Does buying ever win at big-city prices?
The same arithmetic as an ordinary rent-versus-buy model, run at big-city prices where the owner spends roughly $59,000 a year more than the renter, who invests every dollar of the difference.
Personal Finance Advanced Monte Carlo Pro engine
After you install, this is the model to open.
Rent or Buy in an Expensive City
- In your spreadsheet, click the Sortia icon in the strip of icons down the right-hand edge. No strip? Click the arrow at the bottom-right to open it. You can also use Extensions, then Sortia, then Open Sortia.
- Click Start from a template and put that name in the search box.
- Pick the card with that name and click Load this template. It arrives on a new tab with real numbers already in it.
This one runs on a Pro engine, and every free install includes five full-quality runs on your own numbers, shared across all five Pro engines rather than five for each. After that, Pro is $199/year.
The answer
Across 20,000 futures:
- Buy minus rent, year 10
- -$614K mean
- Buying comes out ahead in
- 4% of futures
- Break-even appreciation
- 6.4% a year, every year
Buying needs the home to appreciate about 6.4 percent a year for ten years just to draw level. Deliberately excluded: mortgage interest and property-tax deductions, rent control, and the fact that a fixed payment stops rising while rent does not. As a quick test when comparing cities, a price-to-rent ratio under about 15 tends to favor buying and over about 20 takes unusual appreciation to justify.
The model
$1.3M home, 20 percent down, 6.5 percent mortgage, $4,200 rent. Appreciation, investment return and upkeep are ranges. Property tax follows the California assessed basis, rising 2 percent a year rather than tracking market value.
| Home price / rent | $1.3M / $4,200 a month |
| Price-to-rent ratio | 25.8 |
| Mortgage payment | $6,574 a month |
| Horizon | 10 years |
Once it is in your sheet
- The model arrives with real numbers in it and runs as it stands, so you can press the button first and understand it second.
- Change the numbers to yours. The sheet marks which cells are inputs and which hold formulas, and most labels carry a note explaining the row.
- Press the run button at the bottom of the panel. It is labeled for the tool you are in, and the result lands on its own tab, with a written reading of it beside the figures.
Never used Google Sheets? Start here goes the whole way, in seven steps, and assumes nothing.
Next question
- Not whether a savings goal is hit: what one income-loss episode actually costs. This household can reach $11,000, which carries 65 in 100 episodes, and the 90 in 100 they asked for takes about $38,400.How Big Should the Emergency Fund Be?
- Pay a little extra each month. How much sooner is it gone?How Much Sooner Does an Extra Payment End the Loan?
- Will you actually hit your savings goal?Will You Hit Your Savings Goal?
- Will your retirement money last to 95?Retirement: Will the Money Last?
- Should you buy the house or keep renting?Rent vs Buy a House
- Will this rental actually cash flow?Does the Rental Property Make Money Most Months?
Every model like this one, and the method behind them: Monte Carlo simulation.