An application that simulates owning, renting and being a landlord of a property.

1207 N 207th Cir Elkhorn, NE 68022 4 beds 4 baths 3,717 sqft

https://www.zillow.com/homes/for_rent/118807282_zpid/297017-_price/1191-_mp/featured_sort/41.284643,-96.204958,41.241093,-96.266499_rect/13_zm/

Include moving costs. Perhaps allow renter to move periodically during simulation.

I shared an XLSX spreadsheet here. I tried to change my code to output a spreadsheet so you could just it. I tested my code as best I could by comparing mine to yours for similar runs until I got everything to match up. Except for the issues below.

Renter NPV -$198,269 vs owner NPV of -$134,136. This is a clear victory, in this case, for own over rent. Even lowering the rent to equal the owner's monthly payment doesn't help.

At $2,300 rent, the landlord has an NPV of -$38,185 at an 8% discount rate. At 2% IRR. However, we've basically chosen relatively conservative options here which work against the landlord.

Problems with the spreadsheet.

• When comparing rentals, NPV/IRR is only meaningful in a relative sense. I.e. it only let's you decide which is better/worse - renting or owning. It says nothing about the true economic value. A person must either rent or own - you must have a place to live. The NPV here is not truly a cash flow showing revenue from an asset. Rather, it is accumulating the net value of the costs associated with owning or renting. See scholarly paper referenced below.
• Your spreadsheet, the landlord does not appear to account for the security deposit being held.
• Your spreadsheet, the monthly discount rate for NPV is calculated as "rate / 12". It should be "(1+rate)^(1/12)-1"
• Your spreadsheet, does not appear to account for the loan balance in the final cash flow.
• Your spreadsheet, property tax and mortgage interest deduction are not relevant landlord assuming they rent more than 14 days per year. These are already deductible expenses in any case. One can't take an additional "tax savings" because these expenses are already offsetting rental income. I.e. you're not saving on tax, you're simply not paying tax which would otherwise have been due. Since your spreadsheet is not paying tax to begin with, this essentially gives you a tax deduction twice!
• Your spreadsheet, tax savings via depreciation are a "non-cash" expense are should not be included in NPV. See link below.
• To the extent you have a loss or unused depreciation, a loss can only be used to offset other passive income (in most reasonable cases). Assuming all your properties are similar, you can't use a rob Peter to pay Paul approach here to boost your cash flow. In essence, that is just transferring value from another property.
• Your fixed closing costs for both purchase and sale are way out of line with respect to Omaha. I understand other areas of the country are different. Buyers fees are 1/2 title insurance, 1/2 of closing fee, some doc fees, termite and an appraisal. Plus a percentage fee for loan origination (1 or 2%). Sellers closing costs here are 1/2 title insurance, 1/2 of closing fee and some documentation fees - plus a 6% commission.

Changes made to my simulation:

• Removed operating loan concept. It was wrong as an idea and implemented wrong.
• CSV and markdown reports
• Monthly and yearly reports.
• Landlord security deposit held/returned
• Vacancy holdback
• 1031 exchange
• Added support for mortgage/propert tax deductions

This code available on github.

See Rent vs Own NPV for a discussion of how to use values.

See this for discussion of how to evaluate ROI from a landlord perspective.

TurboTax provided rules for tax deductibilty of expenses.

A sample excel file can be downloaded here, This file is also included in the project.