Author Topic: Using the NYT Rent or Buy Calculator  (Read 4673 times)

Justin234

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Using the NYT Rent or Buy Calculator
« on: March 24, 2013, 12:28:11 PM »
In the archives of this forum a lot of folks have recommended the NYT rent or buy calculator.

http://www.nytimes.com/interactive/business/buy-rent-calculator.html?_r=0

I feel like there's a fundamental flaw (or maybe not a flaw, but a problem) - but I want to see if I'm missing something here.

If you look at the left-hand variables, they are pretty easy - expected rent, expected cost of house, etc. Plug those in and you get a pretty solid estimate of when it might be worth buying (or not).

What I find really tricky are the ones on top - Annual Home Price Change and Annual Rent Increase or Decrease. The default seems to be 2% for homes and 3% for rentals. If you play around with those, though, you find that even a 1% change on one of those can adjust your "rent or buy" estimate by 1 or 2 years!

For instance, for a house I'm using as a test, the default gives me 5 years. Change home price change to 3% and suddenly it is saying 4 years. How do I know if those estimates for my housing market are in any way accurate? It seems to me that these factors (and their unpredictability) make the entire estimation system useless. Obviously, if your hypotheses are based on the wrong assumptions, the results will be wrong too.

Has anyone found a useful or accurate place for finding good estimates for houses and rents? I don't know enough about the market to just guess. Is there any way to control for this bit of variability?

honobob

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Re: Using the NYT Rent or Buy Calculator
« Reply #1 on: March 24, 2013, 04:13:29 PM »
I've found neighborhoodscout.com to be pretty accurate in the areas I've searched.  the best information would come from a good realtor familiar with your area and the type of property you are interested in.  I've been investing since 1978 and have determined that my appreciation rates are between 9-11% and rents increasing between 6-7%.

arebelspy

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Re: Using the NYT Rent or Buy Calculator
« Reply #2 on: March 24, 2013, 07:31:18 PM »
Yes, assumptions have to be made on any calculator like this.  Unless you know the future, you have to use educated guesses.

If it comes down to the assumption changing a break-even point from five years down to four, or up to six, then it won't matter if you're planning on moving in three years.  It won't matter if you're planning on moving in ten years.  But if you're right on the bubble, then it depends on your risk tolerance and flexibility.

If you want to go more conservative, plan for numbers that would be worse for you.  If you are a risk taker, go for it.  If you know that you WILL have to move in 5 years (say you're stationed there for the military or something), you may not want to risk it.  If you think you may want to move in five years, but would be flexible staying for another year or two if necessary, you may want to go for it.

If your exact situation falls right on the bubble then it will basically be a personal judgement call, unless you know the future.

I've found neighborhoodscout.com to be pretty accurate in the areas I've searched.  the best information would come from a good realtor familiar with your area and the type of property you are interested in.  I've been investing since 1978 and have determined that my appreciation rates are between 9-11% and rents increasing between 6-7%.

I think this comment is highly inaccurate at best.  The site you've cited has been found to report appreciation rates incorrectly.  Clearly appreciation rates above inflation are not sustainable, as eventually housing would dominate one's budget (i.e. eventually be 99% of a budget, massively outweighing everything else, if it appreciated at 9-11 percent while everything else went up 2-4%).  Naturally some localized locations may experience short-term appreciation above this, however this is not sustainable and it's not overly predictable where it will happen, unless you have a working crystal ball.

Also, just a friendly pre-warning: please don't troll here Honobob.  I'm well aware of your history on other forums.  Thanks.
We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with two kids.
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honobob

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Re: Using the NYT Rent or Buy Calculator
« Reply #3 on: March 25, 2013, 01:13:48 AM »




I've found neighborhoodscout.com to be pretty accurate in the areas I've searched.  the best information would come from a good realtor familiar with your area and the type of property you are interested in.  I've been investing since 1978 and have determined that my appreciation rates are between 9-11% and rents increasing between 6-7%.

