PART A Rent Buy $2,150,000 Cost 0 Objective: Perform an engineering economy analysis of multiple alternatives - decide between renting or buying a house. Explain your answer. Assume: Initial Payment Monthly Payments The TVOM for your own capital is 12% per year Your planning Horizon is 20 years The house market value will increase an average of 5% per year You can choose to Upgrade the house at the end of planning horizon with cost of $573,000, or Sell it as it is at the then-value of the home with 1.5% discount (after appreciation) Down Payment: 16% of Security Deposit: cost $16,500 Mortgage: Rent: $11,500 20-year fixed (increases by 5% per 4% interest / year year) compounded monthly (End of month End of month payment) payment Insurance $450 (increases by 5% (annual) per year). Assume beginning of the year payments. $299 (increases by 2% per year). Assume beginning of the year payments. PART B Buy Rent Cost $2,150,000 0 Now assume instead of 16% down you put 25% down payment on the house that result in change in insurance as well Initial Payment Down Payment: 25% of cost Security Deposit: $16,500 Monthly Payments Rent: $11,500 (increases by 5% per year) Mortgage: 20-year fixed 4% interest / year compounded monthly End of month payment (End of month payment) Insurance (annual) $350 (increases by 5% per year). Assume beginning of the year payments. $299 (increases by 2% per year). Assume beginning of the year payments. PART C Buy Rent Now assume we consider property taxes Cost $2,150,000 0 Initial Payment Down Payment: 25% of cost Security Deposit: $16,500 Monthly Payments Rent: $11,500 (increases by 5% per year) Mortgage: 20-year fixed 4% interest / year compounded monthly End of month payment (End of month payment) Insurance (annual) $350 (increases by 5% per year). Assume beginning of the year payments. 1.2% of total price of house. Assume end of year payments $299 (increases by 2% per year). Assume beginning of the year payments. $0 Property Taxes (annual) PART D Rent Buy $2,150,000 Down Payment: 25% of 0 Cost Initial Payment Cost Assume we now consider income tax breaks for buying. Assume that your marginal tax bracket is 35% and will not change based on your home purchase below. In other words, you can get a tax credit for 35% of the interest that you pay in each payment. Monthly Payments Security Deposit: $16,500 Rent: $11,500 (increases by 5% per year) Mortgage: 20-year fixed 4% interest / year compounded monthly End of month payment $350 (increases by 5% per year). Assume beginning of the year payments. (End of month payment) Insurance (annual) $299 (increases by 2% per year). Assume beginning of the year payments. $0 Property Taxes (annual) 1.2% of total price of house. Assume end of year payments 35% of interest in each mortgage payment Income Tax Break NA PART A Rent Buy $2,150,000 Cost 0 Objective: Perform an engineering economy analysis of multiple alternatives - decide between renting or buying a house. Explain your answer. Assume: Initial Payment Monthly Payments The TVOM for your own capital is 12% per year Your planning Horizon is 20 years The house market value will increase an average of 5% per year You can choose to Upgrade the house at the end of planning horizon with cost of $573,000, or Sell it as it is at the then-value of the home with 1.5% discount (after appreciation) Down Payment: 16% of Security Deposit: cost $16,500 Mortgage: Rent: $11,500 20-year fixed (increases by 5% per 4% interest / year year) compounded monthly (End of month End of month payment) payment Insurance $450 (increases by 5% (annual) per year). Assume beginning of the year payments. $299 (increases by 2% per year). Assume beginning of the year payments. PART B Buy Rent Cost $2,150,000 0 Now assume instead of 16% down you put 25% down payment on the house that result in change in insurance as well Initial Payment Down Payment: 25% of cost Security Deposit: $16,500 Monthly Payments Rent: $11,500 (increases by 5% per year) Mortgage: 20-year fixed 4% interest / year compounded monthly End of month payment (End of month payment) Insurance (annual) $350 (increases by 5% per year). Assume beginning of the year payments. $299 (increases by 2% per year). Assume beginning of the year payments. PART C Buy Rent Now assume we consider property taxes Cost $2,150,000 0 Initial Payment Down Payment: 25% of cost Security Deposit: $16,500 Monthly Payments Rent: $11,500 (increases by 5% per year) Mortgage: 20-year fixed 4% interest / year compounded monthly End of month payment (End of month payment) Insurance (annual) $350 (increases by 5% per year). Assume beginning of the year payments. 1.2% of total price of house. Assume end of year payments $299 (increases by 2% per year). Assume beginning of the year payments. $0 Property Taxes (annual) PART D Rent Buy $2,150,000 Down Payment: 25% of 0 Cost Initial Payment Cost Assume we now consider income tax breaks for buying. Assume that your marginal tax bracket is 35% and will not change based on your home purchase below. In other words, you can get a tax credit for 35% of the interest that you pay in each payment. Monthly Payments Security Deposit: $16,500 Rent: $11,500 (increases by 5% per year) Mortgage: 20-year fixed 4% interest / year compounded monthly End of month payment $350 (increases by 5% per year). Assume beginning of the year payments. (End of month payment) Insurance (annual) $299 (increases by 2% per year). Assume beginning of the year payments. $0 Property Taxes (annual) 1.2% of total price of house. Assume end of year payments 35% of interest in each mortgage payment Income Tax Break NA