Rent vs. Buy

For the next few weeks, you will be working on an assignment to build a model that will specify whether renting or buying is the better choice. We will assume that the benefits of renting are the same as those of purchasing, so you will only need to examine costs.

You may decide to analyze either whether to rent an apartment or buy a home or whether to rent office space or buy an office building. For the home option, you will choose a particular home in a particular neighborhood and compare the NPV of its ownership costs with the NPV of renting an apartment in the same neighborhood. For the office building option, you will compare the NPV of purchase costs with the NPV of rental costs for office buildings in a business district of your choice.

Gathering the required cost information will probably be more difficult for office buildings, so if you choose to analyze office buildings, you will receive a 10 percent premium on your score on the final model.

The first part of this assignment is to specify all information that will be required to do the analysis. At this point, you won't be gathering numbers, you will just list all the information you will require. This list will include items such as purchase price, loan rates and terms, property tax rates, etc. Place your list of items at the top of an Excel worksheet. Below your list, label two columns of the spreadsheet as "Rent" and "Buy." In the "Rent" column, identify the cash flows you will be eventually be calculating and group them as "Initial Cash Flows" paid at the beginning, "Ongoing Cash Flows," and "Terminal Cash Flows" paid when you move out of the rental unit or sell the house or office building. Group the "Buy" cash flows into the same three categories.

Submit your list and cash flow categories spreadsheet with the rest of your Assignment 2 files.

Hello, just need help getting a list and cash flow categories that I can use for my model. Thank you.