05-Mar-09 NEW: Sell or Rent Out Calculator
This "Sell or Rent Out" calculator was created specifically for a friend of mine (we'll call her Anthea) who came to me with a problem:
"I bought a buy to let property... Should I sell it now or rent it out ?"
Here's a screen shot: 
The big killer for her is the fact that the service charge is so high, and the rent so low that the mortgage is not even covered thus creating a cash black hole. She's also locked into a fixed rate mortgage with a redemption penalty.
Even assuming a property boom in 5 years time, she's still better off selling now.
There are 2 files here...
One with EXAMPLE values that we played with
One with zero values that you can download and enter your own numbers
Training Video explaining how to use the calculators on ExcelExperts.com:
- This one is for the "Buy or Rent" calculator but the principles are the same
Sell Or Rent Out Training Video:
Enter your own values, make your own market assumptions, and use at your own risk !
| Attachment | Size |
|---|---|
| sell-or-rent-out-zero-values.xls | 63 KB |
| sell-or-rent-out-example-values.xls | 75 KB |
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Sell or rent out - Update
Based on the results of this calculator, Anthea decided to sell her flat, and is very happy to have exited this buy to let investment with a profit.
THANKS
Just want to say - FANTASTIC and SOOO HELPFUL Spreadsheet - i've searched google FAR and WIDE for this!!! Thanks
non-interest-only mortgage
Thank you for such an interesting and useful sheet. I was only wondering how I could go about using it for my case as I have a mortgage which is not interest only.
Regards,
Juan
repayment mortgage
hi Juan..
No plans to add repayment mortgages (unless you want to sponsor the work) , however, there's nothing stopping you from calculating the difference between an interest only mortgage, and a repayment mortgage, and entering those numbers in the "Extra Income / Cost" column.
Nick
Doesn't work with underwater mortgages?
Correct me if I'm wrong, but it looks like "Wealth if Sell Now" column doesn't correct for the possibillity of a short sale and negatively compounds the loss.
underwater
I think it works fine, although it makes the assumption that you can borrow at your post tax investment rate.. borrowing rates are normally > investment rates, so set Post Tax Investment Rate = borrowing rate in this case..
If you have negative equity (Mortgage > house price), your wealth is negative (assuming you have no other investments).
If you sell your house, you will have to borrow to fund the sale... If you live in America, I think you can walk away from this by surrendering your house.
wealth if sell now negative forever
My wealth if sell now just keeps going down due to the formula in column Q which works out to: Loss at sale *(1+post tax inv rate). I understand that the money to cover the loss must be borrowed, but it also must be paid back and this treatment seems to just compound the loss infinitely into the future. It seems safe to assume that I could at least put an amount of money equal to the portion of the mortgage payment not covered by the rent toward paying off this balance, right?
Extra Income
If you have Extra income coming in, enter it in the Extra Income column, and that will go towards reducing your borrowing.
Impact of owning on income taxes?
If you are in a high income tax bracket, aren't there income tax benefits of owning that might offset a low or negative cashflow result when just looking at the cash returns from the rental property itself?
Income Tax Advantage
If you're unable to cover mortgage with the rent, surely it's already a disasterous investment ?! Forget any income tax implications.
protected cells
what's the password to unlock the cells?
thanks
Agreed. This calculator
Agreed. This calculator doesn't let me go to $2,000,000 purchase price. I would love to be able to use it. What's the point in locking it? Will you sell an unlocked version?
Equity question
Really interesting calculator, thanks so much! In reviewing, I noticed that "equity" only increases by the home price change increasing. This seems to neglect the fact that you've also been paying down your mortgage during the rental period. Does that need to be adjusted or am I missing something?
interest only
hi
It's an interest only calculator because interest only is essentially the same as renting - you will never own the property.
interest only
but the purpose of the calculator is to understand if it is a better financial decision to continue owning for some period of time (but rent the property during that time) or if you should sell the property now. building equity would seem to be a key consideration. i'm not sure i understand your explanation.
interest only
I suppose I could add it, but I don't think it has a significant impact on the results unless there's a large difference between the amount you can earn post tax on your investments vs your mortgage rate.
I think it has to make a
I think it has to make a significant difference, because you're not taking into consideration a key component of the analysis. For instance, if you bought a house today with a $450k mortgage at 4.25% and were trying to make this decision of selling the house or renting it out, at month 60 of that mortgage, you would owe $20k less in principal than you do on day 1. The deeper a buyer is into their mortgage, the more their monthly payments are contributing to principal as opposed to interest, so continuing to adjust your equity in the home seems imperative to me, especially as you get deeper into the mortgage life. I've adjusted this in your model by adding an amortization table of my own, but I was just more trying to understand conceptually why that part had been omitted.
interest only
The model looks at your overall wealth, not your housing equity... so any money you might have spent on repayments is simlpy in your bank account instead earning interest...
interest only
sorry that i'm not understanding. to be more precise, no money from the sale of your house will be in your bank account until you sell that house. to understand your wealth when you sell, you would need to calculate as follows: (sale price less commissions) - mortgage repayment = net cash to seller at close. they way the model is calculating this, you are holding the mortgage amount constant throughout the life of the analysis. however, since you're paying down the mortgage of time, the size of the mortgage is shrinking which makes net cash to seller increase. can you explain how that is incorrect, or how any money spent on repayment is in your bank account until you've sold the house and paid off the loan in full?
Weekly Rent ?
Great spreadsheet. quick questionm. The "initial weekly rent" is this correct? Or should it be monthly??
Thanks.
weekly
it's weekly
Why weekly? Rent is paid
Why weekly? Rent is paid monthly in almost all scenarios other than vacation rentals here in the United States. Is this positioned for some other market?
weekly rent
the reason why it's weekly is because I prefer to look at it like that...
(very) roughly, if rental yields are around 5%, your weekly rent allows you to quickly value your house... just multiply it by 1000
So if you're paying 100 per week, the value of the house is around 100,000.. if the price is more than that, you're normally getting a good rental deal.
Property taxes, mortgage deductions, depreciation
I do not see any column for property taxes. have you considered property taxes? Also have considered deductions on mortgage and depreciation deduction on rental income?
property taxes
For property taxes, use the annual maintenance field if it's a percentage.. or put a negative number in the "Extra cost / income" column.
the calculator assumes that only the mortgage repayments are offsettable against tax. If you think you can offset more, put the "Tax rate on rental "profit" (if any)" to 0, and calculate the new cost in the "Extra cost / income" column.
Sell or rent out calculator
I just found this calculator on Google search. It is a really great tool for me as I am a Realtor with a great knowledge of real estate trends and values but I dont know how to build a proper spread sheet.
However, it appears that it is not based on US tax law. My sellers can take the first $500K in capital gains tax free. If they rent for more than 3 years they will loose this advantage and will also need to pay taxes on the amount they depreciate while they are renting. How can I adjust your spread sheet to compensate for these US tax codes?
Request a quote
happy to create a customised solution for you
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Mortgage Payment
Since the Rent recieved is in a weekly figure does that meen that the "extra income/cost" number would be a weekly figure as well?
extra income is yearly
extra income is yearly
Mortgage Payments
In the US, we use an amortization table to determine mortgage payments. So, your calculation for the Mortgage Payment column only includes the interest portion of the payment, not the principal.
Instead of using
Instead of using "-mortgage_amount*mortgage_interest_rate" use
"PMT(mortgage_interest_rate/12,360,mortgage_amount)*12" for a 30-year fixed in the US
I'm assuming interest only
I'm assuming interest only mortgages.