Check my work: rent vs buy spreadsheet

[ghostmute]

I currently rent an apartment in Chicago, and am considering buying a place instead. Likely that would mean buying a three-flat, living in the garden unit, and renting out the upper two floors. I made a spreadsheet to compare the financial results of these two options - continuing to rent or buying a live-in investment property - and would hugely appreciate any feedback on what I missed or how I could make it more accurate.

In comparing the two options, I assumed that any money "saved" would be invested in the stock market. Eg: if my total monthly expenses in the "buy" scenario are X, and my rent in the "rent" scenario is Y, then I'm investing an extra (X-Y) each month as a renter. In the "buy" scenario, I assume I'll invest any income generated by the property (rental income and tax deductions), and obviously part of X will go towards building equity.

I need to do more research to come up with more accurate numbers for rental income and vacancy rate. The other numbers (property taxes, maintenance, insurance, returns, rent increase) are my best guesses, though, so let me know if any of those seem off.

Here's the link. Thanks in advance for any help! https://docs.google.com/spreadsheets/d/12ygv9vNt5J_4OvhRHvB_jwh3EaUzxyCWEqG5jN4pvTw/edit?usp=sharing

[swashbucklinstache]

I'd include PM costs in your calculations even if you don't plan to use it right now. There are additional spreadsheets stickied here and at bigger pockets that can be very helpful too.

Don't forget to think about the relative risk of each option, the down and upside risk of leveraging a large asset. Also, about if whatever difference you come up with in the end is worth the time and hassle of buying a home and being a landlord. Also, consider if flexibility to move easily or in a down housing market sometime in the near future is important to either your career or your personal life.

[Cwadda]

For a solid investment property, it's recommended to find a place where the monthly rent covers 1% of the purchase price. In this case, a $750k house would need to return $7500/month (minus the cost of your unit's rent).  I wouldn't consider anything less.

I also noticed on your spreadsheet you factored in $0 for renovations, and like swashbucklinstache, no property management.  You will almost never come across a house that is 100% turn key.

I will attach my spreadsheet for analyzing buy-hold real estate. If you have any questions, let me know! 

[tralfamadorian]

I also noticed on your spreadsheet you factored in $0 for renovations...

But the OP does have ~$650/mo set aside for maintenance.  I don't know if the property needs any work at all before move in but if it doesn't, I consider $7.8k/yr for repairs/capex to be more than sufficient for most high $/sqft properties. 

...Chicago...

I think your plan is a good one in theory but I would be wary on IL.  I don't live there so am not privy to the details but the scuttlebutt is that the state government's financial situation is terrible and that more property tax increases are on the way.  For a property worth that much that you would already be paying $1287/mo in taxes on, how would you feel if the taxes went up 10%/20%/30% or more?  You presumed 2% on your spreadsheet.  In 2016, taxes went up an average of 13%; in 2017, an average of 10%.  Between 2009 and 2014, taxes went up 50%.