About Money Tradeoff

Why a breakeven instead of a return

Most calculators ask you to guess a growth rate and then show you a number built on that guess. The guess does all the work and the output looks like a fact. Turning the question around avoids that: given everything that is knowable — the price, the loan rate, the rent, the fees, the costs of getting in and out — what growth rate would this need just to draw level with leaving the cash alone?

That figure is useful in a way a projection is not. You still cannot know what a property will do, but you can look at a specific street and a specific building and form a view on whether it is likely to beat a number.

How the figures are worked out

Both options are reduced to the same shape: a value over time, a debt over time, and the cash the option throws off or demands each month. Net worth at any point is the value, less what it would cost to sell, less what is still owed, plus the cash collected along the way.

• Selling costs are charged at every month, not just at the end, so each point on the chart answers "what would I walk away with if I sold today".
• Spare cash earns the savings rate and shortfalls cost the savings rate, which is what makes the savings account a real opportunity cost rather than another line on a chart.
• Purchase costs come out of your cash rather than on top of it, so the loan is larger than the price less your deposit. This is the detail most often got wrong by hand.
• The breakeven itself is found by searching for the growth rate where the two options end level, rather than by rearranging a formula that would not survive the loan amortising.

What it leaves out

Tax, entirely. No income tax on interest or rent, no deduction for loan interest, no capital gains tax, no depreciation. Tax rules differ by country and often by state, so adopting one country's would make the tool wrong everywhere else. Where interest is deductible and gains are taxed lightly, the true breakeven is lower than the figure here.

Risk is also absent, because it is not a number. A deposit pays what it promises. A property can fall, sit empty, or need a roof, and it cannot be sold in an afternoon. Borrowing magnifies the outcome both ways. Two options that break even on paper are not the same bet.

This is not advice

It is arithmetic with assumptions you control. It does not know your income, your tax position, your other commitments or your tolerance for a bad decade. Use it to frame the question, then take the question to someone qualified to answer it for your circumstances.