I do like the fact that it allows you to take a lot of factors into account – tax rate, inflation, appreciation, rent increase, return on investment, you name it. It also allows you to interactively modify the settings – move a slider and see how it affects you.

What I didn’t like is the fact that the underlying methodology and formulas are only explained vaguely. Especially at rather extreme values, it returns unintuitive results. I can explain the results to myself if I assume a certain methodology, but I’d feel much better if I knew the underlying formulas.

Anyways – it’s yet another tool in the real estate buying toolbox.

There are plenty of factors to take into account – inflation, investment earnings, mortgage rates, HOA dues, and tons more. Sitting down and doing math sounds rather unappealing and dry. Instead I looked for tools to help me make that decision.

That’s when I ran across HotPads. They have a very handy heatmap to give you a quick overview whether it makes sense to rent or buy, depending on the area. Here is the Los Angeles area map.

At a glance, I’m now able to find out in what areas it’s (in general) a better idea to buy than to rent. It’s only a rough guideline – you can always find a hidden gem – but it helps to focus the search. (And it helped me pinpoint an area I hadn’t even looked at before)

The next question is, given my current rent and a mortgage of a certain amount, which one makes more financial sense, and how do things change over time?. Thankfully, HotPads supplies me with a buy vs. rent calculator , too.

The way it looks in the sample case, I’ll have more net worth within two years, but I’ll have higher monthly payments for the next seven years. Time to find a better mortgage rate…

The “natural” schedule for a budget is a month – many of the major expenses you pay are on a monthly basis. Yet my paycheck arrives on a bi-weekly basis (i.e. every 14 days), and Petra has an even more irregular income. That’s no basis for planning.

So we sat down and figured out a few things. First steps, what’s the minimum income we’re guaranteed to make in any given period. For me, that’s two paychecks. For Petra, we picked the worst month in the last year and went a bit below that. That’s our ‘base salary’.

Next, we set up our ING account¹. There is a ‘Salary’ account that receives my paychecks, plus Petra’s monthly contribution from her account. From there, we have an automatic fund transfer every 1st and every 15th – into an account aptly named ‘PayForIt’. As a result, each month we have the same amount of money available.

We also save some money – a paycheck every two weeks translates into 26 a year, and only 24 of them go to the pay account. In other words, two full pay checks a year sit in a savings account – I’m automatically saving money without doing anything. Any ‘extra’ money that Petra makes above the assumed minimum also gets squirreled away.

This has the side benefit that we have to learn to live with slightly less money than we actually make – never a bad skill to have.

If you implement this yourself, be aware that the transition period to this scheme can be a bit awkward. Often, a lot of items are due on the 1st, so you’ll end up having to pay them in the month before. If you don’t plan for that, you will encounter moments where your PayForIt account is underfunded – and you definitely want to avoid that.

In the meantime, I’ll keep a log of this journey. And the first step of any journey is getting to know the terrain. Although I’ve been here for almost four years, most of L.A.’s neighborhoods are still fairly unknown to me. Thankfully, there’s plenty of information online – I started with a neighborhood map of L.A. and a pricing heatmap of L.A.

This gives me at least a good starting point – anything that’s too far away from my work and too pricey will not get checked regularly. From there, it is easy to use a site like Zillow or Redfin to get a more detailed view of what’s available at what cost.

Of course, there are plenty of open questions left:

• What are those neighborhoods like?
• How much house can I afford? What are the hidden costs?
• What about foreclosures?
• Condo or House?

And many more – so expect to see more on this topic in the near future.