fees. I haven’t even factored in location (and the location we currently are renting in is hard to beat, so $280,000 is very conservative). I assumed a 0%-down mortgage and the default of 3% annual appreciation on the home. Most of the other things I left at their defaults (except inflation which I lowered to 3% from the default of 4%). For my case, the value of the investment (initial cash-on-hand + monthly contribution of (mortgage payment minus rent) invested at 7% after-tax return) was $830,407 after 25 years. The home equity after 25 years was only $556,903. This assumes a monthly investment of $1300 (mortgage payment minus rent). This is almost what we are contributing monthly right now (we should be up to this level in 2006). So right now, renting is clearly the best option for us.