I think this comment is highly inaccurate at best.  The site you've cited has been found to report appreciation rates incorrectly.  Clearly appreciation rates above inflation are not sustainable, as eventually housing would dominate one's budget (i.e. eventually be 99% of a budget, massively outweighing everything else, if it appreciated at 9-11 percent while everything else went up 2-4%).  Naturally some localized locations may experience short-term appreciation above this, however this is not sustainable and it's not overly predictable where it will happen, unless you have a working crystal ball.

Also, just a friendly pre-warning: please don't troll here Honobob.  I'm well aware of your history on other forums.  Thanks.

1.  Who has found NBHDScout.com to report appreciation rates incorrectly?
2.  The 9-11% appreciation rates are from my actual experience over 4 decades in two different markets.  The 11% is from the SFBay Area.  It has been sustainable for at least 40 years.  And yes, housing here does pretty much dominate your budget.  Ask anyone trying to buy a $700,000 one bedroom condo unless they have equity through 11% annual appreciation.  It is also very predictable.  It happens pretty much every 10 years in pretty much the same areas. 
C.  Thanks for the err..welcome.  I'd be happy to discuss any "history" that you think you are aware of on "other" forums.  Because really, it should just be about the facts.

arebelspy

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Re: Using the NYT Rent or Buy Calculator
« Reply #4 on: March 25, 2013, 10:08:13 AM »
1.  Who has found NBHDScout.com to report appreciation rates incorrectly?
2.  The 9-11% appreciation rates are from my actual experience over 4 decades in two different markets.  The 11% is from the SFBay Area.  It has been sustainable for at least 40 years.  And yes, housing here does pretty much dominate your budget.  Ask anyone trying to buy a $700,000 one bedroom condo unless they have equity through 11% annual appreciation.  It is also very predictable.  It happens pretty much every 10 years in pretty much the same areas. 
C.  Thanks for the err..welcome.  I'd be happy to discuss any "history" that you think you are aware of on "other" forums.  Because really, it should just be about the facts.

1. You know the answer to this, as I've seen you argue against it before.  You may disagree, but you know who has found it inaccurate.

2. So one renting in SF has a rent that dominates their budget (is 99% of their budget, like I said in the post you quoted)?  I doubt it.  Maybe 40-50% at most.  40 years of 11% CAGR for rents would have it at a much higher percentage of their budget, and only growing each year.  It'd literally be impossible to live there and have any money left for food, let alone anything else.  Compare that with annual wages that have been mostly stagnant over that timeframe.

Finally, your anecdotal experience is probably not the best for someone else to bank on happening to them, or continuing.  But okay, let's say they're going to vastly outperform inflation (unsustainable in the long term, and impossible over a wide area, but we'll pretend they pick the "perfect" spot).  Can you tell them what that spot is?  I know you've bought in Hawaii, SF, Vegas (how is that appreciation since you bought?  I know we've appreciated 25% in the last year alone, but still way off the 06 peak), etc.  Would you advise buying in SF and Hawaii now and expect to get 11% CAGR for the next few decades?  If not, do you know where the next hotspot is?  Are you claiming all places will see this type of growth, and the OP can purchase anywhere and assume 11% growth?

If you can't predict the next hotspot, it doesn't do the OP much good to say that there are some places that may experience that sort of growth.  It'd be better for them to assume the average appreciation rates (I.e. inflation rates) or perhaps something slightly more conservative.  Either way, the 11% is irrelevant.

//I wrote all this, then questioned why I'm engaging him, given the below.  My apologies, everyone.

C(?). Sure.  Wanted to give you fair warning.  Happy to have you here, but this forum doesn't tolerate trolling. I normally wouldn't start that way, but given your past I had to mention it.  If you would like to discuss more, feel free to PM me your thoughts on early-retirement.org, Bogleheads, etc.
We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with two kids.
If you want to know more about us, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
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honobob

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Re: Using the NYT Rent or Buy Calculator
« Reply #5 on: March 25, 2013, 11:14:23 AM »


1. You know the answer to this, as I've seen you argue against it before.  You may disagree, but you know who has found it inaccurate.
NO I DON'T.  YOU MADE THE STATEMENT.  CAN'T YOU SUPPORT YOUR OWN ACCUSATION?

