Suneet Singal on a rent-or-buy framework

Suneet Singal’s site can offer a rent-or-buy framework without pretending to know whether any particular household should sign a lease or a mortgage. The framework is a list of costs, a list of public series that can fill a cell, and a list of facts the money will not score. Rent is a payment for housing service. A mortgage payment is a blend of interest, principal, taxes, insurance, and sometimes mortgage insurance. Those are not two versions of the same bill, and a month in which they happen to be similar is not a verdict. This entry shows how to line the bills up, which number to look up rather than invent, and why a price forecast does not belong in the first draft. It is a reference from a real estate and corporate finance reading habit. It is not personal financial advice, and it does not produce a yes or a no.

Name the comparison before you fill it

A useful comparison has a time horizon, a specific dwelling or a clearly hypothetical one, and a rule about which costs count. “Is buying better?” is not yet that comparison. Better for a household that may move in two years is a different question from better for a household that expects to stay for fifteen. Better on this month’s cash flow is different from better on net worth if the house is sold after costs. Write the horizon at the top of the page. Write whether the dwelling is a real address or a worksheet. Then refuse to add a national slogan in the place where a row should be.

The two columns are renting and owning. The rows are not only the monthly payment. They include cash required at the start, monthly cash out, costs that arrive in lumps, the value of money tied up in a down payment, the cost of leaving, and a price or rent change that is explicitly a scenario. They also include a notes column for things the dollars do not measure, such as the ability to move on a short notice or the right to change the kitchen. Suneet Singal’s framework stops being honest if the notes column is dropped because it does not fit in a spreadsheet. The spreadsheet is the money. The decision is larger than the spreadsheet, and the page should say so.

Every number in the grid needs a source or a label that says it is an assumption. A contract rent has the lease as a source. A mortgage payment has a Loan Estimate as a source. A house-price change has a named index, a geography, and a period, and it is still a scenario when you project it forward. An unsourced number copied from a video is how the grid starts answering a question the household did not quite ask. The discipline is the same one used in the interest-rate entry and the closing-cost entry. This page assembles those pieces. It does not replace them.

The owner’s column

The owner’s monthly cash often includes principal, interest, property taxes, hazard insurance, and mortgage insurance if the loan requires it. Association dues belong in the column when there is an association. Maintenance does not arrive as a smooth monthly bill, but a framework that sets maintenance at zero has chosen an assumption and should say so. This entry will not bless a rule of thumb such as a percent of the price per year. A household can write its own maintenance assumption, label it as an assumption, and test a higher one. Roofs and water heaters do not consult the national average before they fail.

Cash at the start includes the down payment and the cash to close. Those are defined in the down-payment and closing-cost entries. They are not monthly costs, but ignoring them makes buying look cheaper than it is for anyone who could have kept the cash. The framework records them once, at the beginning of the horizon. If the comparison later needs a monthly equivalent, the household can choose a way to spread them and must label the method. There is no single correct monthly equivalent published here, because any spread depends on how long the household stays.

Leaving has a cost as well. Selling usually involves a commission or other compensation that is negotiated, plus concessions, repairs a buyer demands, and moving costs. This page does not state a standard commission. Practices change, and a remembered percentage is a poor substitute for a listing agreement or a written estimate with a date. Put a sourced selling-cost assumption in the last period of the horizon, or leave the cell blank and note that the comparison is silent on exit. A comparison that is silent on exit is not a full comparison. It can still be a useful draft if the silence is visible.

The renter’s column

The renter’s monthly cash starts with rent and renter’s insurance. It includes parking, pet rent, and utilities to the extent those would differ in the owned house. If utilities would be the same in both columns, they can sit outside the comparison. If the owned house would add a water bill the landlord currently pays, the water bill belongs in the owner’s column. The point of the grid is the difference. Identical costs that are written twice do not inform the choice, and identical costs that are written once, on the side the writer prefers, distort it.

Rent is not fixed for the whole horizon unless a lease says so, and leases end. A rent-change scenario has to be labeled as a scenario. One way to build it without inventing a number is to look up a dated statistic and then decide, explicitly, whether to use it. The Census Bureau’s housing topic pages point to sources for gross rent and for vacancy. A median gross rent for a city is not the rent of the apartment in front of you. It can still stop a worksheet from assuming that rent never changes, or that it doubles, without a source. Write the geography and the vintage next to any median you use. Do not paste it in as “the rent.”

The renter’s column does not build home equity. It also does not expose the household to a down payment stuck in a house that takes time to sell. Those are not small omissions. They are the core of the comparison. A renter who invests the cash a buyer would have used as a down payment has an asset that belongs in the renter’s column if, and only if, the household would actually set that cash aside. Assuming the renter invests with perfect discipline is an assumption. Assuming the renter spends the cash is a different assumption. Pick one, label it, and try the other before you trust the result. The framework is a way of seeing the assumption, not a way of hiding it.

Price change is a scenario

Owners take price risk. The house may be worth more or less than the purchase price when it is sold, and the sale itself costs money. A house-price index is the public tool for describing how prices have moved for a class of houses. The Federal Housing Finance Agency publishes house-price indexes and says which index is purchase-only, which geography it covers, and whether a figure is an index level or a percent change. A percent change from that page can be used as a historical fact about that index. Using the same percent as the future change in one house is a scenario, and the worksheet has to say “scenario.” The index is not a forecast, and it is not the resale price of a particular address.

