Comparing Renting vs House Hacking By The Numbers

2 Replies

Yesterday I posted about how my wife and I are moving from San Francisco to Chicago and looking to do a house hack. @Brie Schmidt gave me some pretty good advice around tradeoffs between price, location, cash flow, etc. and this got me thinking. After discussing with my wife a bit, we both came to the conclusion that location was our top priority. We aren’t interested in seeking out up and coming neighborhoods where we can get the best deals. We want to live in a neighborhood that is great now, even if that means making sacrifices in other areas.

The question for us then becomes, how do we make the smartest financial decision considering this criteria? For example, if almost everything in a neighborhood has a negative cash flow, would this still be better than renting in that same location? Would it be better than buying a single family home or a condo?

I figured the only way to find out was to look at the numbers. So, I set up a calculator and so far it’s been super helpful for me. I figured I’d share it here in case anyone else finds it useful. Another set of eyes or two double checking the math and some of my assumptions wouldn’t hurt either :)

Before I share this, I have a couple caveats:

  • I am not a real estate investor. The terms I‘ve used or the way I have this set up may or not make any sense at all.
  • I suck at math so please be kind if you find errors :)

OK, if you want to see what this looks like go to the link below and make a copy of the spreadsheet.

This probably needs a little bit of explanation. I wanted to see what would happen if I took the exact same amount of cash that I would invest in any particular property and invest it somewhere else while renting. I wanted to see what that return would look yearly for each option over the course of 20 years. I figured this would help find any sweet spots from a timing perspective as to when it became more advantageous to buy vs rent.

The first section shows what you would gain on your cash investment if it compounded annually at a chosen rate. The initial cash investment pulls the exact same initial investment number for the property details you enter. I plugged in 5% to be conservative, but it can be changed to anything. We still need to live somewhere so this section also shows those costs and how that would reduce the value of our investment over time. This may be a silly comparison, but I found it helpful.

The second section shows the numbers if we were to live in a purchased property. I’ve been using it to analyze multi family homes, single family homes and condos. It’s obviously not exact, but I feel like it gives a pretty good rough idea.

The last section is where the property details are added as well as any of the other variables that go into the property or investment. The items in yellow are the key pieces of data I change from property to property. The items in blue are calculated based on the other data.

I took some sorta educated guesses for things like yearly increases in taxes, rent, expenses, insurance, and appreciation. Those numbers are all pretty easy to change though if they seem off.

Anyway, have fun with it, and if you find something off or have any advice, let me know!


@Jeremy Margaritondo , this is very interesting, as an ex-house hacker.  I'd like to discuss it sometime since, even though I'm a numbers guy, I never took pencil to paper (or keyboard to spreadsheet?) and hacked out the numbers.

@Logan Allec I'd love to discuss. I already found a couple small issues with my first version which I have since fixed :) I've found it pretty helpful so far though, especially when trying to determine my exit options after a certain number of years.

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