As Michael Carvin prepared to buy a home in 2010, he figured he would be good at it: He’d been working in finance for seven years, helping companies make financial decisions. But he discovered that buying a home was far more complex than his day job. “There were tax consequences, financing alternatives, and I had Realtors telling me I could afford twice what I thought. I was left with a lot of confusion,” he says.
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Initially, Carvin tried to get answers by going online. While personal finance blogs and bank-provided mortgage calculators were somewhat helpful, he didn’t find the kind of personalized, detailed advice he wanted. So he built his own financial model, the same way he built models for companies for his job. He projected tax benefits, real estate values, future income, and other factors to come up with a complex calculator that helped him figure out whether or not it was a good decision to buy.
After determining that it was and buying his first home, he started sharing his model with friends and family. “After seeing their ‘aha moments,’ similar to my own, I realized there was an opportunity to provide deeply personalized, quantifiable financial advice,” says Carvin.
While continuing to work in private equity, he started working on his new project, now SmartAsset.com. Carvin says it took about seven months to collect the data, including state and local tax information, and to build the formulas. “There are so many different tax rules. We’re calculating standard deductions, itemized deductions, state taxes, and local taxes,” says Carvin, who now works on SmartAsset full-time.
In contrast to online mortgage calculators, which Carvin says tend to emphasize how much banks will let you borrow, instead of what makes sense financially for you, SmartAsset’s approach considers the need for a down payment, an emergency-fund cushion, and closing costs, as well. “We don’t just tell you anything is possible. It’s a totally different approach,” he says.
Clicking on the “Is it better to buy or rent?” question initiates a series of queries for the visitor: Are you single or partnered? What is your income? How much money do you have in savings? What other monthly expenses do you have? Then, a graph pops up: One line represents net wealth if you continue to rent, the other net wealth if you become a home owner. After a certain amount of time, depending on the values you entered, net wealth under homeownership generally exceeds net wealth from continuing to rent.
The message? Consider buying if you plan to stay in the home longer than the length of time where the lines cross.
After launching last week, SmartAsset.com garnered 17,000 visits in the first 24 hours, largely as a result of media coverage. Carvin and his team plan to continue expanding the site in the coming months, turning to retirement savings, investing, the pros and cons of returning to school versus staying in the workforce, and other complicated personal finance topics. “Over the course of the next 18 months, we want to get between 200 and 300 questions answered … Let’s show you the tax consequences of investing in a Roth IRA versus a 401(k), and how it would change your ability to accumulate wealth,” says Carvin.
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He says the tools on SmartAsset.com will remain free, and the company will generate money through referral fees by connecting visitors with companies offering relevant financial products, such as mortgages. Carvin says that to avoid a conflict of interest, SmartAsset receives the same referral fee from every lender, so it has no incentive to push a specific bank.
Says Carvin, who just turned 30: “The vision for the company is to bring a new level of transparency to financial decisions. We want to be your first point of reference for any decision in life—if you’re thinking of going back to school, or buying a house.”