Rent versus Own Analysis of a Personal Residence Property information Loan Information: Loan-to-value ratio 80.00% Purchase price $200,000 Loan amount $160,000 Initial Rent $24,000 Interest rate 6.00% Rental growth rate 3.00% Loan term (years) 30 Property growth rate 3.00% Payments (per year) 12 Insurance $1.500 Maintenance $1.500 Expense growth 3.00% Marginal tax rate 26.00% Property tax % 2.00% Selling expenses 7.00% Loan and equity calculations Annual debt service (payment) $11.511 Annual loan constant 7.19% Equity investment $40,000 Summary loan schedule End of year 2 3 5 Payment $11,511 $11,511 $11,511 $11,511 $11.511 Balance 158,035 155,949 153,735 151,383 148.887 Interest 9.547 9,425 9.297 9, 160 9.015 Principal 1,965 2,086 2,215 2,351 2,496 Property Data 2 3 5 Property value $200,000 206,000 212, 180 218,545 225, 102 231.855 Rents 24,000 24.720 25,462 26.225 27,012 BTCF (owner Year 2 3 4 5 Property taxes 4,000 4.120 4,244 4.371 4,502 Insurance 1,500 1.545 1,591 1.639 1.688 Maintenance 1,500 1.545 1,591 1.639 1,688 Principal and Interest 11511 11.511 11.511 11.511 Cash Outflows before taxes 18,511 18,721 18,938 19,160 11.511 19,390Tax deductions from owning Property taxes $4,000 $4,120 $4.244 $4.371 $4.502 Interest 9.547 9.425 9.297 9.160 9.016 Total tax deductions $13,547 $13.645 $13.640 $13,631 $13,517 Tax savings 3,622 3,622 3.620 3,618 3,514 Net cost of owning Cash Outflows before taxes 18.511 18,721 18.938 19.160 19.390 Tax savings 3.622 3.622 After tax oost 3.620 3.518 14,989 16,200 15.417 15,642 16,876 Net cost of renting Rents $24,000 $24,720 $25.462 $26,225 $27,012 Net Cash Flow from Owning Before Sale Cost of renting $24.000 Cost of owning $24,720 15,200 525,462 $26.225 14,989 $27.012 After Tax Cash Flow Own vs Rent $9.011 $9,520 15.417 15,642 $10.044 $10.583 15,875 $11.137 BT Cash Flow - Sale 206,000 2 3 4 Sales price 212,180 Selling Costs 218.545 225.102 14.420 14.853 Mortgage balance 158,035 15.757 231.855 15.298 16.230 Benefit from sale (own - rent) 155.949 153,735 151,383 33.545 41,378 148,887 49.513 57.961 66.738 AT Cash Flow - Sale Sales price $206,000 $212,180 $218.545 Less selling costs 14.420 14.853 15.298 $225.102 $231.855 15.757 16.230 Less purchase price 200,000 200.000 200.000 Gain on sale 200,000 200.000 (8,420) Exclusion (2,673) 3.247 9,345 3.247 9,345 16,626 16,626 Taxable gain Tax After tax cash flow 33.545 10 41,378 49.513 57.961 86.738 Cash savings and IRR summary Cash flows ATIRR Year Sold 2 3 -40,000 $42,566 -40,000 9,011 6.39% 50.899 24.63%% -40,000 9.011 9,520 59.557 29.68% -40,000 9.011 9,520 10.044 68.544 -40,0D0 9,011 31.18% 9,620 10.044 10,683 77,876 31.61%
