Buy vs. Rent.

We've been living in the States for almost two years and periodically the question whether to stop"wasting money (renting) and buy our own nest arises. Since my current lease is approaching its scheduled finish day I had to answer this question seriously and weighed all the aspects for at least next year.

There are many great sites and forums discussing the matter and bearing various points for both options. Yet I was sinking in the ocean of arguments, long posts, inconsistent considerations, and location-specific data. After finding myself unlucky seeking a detail calculator for such a comparison in the net I created in Excel a calculator with all (I hope) parameters influencing the decision.  

I admit, that a buy or rent decision is not ensued from pure arithmetical conclusions and is shaped heavily by other psychological factors but if the latter outweighs then one, at least, should know the price she's ready to pay for the piece of mind.

So in the sheet there are only financial parameters and a few formulas summing up the picture. I'm not an real estate agent and haven't had a house in US so the data are probably incomplete. Not to a less degree I feel uncomfortable in pouting the "default" values you'll find in the calculator. Of course, "your mileage may vary", the cost can be different, so go ahead and change it appropriately. There is no "one case fits all" set of values.

At the same time, I hope my approach is quite fair in its algorithmic foundations. The calculator compares two options. In the first we buy a house paying some down payment and taking a mortgage for the rest (all the parameters are adjustable), then we sum up our monthly payment for utilities and maintenance (which are different from the option when we merely rent), subtract tax deductible money, and get the final number. The second option leaves us just renting, no tax deduction, no maintenance. Obviously enough, owning is more expensive in terms of the payments but as time goes the house becomes more and more yours. At the end of the day(s) you'll acquire it completely as opposite to the renting option when the money is thrown away.

So to compare the two options I take the difference in the monthly payments, take the down payment, and invest it all (regularly the former and one time the latter) to the market (CD, funds, whatever - the rate is an adjustable parameter too).

We compare finally two options along the time. When does it make sense to sell the house and to win comparing to renting and saving. As I said, all the numbers are adjustable; calculated ones are in italic so you don't need to change them. Inflation is not taken into account and tax deductible money is constant. I believe it's still accurate enough to get the idea.

In my case with the current projection for my area it doesn't make sense to buy a house if you're not planning to live there at least 4-5 years.

I hope it may be useful for you; if you find mistakes in the calculations, wrong assumptions,  forgotten parameters, or simply values too far from reality please let me know.

Useful sites on the topic:

bankrate.com (various calculators, tons of articles, mortgage quotes)
clarkhoward.com (Clark Howard's site with a very friendly and active forum)
gardenweb (many articles and forums on house issues)
patric.net (#1 site on housing crash)

Update: a very good analysis of the same question from Tim

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