After coming across Uncle Temperament’s recommendation of a Youtube video, a new concept on renting versus buying struck me – comparison of their unrecoverable costs. Which means if the unrecoverable costs of renting is less than buying, it would make sense to rent and vice versa.
Unrecoverable cost of renting for N years is simple – the monthly rental cost × 12 × N years.
The unrecoverable cost of buying a house would require a bit more complex calculation as it would comprise of renovation costs, property taxes, income taxes (if renting out rooms), maintenance costs and cost of capital (mortgage interest and cost of equity capital). Cost of equity could refer to down-payment, option fees or any other money paid upfront for the property which could otherwise be invested for returns. All these vary according to the size of flat unit purchased, purchase price and condition of unit