The sign has to be allowed to be negative. A framework that only tests flat prices and rising prices has not tested the risk that makes leverage painful. Leverage means a down payment of 10 or 20 percent experiences the whole price move. A 10 percent decline in price is a much larger decline in the owner’s equity. This sentence does not claim that a decline of 10 percent is likely. It claims that the arithmetic is part of understanding a mortgage. Run one scenario with a decline taken seriously, not as a token minus sign you do not discuss. Then run a rising scenario if you want. Report both. A decision that only survives the rising scenario is a bet on the rise, and the framework should make that obvious.

National indexes and local indexes answer different questions. A national percent change can be true while a metropolitan index, or one neighborhood, did something else. The entry on reading housing data and the entry on Sacramento figures go into geography. For the rent-or-buy grid, the rule is to match the geography to the house as closely as the published series allows, and to say what you could not match. A scenario built on the wrong map is not a conservative scenario. It is a mislabeled one.

Which public series belongs in which cell

Use a Loan Estimate, not a headline, for the mortgage rate, principal and interest, mortgage insurance, and cash to close on a loan that has actually been offered. Use FRED series MORTGAGE30US only for a sentence about the weekly national average of 30-year fixed rates, and record the observation date. Use the FHFA house-price index page for a price-change scenario, after reading which index and which geography you selected. Use the Census housing topic pages to find a rent or vacancy statistic, and read the table title before you type the number. Use the National Association of Realtors research page for existing-home sales or an affordability measure only after reading what that measure assumes. The affordability entry explains why an index value is not a household’s answer.

Do not put a median sale price in the cell reserved for the contract price. Do not put an index level, which might be a number like 250 with a base year, in a cell that expects dollars. Do not put last year’s rent increase into a lease that has already set next year’s rent. The grid has room for both a fact and a scenario, and it collapses when a scenario is typed in the fact column. This is the same care the data-reading entry recommends. Applied here, it keeps a personal decision from inheriting the wrong public number.

Some cells have no public series that should be used. A family’s tolerance for repairs, a child’s school year, a job that might move, a parent who needs a different floor plan: none of these is on FRED. Leave them in the notes column in plain language. If you force them into a dollar figure, label the dollar figure as your valuation, not as a statistic. Suneet Singal’s reference can tell you the difference. It cannot supply the valuation.

What the framework will not compute for you

The framework will not compute a universal break-even year. Transaction costs, rent growth, price change, maintenance, taxes, and the alternative use of the down payment can be combined into a year at which owning comes out ahead on a stated metric. Change one assumption and the year moves. Publishing a single year on this page would freeze one set of assumptions and invite readers to skip the grid. Do the arithmetic on your inputs if you want a year, and write the inputs above the year so a reader of your notes can see what had to be true.

The framework will not say that buying is how people build wealth, or that renting is how people stay flexible, as if either sentence were always true. Buying builds equity only if principal is paid down or the price rises by more than the costs of getting in and out. Renting preserves flexibility only if the lease and the household’s savings match that story. Both outcomes are possible. The grid is how you tell which story you are actually assuming. A motto is how you avoid noticing the assumption.

The framework is also not a tax plan. Mortgage interest and property taxes may or may not change a household’s income-tax bill, depending on the tax law and on whether the household itemizes. This page does not compute that effect and does not advise anyone to itemize. A reader who believes the tax effect matters should ask a tax adviser and then put a sourced figure, or a clearly labeled zero, into the grid. Leaving a large imagined deduction in the owner’s favor, with no tax advice behind it, is one of the ways buying “wins” on paper.

How to finish a draft without turning it into advice

A finished draft has a horizon, two columns, sourced monthly figures or blank cells, a starting-cash line, an exit-cost line, at least one unpleasant price scenario, and a notes column that has not been emptied. It has dates on every public number. It does not have a sentence that says the site told the household what to do. Suneet Singal publishes the framework so readers of the housing entries have a place to put the down payment, the rate, the closing costs, and the data releases together. The judgment across the bottom of the page is the household’s.

If the draft feels too sensitive to one row, that is a finding. A comparison that flips when maintenance is a little higher, or when the sale costs a little more, or when the household moves two years sooner, is a comparison that depends on those uncertainties. Name the row that flips it. That name is more useful than a confident winner. If the draft does not flip under any plausible row you change, write that down too, and still record the rows, because a later change in rent or in the rate on a new Loan Estimate deserves a place to land.

Return to the public pages when a number ages. A FRED observation, an FHFA release, and a Census table all carry dates, and the dates are part of the meaning. The archive-date entry, in the technology section of this reference, explains that habit for articles. The same habit applies to a rent-or-buy worksheet saved on a personal computer. A worksheet is a preserved document. It is not automatically current just because the file is still called current.

What this entry does not claim

Suneet Singal’s published professional background is in real estate and corporate finance. Company filings linked from this site record a chief executive officer departure from FC Global Realty Incorporated effective 2 January 2018 and an acting chief executive officer appointment at First Capital Investment Corporation effective 12 September 2017. The Suneet Singal Scholarship, Grant and Giving websites describe him as the founder of those programs. This entry explains a general subject. It is not a private track record, a current job title, an investment result, or a quote.

Continue with interest rates and the monthly payment, how to read a housing data release, and what an affordability index does not say.