2. So one renting in SF has a rent that dominates their budget (is 99% of their budget, like I said in the post you quoted)?  I doubt it.  Maybe 40-50% at most.  40 years of 11% CAGR for rents would have it at a much higher percentage of their budget, and only growing each year.  It'd literally be impossible to live there and have any money left for food, let alone anything else.  Compare that with annual wages that have been mostly stagnant over that timeframe.
YOU'RE NOT PAYING ATTENTION.  RENTS AT 6-7%  SF HAS RENT CONTROL.  WHAT YOU ARE DESCRIBING IS GENTRIFICATION WHICH IS A REALITY IN SF. 

Finally, your anecdotal experience is probably not the best for someone else to bank on happening to them, or continuing.  But okay, let's say they're going to vastly outperform inflation (unsustainable in the long term, and impossible over a wide area, but we'll pretend they pick the "perfect" spot).  Can you tell them what that spot is?  I know you've bought in Hawaii, SF, Vegas (how is that appreciation since you bought?  I know we've appreciated 25% in the last year alone, but still way off the 06 peak), etc.  Would you advise buying in SF and Hawaii now and expect to get 11% CAGR for the next few decades?  If not, do you know where the next hotspot is?  Are you claiming all places will see this type of growth, and the OP can purchase anywhere and assume 11% growth?

HISTORICALLY IT'S HAPPENED IN THE 70'S 80'S 90'S AND 2000'S.  i EXPECT IT TO CONTINUE IN THE DIAMOND HEAD/GOLD COAST AREA OF HONOLULU AND DEFINITELY SF JUST LIKE IT HAS HAPPENED OVER THE LAST 4 DECADES.  GO TO OAHURE.COM  CHECK THE SALES IN 2003-2005 AND SEE THE SAME PROPERTIES SELLING FOR DOUBLE IN 2008-2013.  NOT JUST MY PROPERTIES.  VEGAS, I BOUGHT IN 1994.  APPRECIATION ISN'T A STRAIGHT LINE.  iF YOU KEEP BUYING HIGH AND SELLING LOW YOU MISS OUT.

If you can't predict the next hotspot, it doesn't do the OP much good to say that there are some places that may experience that sort of growth.  It'd be better for them to assume the average appreciation rates (I.e. inflation rates) or perhaps something slightly more conservative.  Either way, the 11% is irrelevant.

SO I CAN PREDICT THE NEXT HOTSPOT AND YOU NEED TO KNOW THE AVERAGE APPRECIATION RATE FOR YOUR AREA AND TYPE OF PROPERTY.  MY APPRECIATION RATE IN SF AND HONOLULU HAS BEEN 9-11% OVER 40 YEARS. 

//I wrote all this, then questioned why I'm engaging him, given the below.  My apologies, everyone.

WHY ARE YOU BEING SO RUDE WHEN ALL I AM POSTING IS VERIFIABLE FACTS?

i HAVE ONE INTERNET STALKER.  GO OVER TO HAWAII THREADS AND YOU'LL SEE HIM ON MY PROFILE.  DANG ALL HE DID ON ER ORG WAS BOAST HOW HE WAS IGNORING ME BUT THEN STALKED ME THROUGH EVERY POST WITH HIS LITTLE TROLL PICTURES.  i WONDER IF HE'D BE SURPRISED HOW MANY PEOPLE REACHED OUT TO ME STATING HOW HIS BEHAVIOR TOWARDS ME MADE THEM LOSE ALL CREDIBILITY IN HIM.  BUT HEY, IS IT REALLY A POPULARITY CONTEST? 

C(?). Sure.  Wanted to give you fair warning.  Happy to have you here, but this forum doesn't tolerate trolling. I normally wouldn't start that way, but given your past I had to mention it.  If you would like to discuss more, feel free to PM me your thoughts on early-retirement.org, Bogleheads, etc.

