And what we like most: the monthly rental cost will shift as you change your answers. So if you wanted to see the impact of a change in the size of your downpayment, you can!

What this calculator does: it takes you through a list of all the big questions of home ownership, and it calculates the monthly rental you’d have to be paying before it makes more sense to rather buy the place.

So we’re here to help.

And this problem gets worse when you try to think about more difficult questions like “How long am I going to stay in the house?” and “But what if I did something different with the money – what impact would that have?”

There are so many variables that affect your decision to buy a house. There’s the price of the house, the mortgage, interest rates, insurances, renovations, transfer fees, capital appreciation rates – the list goes on and on. And because there are so many unknowns, it’s almost impossible to try and work out whether or not you shouldn’t just rent instead.

[Disclaimer: I do try and keep the background calculations here as up to date as possible, for changes in tax code, etc. But do bear in mind that this is just a tool, not a rule. So please don’t send me emails to say that you bought a townhouse on the back of this calculator, and now you’re suing me because you think the calculations are wrong, or because the post didn’t mention the downside of noisy neighbours and interfering Body Corporates. At your own risk, folks – at your own risk!]

This is the RollingAlpha.com Rent or Buy Calculator. I found an awesome developer who has helped me put it together – and basically, we’re trying to give you a South African version of the American Buy V Rent Calculator that you can find over at the New York Times.

Step 1: The price of the new place

Let's talk about the home that you're wanting to live in... EQUIVALENT

RENT Home Price

Understandably, the higher the price, the higher your home loan repayments. And also, the higher the rental you'd have to pay if you chose to rent instead.

Step 2: The period of occupation

This question is especially important here in South Africa. Unlike the US, the South African tax system has transfer duties attached to buying a new house - and because of that, it gets really expensive if you're planning to buy houses every few years.

Let's talk about your life plans... EQUIV.

RENT How Long Do You Plan To Stay In This House and Neighbourhood and City?

Step 3: The home loan

If you're planning to get some help from the bank, we need to take that into account.

Let's talk about your home loan... EQUIV.

RENT Home Loan Interest Rate per month EQUIV.

RENT Deposit That is: you're going to put down a deposit of EQUIV.

RENT Length of the Home Loan

You could also use this to get an idea of how much it can benefit you to pay off the home loan quickly. Just play around with the 'Length of mortgage' period.

Step 4: Return on investment

If you're a homeowner, then you're going to be interested in the capital return that your house will bring you. If you're renting, then you'd be interested in the annual escalation in your rentals - as well as what return you could get on any savings that you weren't putting into the house.

So because we're comparing buying and renting, we'll need some estimates for all of those.

And of course we'll need to take inflation into account - because inflation affects everyone.

Let's talk about the future here... EQUIV.

RENT Home Price Growth Rate EQUIV.

RENT Annual Rental Escalation EQUIV.

RENT Investment Return (if you were to put your money elsewhere) EQUIV.

RENT Inflation Rate

Step 5: The hidden costs of buying your home

As a South African homebuyer, you're going to be paying transfer duties, standard conveyancing fees and mortgage bond registration costs. Those are all determined directly by the cost of the house and the size of your home loan, so we're just going to show you what they are. Then there are other standard costs, which can vary slightly - but are almost always around the R2,000 mark. We've included that as the default - but you can change it as you wish.

In addition, you might need to do some renovations when you first move in. Perhaps the bathroom needs to be painted, or you need to redo the kitchen. We want to take that into account as well.

Let me tell you about the hidden costs of buying your home... Transfer Duty Standard Conveyancing Fee Home Loan Registration Costs EQUIV.

RENT Other Standard Costs EQUIV.

RENT And maybe some fixing up and/or bathroom renovations?

Step 6: The hidden and not-so-hidden costs of selling your home

The first big cost that people think about is the capital gains tax on selling your house.

But when it comes to the place that you live in, there is a primary residence exclusion that works in your favour. What that means: you really need to make a lot of gains on your home before you start paying any tax (at least R2 million).

