Question
Own or rent analysis. Linda wants to purchase a property at the beginning of 2019 and plans to sell at the end of 2019. The
Own or rent analysis. Linda wants to purchase a property at the beginning of 2019 and plans to sell at the end of 2019. The loan payment is by annual and is fully amortizing FRM. The information for analysis is as below:
Property purchase price at the beginning of 2019 | $200,000 |
LTV Ratio | 80% |
Annual Interest rate | 6% |
Loan term | 30 years |
Annual rent | $15,000 |
Property sell price at the end of 2019 | $235,000 |
Annual insurance | $500 |
Annual maintenance | $500 |
Marginal tax rate | 28% |
Property tax rate | 1.50% based on the purchase price at the beginning of 2019 |
Annual discount rate | 12% |
Selling expense | 6% of sell price at the end of 2019 |
No sales tax |
|
Please answer the question of whether Linda needs to make the purchase by calculating the cost of owning, benefit of owning, the NPV and IRR of this purchase.
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