I HAVE NOTHING TO DISCUSS ABOUT ER ORG OR BOGLEHEADS.  IS THERE SOMETHING THERE YOU'D LIKE TO REHASH?  I DON'T TROLL ANYWHERE AND DON'T PLAN TO START HERE.  AGAIN IF YOU HAVE SOME FACTUAL INFORMATION ABOUT MY PAST OR SOME MISCONCEPTION I'D BE HAPPY TO CLEAR THINGS UP FOR YOU. 

arebelspy

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Re: Using the NYT Rent or Buy Calculator
« Reply #6 on: March 25, 2013, 11:21:49 AM »


1. You know the answer to this, as I've seen you argue against it before.  You may disagree, but you know who has found it inaccurate.
NO I DON'T.  YOU MADE THE STATEMENT.  CAN'T YOU SUPPORT YOUR OWN ACCUSATION?

2. So one renting in SF has a rent that dominates their budget (is 99% of their budget, like I said in the post you quoted)?  I doubt it.  Maybe 40-50% at most.  40 years of 11% CAGR for rents would have it at a much higher percentage of their budget, and only growing each year.  It'd literally be impossible to live there and have any money left for food, let alone anything else.  Compare that with annual wages that have been mostly stagnant over that timeframe.
YOU'RE NOT PAYING ATTENTION.  RENTS AT 6-7%  SF HAS RENT CONTROL.  WHAT YOU ARE DESCRIBING IS GENTRIFICATION WHICH IS A REALITY IN SF. 

Finally, your anecdotal experience is probably not the best for someone else to bank on happening to them, or continuing.  But okay, let's say they're going to vastly outperform inflation (unsustainable in the long term, and impossible over a wide area, but we'll pretend they pick the "perfect" spot).  Can you tell them what that spot is?  I know you've bought in Hawaii, SF, Vegas (how is that appreciation since you bought?  I know we've appreciated 25% in the last year alone, but still way off the 06 peak), etc.  Would you advise buying in SF and Hawaii now and expect to get 11% CAGR for the next few decades?  If not, do you know where the next hotspot is?  Are you claiming all places will see this type of growth, and the OP can purchase anywhere and assume 11% growth?

HISTORICALLY IT'S HAPPENED IN THE 70'S 80'S 90'S AND 2000'S.  i EXPECT IT TO CONTINUE IN THE DIAMOND HEAD/GOLD COAST AREA OF HONOLULU AND DEFINITELY SF JUST LIKE IT HAS HAPPENED OVER THE LAST 4 DECADES.  GO TO OAHURE.COM  CHECK THE SALES IN 2003-2005 AND SEE THE SAME PROPERTIES SELLING FOR DOUBLE IN 2008-2013.  NOT JUST MY PROPERTIES.  VEGAS, I BOUGHT IN 1994.  APPRECIATION ISN'T A STRAIGHT LINE.  iF YOU KEEP BUYING HIGH AND SELLING LOW YOU MISS OUT.

If you can't predict the next hotspot, it doesn't do the OP much good to say that there are some places that may experience that sort of growth.  It'd be better for them to assume the average appreciation rates (I.e. inflation rates) or perhaps something slightly more conservative.  Either way, the 11% is irrelevant.

SO I CAN PREDICT THE NEXT HOTSPOT AND YOU NEED TO KNOW THE AVERAGE APPRECIATION RATE FOR YOUR AREA AND TYPE OF PROPERTY.  MY APPRECIATION RATE IN SF AND HONOLULU HAS BEEN 9-11% OVER 40 YEARS. 

//I wrote all this, then questioned why I'm engaging him, given the below.  My apologies, everyone.

WHY ARE YOU BEING SO RUDE WHEN ALL I AM POSTING IS VERIFIABLE FACTS?

i HAVE ONE INTERNET STALKER.  GO OVER TO HAWAII THREADS AND YOU'LL SEE HIM ON MY PROFILE.  DANG ALL HE DID ON ER ORG WAS BOAST HOW HE WAS IGNORING ME BUT THEN STALKED ME THROUGH EVERY POST WITH HIS LITTLE TROLL PICTURES.  i WONDER IF HE'D BE SURPRISED HOW MANY PEOPLE REACHED OUT TO ME STATING HOW HIS BEHAVIOR TOWARDS ME MADE THEM LOSE ALL CREDIBILITY IN HIM.  BUT HEY, IS IT REALLY A POPULARITY CONTEST? 

