40+ posts in the thread and nobody tried to do a simulation?
Ok so i have setup a google sheet to figure out in which cases it is better to rent vs buy.
I tried to be as precise as possible, but as is often the case some assumptions have to be made:
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if real estate price is growing over time, I assume that rents are growing as well with the same rate
EDIT: @REandSTOCK rightly mentioned below that this is not the case. This is now corrected. There is a different growth rate for rent and prices. -
I assume that buying is done “Swiss-style”, i.e with the intention to never repay 66% of the mortgage. We don’t do a full amortizement of the mortgage (which is so alien to all immigrants coming in Switzerland - “what do you mean, you don’t repay the mortgage?”).
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When comparing buying vs renting, there are years when buying has more expense than renting and vice versa. I assume that on a given year, whoever has the least expense invest the leftover in VT or similar. Those quantities are computed in columns P and S.
And here it is:
Feedbacks are welcome. In my case, with a monthly rent of 1’500 CHF in Zürich, similar apartments selling for 800’000 CHF and an expected Real estate growth of 2% per year, it looks like renting is more advantageous. The opportunity cost of not investing your downpayment in the stock market is too big here.
I played a bit with the parameters and i also found out that:
- If you don’t expect Real estate prices to grow but merely stagnate, don’t ever buy, the opportunity cost is too big
- The Eigenmietwert is really a b*tch. It is not totally offset by the interest cost, and depending on your marginal tax rate, this can result easily in 5kCHF more in taxes each year, which has a big opportunity cost.
- Maintenance cost is hard to evaluate. I’ve put it at 0.5% per year, but if it gets bigger than this the opportunity can kick in quickly
- If you plan to amortize your mortgage totally, don’t ever buy. The opportunity cost is huge.
But of course, those are only the financial aspects of it. The issue with real estate is that we can quickly become sentimental about it.