Financial Modelling with Google Sheets & Google Drive
Rent or Buy decision
Buying a home may be the biggest 'investment' decision many of us make. But is it always an investment?
Below are 2 buy scenarios (100% bond & 100% cash purchase) as well as renting and investing the full bond amount in a fixed deposit.
Feel free to explore different rate/price scenarios by changing the green cells.
In order to compare apples with apples I present the answer as your Present Value (PV) position. Positive would indicate a net profit position and negative a loss. Most the time you may be merely avoiding the worst loss!
- "Putting a roof over your head" isn't always an investment, but unavoidable :)
- I could have compared Future Values (FVs) i.e. position after 20 years, but those would all be positive sometimes creating the illusion of wealth creation.
- Probably the most obvious lesson is avoid a bond if possible. The only scenario where 100% bond = 100% cash purchase is when Prime = Inflation. As the gap between Prime and Inflation decreases, a 100% becomes less painful.
- Levies and rate significantly affect the investment decision, particularly when their growth rate beats inflation.
- If property appreciation rates are greater than prime and inflation then buying beats renting and profits can be made.
- In a high fixed deposit rate scenario "Putting a roof over your head" can be profitable by Renting & Investing cash.
- The above exercise is merely a guideline as to how the rates and costs interact, in the real world no rates would be constant over 20 years.
- The model doesn't check for reasonableness of inputs e.g. prime > fixed deposit rate, prime > inflation (typically)
- Probably the biggest difference between the Google Sheets (Google Drive) approach vs. Excel (OneDrive) approach is that with Google Sheets, as soon as you enable user input, the latest version published will always be updated with those inputs. This makes it suitable for collaborations but not demonstrations where you always want the default inputs to be presented to the user. I have tried to allow the user to restore the defaults by creating a 'Restore' button on the sheet which is linked to a Google macro, but one would need to be logged into your Google account before the functionality is available, and certain permissions would have to be granted.
- Google Sheets indicates how many other users are using the sheet at the same time by assigning them 'anonymous animal avatars'.