C(?). Sure.  Wanted to give you fair warning.  Happy to have you here, but this forum doesn't tolerate trolling. I normally wouldn't start that way, but given your past I had to mention it.  If you would like to discuss more, feel free to PM me your thoughts on early-retirement.org, Bogleheads, etc.

I HAVE NOTHING TO DISCUSS ABOUT ER ORG OR BOGLEHEADS.  IS THERE SOMETHING THERE YOU'D LIKE TO REHASH?  I DON'T TROLL ANYWHERE AND DON'T PLAN TO START HERE.  AGAIN IF YOU HAVE SOME FACTUAL INFORMATION ABOUT MY PAST OR SOME MISCONCEPTION I'D BE HAPPY TO CLEAR THINGS UP FOR YOU. 

I'm not going to engage you.  As I said, if you want to discuss further, feel free to PM me.

Cheers.
We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with two kids.
If you want to know more about us, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.

Zee

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Re: Using the NYT Rent or Buy Calculator
« Reply #7 on: March 25, 2013, 12:56:11 PM »
In the words of the philosopher Ron Burgundy, "Boy, that escalated quickly. I mean, that really got out of hand fast!"

http://www.youtube.com/watch?v=Uh7tgX_Uaqs


Justin234

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Re: Using the NYT Rent or Buy Calculator
« Reply #8 on: March 25, 2013, 03:05:30 PM »
Yes, assumptions have to be made on any calculator like this.  Unless you know the future, you have to use educated guesses.

If it comes down to the assumption changing a break-even point from five years down to four, or up to six, then it won't matter if you're planning on moving in three years.  It won't matter if you're planning on moving in ten years.  But if you're right on the bubble, then it depends on your risk tolerance and flexibility.

If you want to go more conservative, plan for numbers that would be worse for you.  If you are a risk taker, go for it.  If you know that you WILL have to move in 5 years (say you're stationed there for the military or something), you may not want to risk it.  If you think you may want to move in five years, but would be flexible staying for another year or two if necessary, you may want to go for it.

If your exact situation falls right on the bubble then it will basically be a personal judgement call, unless you know the future.


I guess I'll play around with it some more to see what my "wiggle room" is. Current goal is 7 years or more, so I'll have to see what scenarios keep me in the 'safe' zone of 7+, and then take an educated guess about how realistic those are. It's tricky, though, because where I am there is a mini-bubble going on with homes due to the low interest rates; this is following a period of high rents over the last few years when no on ewas buyin. So will rents continue to rise faster than homes, once interest rates go up and the bubble is over? I don't know if anyone could make a call on that one...

arebelspy

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Re: Using the NYT Rent or Buy Calculator
« Reply #9 on: March 25, 2013, 03:36:24 PM »
I guess I'll play around with it some more to see what my "wiggle room" is. Current goal is 7 years or more, so I'll have to see what scenarios keep me in the 'safe' zone of 7+, and then take an educated guess about how realistic those are. It's tricky, though, because where I am there is a mini-bubble going on with homes due to the low interest rates; this is following a period of high rents over the last few years when no on ewas buyin. So will rents continue to rise faster than homes, once interest rates go up and the bubble is over? I don't know if anyone could make a call on that one...

Makes sense.  So if you are on the bubble like that, and have considered the different break even scenarios, then it may be best to say it's a close call and start to compare the non-financial (I.e. emotional) factors of renting versus buying.
We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with two kids.
If you want to know more about us, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.

honobob

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Re: Using the NYT Rent or Buy Calculator
« Reply #10 on: March 26, 2013, 07:06:00 PM »
http://www.sfgate.com/realestate/article/Bay-Area-home-prices-projected-to-surge-4288392.php
You should realize appreciation does not follow a straight line.  My experience is that values double in two years within every 10 year period.  Your expectation of 15-50% appreciation over your holding period may very well happen within the next year.