Hi guys,
I’ve been working over on my site for a while now on the whole maths of renting or buying. Last month, for example, a post looking at five standard house types in Dublin found that the more expensive the property, generally the more favourable the maths was in favour of renting not buying - the extreme case being €2k in rent for a 5-bed in Blackrock versus €7k in a mortgage repayment.

The ultimate aim has been giving people access to a calculator widget, where they could put in their own dream house and their own assumptions about the world over the coming generation, and see what comes out the other side. That’s now up and running here:
ronanlyons.com/2010/04/20/yo … alculator/
If you get the chance, give it a go and of course if you spot any bugs or errors, let me know. (Those more mathematically inclined and who want to know the nuts and bolts can get the penultimate version in Google Docs here: spreadsheets.google.com/ccc?key … c&hl=en_GB)

I’ve tried to include a bit of a Q&A after, explaining what it does and doesn’t do - I’ve probably left a few obvious things out so feel free to comment there or here and we can give people a bit of information that might help them to make financially sound decisions!

Nice!

Very nice!

Super work Ronan. Covers all bases.

Very interesting stuff there. Just one question, when you calculate how you would save by buying you say at the end of the mortgage term you will have a house worth €x, it does not show how much you have paid in total to have a house worth €x. You might have a house worth €400k but you could have paid €500k over the life of a mortgage to own it. Just something that struck me when I ran through it.

I stuck in a price of 300,000 and a mortgage term of 30 years and it said the mortgage repayment would be €71.95. Doesn’t seem right.

Interest rates at 6% Ronan?-you’ll be lynched by those who are saying we have historically low interest rates so go out and buy!!

That is a great tool.

Oops, I had my LTV ratio wrong. Carry on.

In the “Yields” section it indicates:

This seems to be stuck at €275,000, irrespective of initial house price.

are you changing the rent amount? thats what the yield seems to be based off

Did a €300,000 price and a €3,000,000 price with no change in the rent amount, LTV or mortgage term - same result.

I see what you’re saying - but it appears like an anomaly - perhaps a bit of an explanation needed.

Cheers Ronan, Good calc. My 5% is coming out at 240K WGU.

I suppose the only thing it wouldn’t cover is wear and tear, maintenance etc which would lean towards renting but apart from the its the best comparison tool I’ve come across. Nice one.

There is another part that gives actual yield. That is just the 5% yield which is based only on rent.

Hmm, make sure your percentages are written as 5 rather than 0.05, and similarly that your loan-to-value is something like 90 (not .90). And no commas anywhere, no matter how pretty they look!

That’s right, as Subway points out, the yield is a particular way of viewing a house price, i.e. as only a function of the rent. So a cold calculating investor looks at all houses that generates an income via rent of €10,000 a year (€800 a month) the same way - regardless of what the market is currently asking for them.

Wear and tear is a good point, I’ll have a think about that and how one might work it in.

Yeah - it changes based on rent - but the calculation may need to more clearly state that the price quoted, derived from the yield, is not influenced by the initial price.

I see what you mean WGU.

Oops, missed this one (will be offline for a most of next few hours, btw) - that’s not included because the comparison is a relative one, i.e. compared with renting, not an absolute one - so the ‘whether you’re better off renting’ bit takes the total amount paid on the mortgage, interest and all, and puts it into renting&investing instead.
Although that’s not to say it’s not an interesting figure.

Thanks, will put that in (although the way it’s set up, that’ll take a bit longer to change than the freeform text above and below the calculator.

Thanks Ronan, once any glitches have been pointed out and ironed out I will send a link to existing clients and people who come into me re a mortgage and tell them to start doin some homework as thats one of the reasons so many people are in so much trouble i.e. nobody bothered their backside doin anything for themselves and hence got royally scr****. Well done and fair play to ya.

I agree - maybe it’s just the way I’m reading it.

Thanks for putting this together. I did a quick test on a house listed for 355k with an identical one two doors down that is renting for 975/month. Your calculator recommended renting!

It’s a good tool and hopefully will catch on.

The point I raised earlier would be of particular interest when decided on the mortgage term.