1. What is Net Present Value (NPV)?

NPV is a financial metric that calculates the present value of future cash flows, discounted at a specific rate. It helps compare the value of money received at different times by accounting for the time value of money.

2. How Does the Calculator Work?

The calculator uses the NPV equation:

Where:

• \( Cash\ Flow_t \) — Cash flow at time period t (USD)
• \( r \) — Discount rate (decimal)
• \( t \) — Time period (years)

Explanation: For selling, the NPV is simply the sale proceeds. For renting, it's the sum of discounted annual rental income over the time period.

3. Importance of NPV in Rent vs Sell Decisions

Details: NPV analysis provides an objective way to compare the financial outcomes of renting versus selling your primary residence, accounting for when money is received.

4. Using the Calculator

Tips: Enter the discount rate (typically your opportunity cost of capital), time period for comparison, expected sale proceeds if sold today, and expected annual rental income.

5. Frequently Asked Questions (FAQ)

Q1: What discount rate should I use?
A: Use your expected rate of return if you invested the sale proceeds, or your mortgage interest rate if you'd pay off debt.

Q2: Should I include maintenance costs?
A: For a more accurate comparison, subtract estimated annual maintenance costs from the rental income before entering.

Q3: What about property appreciation?
A: This basic calculator doesn't account for property value changes. For a complete analysis, consider future sale value.

Q4: How does time period affect the decision?
A: Shorter periods favor selling (immediate cash), longer periods may favor renting (more discounted cash flows).

Q5: Are tax implications considered?
A: No, consult a tax professional as capital gains exclusions and rental income taxation affect actual outcomes.