That said, there are other costs at the end:

• your estate agent commission, which is generally around 8% (but you might be able to negotiate it lower);

• compliance certificates, which cost around R500 a certificate, and you'll probably be asked for three or four of them;

• your bond cancellation fee (if your bond is still in place), which is usually around R1,500; and

• and any costs of repairs and renovations prior to sale.

Now let's talk about the costs of selling your home... EQUIV.

RENT Marginal Tax Rate That results in a chargeable capital gain tax of EQUIV.

RENT Estate Agent's Commission EQUIV.

RENT Compliance Certificates EQUIV.

RENT Bond Cancellation Fee EQUIV.

RENT Repairs and Renovation in preparation of sale

Step 7: Don't forget the costs of occupation

The costs of buying and selling are important - but there are also lots of costs for living in a house.

If you own the house, then the costs are all yours. But if you rent, then you'll be splitting some of them with your landlord.

So to start, let's talk about the costs of home ownership:

Then, you have your maintenance, rates, insurance, utilities and (sometimes) levies... EQUIV.

RENT Property Rates That is a monthly payment of EQUIV.

RENT Annual Expected Maintenance Costs EQUIV.

RENT Homeowners' Insurance That is a monthly payment of EQUIV.

RENT Monthly Utilities EQUIV.

RENT Levies

And now for what you'd pay as a renter:

But if you rented, you'd just need to pay for some utilities and some insurance EQUIV.

RENT Monthly Utilities for Lessee's Account EQUIV.

RENT Renters' Insurance That is a monthly payment of

So having taken that all into account, if you're able to rent this place for less than per month, then you're probably better off just renting instead. Although that's assuming that you actually managed to save the savings!

Here's how we got to that answer We're looking at how you could end up in the same financial position in years. When you buy your property, you're going to face these initial costs: The Deposit Transfer Duty Renovations And those pesky 'hidden' costs: So that's a start-up investment from you of: Then there are the running costs of home ownership. The breakdown: For starters, there are your monthly home loan payments of: So over the time period that you'll live in the house, that's a total of: Then there are those other home-ownership costs: Maintenance Homeowners' Insurance Municipal Rates Monthly Utilities Levies So during your stay, including homeloan repayments, you'll fork out: If you rented though, you'd only spend the following (in addition to your rental): Monthly Utilities for lessee's account Renters' Insurance Which is a total of: And you could have invested the savings! Income Forgone on Initial Costs if invested (assumed taxed at 13.3%): Income Forgone on Extra Recurring Costs: In total, that's potential lost investment income of about: But then you get to sell your home: Selling Price Less Costs to Sell Less CGT Less Capital Outstanding on Bond So your net proceeds at the end: So when you put all that together, the total effective cost of owning this home for the years that you plan to live there is . And if we work that back to an effective monthly rental today, it means that if you're paying more than in rent, then you should seriously consider buying the place. And if you can rent for less, then perhaps renting is more cost effective option...

The basic idea is this: if you're going to buy the house, then you should end up better off than if you rented. Especially as there's so much more admin involved in home ownership.

So if we work out all the home loan repayments and extra living costs and the lost income that you could have earned on those costs (and the initial deposit), and then deduct the gain that you make on the property itself, then we can work out the maximum rent that you should be willing to pay before it would make more sense to just buy the house. If you can pay a lot less rent than that, then rent!

But there is a caveat here: we're assuming that if you did rent, then you'd actually go and save these extra costs, and invest the deposit. For many people, that's easier said than done. In fact, for most of us, it's a lot easier simply to invest in a house (probably because it feels like spending money). And if that's what works for you - then buy!

Either way, it's a big decision. And we hope this helps.

Happy investing!

Rolling Alpha posts opinions on finance, economics, and the corporate life in general. Follow me on Twitter @RollingAlpha, and on Facebook at www.facebook.com/rollingalpha.

This article was sponsored by Emergecore Consulting (Pty) Ltd.