Author Topic: Calculating rent vs buy with roommates  (Read 1354 times)

frogjamm

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Calculating rent vs buy with roommates
« on: December 22, 2019, 07:59:21 PM »
Hi, I'm hoping someone a bit smarter than me could give me some insight on the proper way to calculate something. :) I've done a bit of searching but couldn't find it addressed anywhere else.

I'm contemplating the cost of renting a room in a house vs buying a similar house and renting out one or two rooms. I'm not interested in the lifestyle factors, just how to calculate the relative costs. Do I simply add all costs associated with owning the home (P&I/insurance/maintenance/etc), subtract the opportunity cost of the down payment, and compare that to the annual cost of paying the rent for a room? Is there more to it? That seems a bit simplistic. Is there a logical way I can factor rent received from roommates into one of the online rent vs buy calculators?

Thanks so much for any insight you can provide.

frogjamm

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Re: Calculating rent vs buy with roommates
« Reply #1 on: December 22, 2019, 08:24:12 PM »
I wrote out my thought totally incorrectly there. What I meant to say was add up all costs associated with owning the home, add in the opportunity cost of the down payment,* and subtract the rent I would receive from roommates. Then compare that to the cost of renting a room.

Also, the way I' thinking of opportunity cost is this: Say over the ten year period I would expect to be in this arrangement, a $40,000 down payment could become 78,686 compounded at 7% (in an index fund) vs $53,756 at 3% (as an investment in a house that keeps up with inflation). so that difference is about $25,000 or $2,500/year. Is this a correct way to think about this?

Sorry if these are dumb questions, I've always been a happy renter, but recently started to consider buying.

Zamboni

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Re: Calculating rent vs buy with roommates
« Reply #2 on: December 22, 2019, 08:34:06 PM »
With a house, you gain more and more equity with each payment you make . . . especially if you can swing a shorter term mortgage, like a 15 year mortgage. That would need to be factored into the calculation.

You also used to be able to write off the mortgage interest on your taxes, but that benefit of home ownership is at least temporarily suspended for most people thanks to the GOP.