Making Automobile and Housing Decisions Which Is Better To Rent or To Buy? X sols Az The decision of whether to rent or buy housing is a personal decision that is based on both your lifestyle and your finances. We experts argue that the financial aspect of the decision is important, it is also important not la base your rent orden sollte Your personal needs and housing market conditions are important However, it is still necessary to perform the financial analysis Megan and her husband are trying to decide whether to rent or to purchase a new condominium. After looking for several month, the verowe their choice down to one particular unit, and the builder is willing to lease or sell-depending upon the preference of the buyer To perform a rent-or-buy analysis, Megan and her husband have collected the following information If they rent, the builder will require monthly rental payments of $1,100 and a security depositut two months of rent Since they want to be protected against the possible loss of their possessions, they will purchase a renters policy of 5200 every six months, while a more comprehensive homeowners' policy will cost 0.5% of the home's value per year. Money used to fund the unit's security deposit could otherwise be invested to earn 3 per year after taxes. Tunds expended for a home's down payment and closing costs also incur an opportunity cost . If the unit is purchased, it will cost $175,000 and will require 20% down payment. The loan will carry an interest rate of 30 years, and monthly payments of 5839. The closing costs associated with the unit's mortgage will be $3.500 The property taxes and the maintenance and repair expenses on the unit are estimated to be a 15 or the ones te respectively . Your ordinary income is taxed at the rate of 28%, and you'll be willing to temize your tax deduction in the event that you purchase your new home Financial publications report that home values are expected to increase by this year due to ton TAG Complete a rent-or-buy analysis worksheet to determine the total cost of renting and the total cost of purchasing Megan and her husband's prospective house and then recommend their best strategy. To complete the worksheet, enter the appropriate values in their corresponding blanks and round each value to the nearest whole dollar. $ Amount 2,200 13,200 400 66 15,866 RENT-OR-BUY ANALYSIS FOR HOUSING COST OF RENTING Security deposit Annual rental cost Renter's insurance Opportunity cost on security deposit Total Annual Cost of Renting: COST OF BUYING Monthly mortgage payment Annual mortgage payments Property taxes Homeowner's Insurance Maintenance expenses Opportunity cost of down payment and closing costs Total costs 839 10,068 5,250 875 175 1.155 17,523 Search on Tools ps Uite and Housing Decisions Property taxes 5.250 Homeowner's insurance 875 Maintenance expenses 175 Opportunity cost of down payment and closing costs 1.155 Total costs 17,523 Less Reduction of loan principal Tax savings on mortgage interest deduction Tax saving on property tax deduction Total deductions Annual after-tax cost of homeownership Estimated annual appreciation in home value Total Annual Cost of Purchasing: ps Based on this analysis, Megan and her husband should Rent the home, as its total cost is less than the total cost of purchasing O Purchase the home, as the total cost of purchasing is less than the cost of renting O Purchase the home, as the cost of purchasing is greater than the cost of renting
