1. What is NPV in Home Selling vs Renting?

Net Present Value (NPV) compares the financial outcomes of selling your home versus renting it out. It accounts for the time value of money by discounting future cash flows to their present value.

2. How Does the Calculator Work?

The calculator uses the NPV formula:

Where:

• \( Cash\ Flow_t \) — Net rental income (rent minus expenses) in year t
• \( r \) — Discount rate (your opportunity cost of capital)
• \( t \) — Time period in years
• \( n \) — Total number of years

Explanation: For renting, NPV sums the discounted net rental income over time. For selling, NPV is simply the sale price received immediately.

3. Importance of NPV Comparison

Details: Comparing NPVs helps determine which option creates more wealth. A higher NPV indicates the financially superior choice, though non-financial factors should also be considered.

4. Using the Calculator

Tips:

• Use a discount rate that reflects your alternative investment returns
• Include all rental expenses (maintenance, taxes, vacancies)
• Consider realistic appreciation/depreciation of property value
• Compare the difference to your personal financial thresholds

5. Frequently Asked Questions (FAQ)

Q1: What discount rate should I use?
A: Typically use your expected investment return rate (e.g., 5-7% for stock market). Higher rates favor selling.

Q2: Does this include home value appreciation?
A: This basic calculator doesn't. For more accuracy, add expected future sale price to renting NPV.

Q3: What about taxes on sale or rental income?
A: For precise analysis, use after-tax cash flows. Consult a tax professional.

Q4: How does mortgage payoff affect this?
A: If selling pays off a mortgage, include the debt relief in selling NPV.

Q5: What non-financial factors should I consider?
A: Consider hassle of being a landlord, mobility needs, and emotional attachment to the property.