You are considering the option to purchase a single-family home or apartment rental. You can choose the market you want to live and consider home prices and rental rates in that market. All details for this homework assignment are outlined here. Reach out with any additional questions. Again, all the information you need is provided except for four parts highlighted BLUE below. We will build an excel model to assist in the analysis. A version of this problem is completed within Chapter 7 and similar to Problem #1 on Page 217 of the book, if additional reference is needed. Please answer questions 1-3 using the below information. Information you will have to researchHome Purchase - Find a PRACTICAL house in the market you want to live in. People are not making buy vs. rent choices when buying houses over $400,000. Keep it realistic or the numbers will never work, and this assignment will provide no value to you. To find this home use the WEB. We reviewed resources where you can go to find homes for sale. Copy and paste the listing sheet on a tab in the excel workbook. Label the tab House. Apartment Rental - Find FIVE (5) apartments that you feel meet your living requirements. On a new sheet put the rent of these five apartments. Label this tab Rents. You will pick a monthly rent from this information you feel is reasonable in your market. Why are you looking at more than one apartment you ask? How do you know if the rental rate of one apartment is high or low if you have nothing to compare it to? How can you negotiate with a landlord if you have nothing to compare it to? Do you typically buy the first orange you pick up or do you check a few of them? Think about it... are you more willing to be picky on a 50 orange but not a $1,000+ monthly rental payment!!! Think of how many houses you clicked through until you picked one. Mortgage Rate - Find current 30-year mortgage rates. You can use a local bank in your market or national. Does not matter. Mortgage rates are different between financial institutions and in the real world you would spend time researching this. Copy the rate sheet and paste in excel on a tab titled Mortgage Rates. Income - Find the MEDIAN household income for your community. This will likely have to be at the county level for most of you. Include this on one of your pages. It will not link to anything and is for further reference. Other information provided to complete this assignment:Mortgage Amount financing for the property is 30-years and requires 20% down. Use a 30-year mortgage rate researched above. We are going to assume you have the 20% down payment in liquid funds.

Property Appreciation Rate Property prices are appreciating at 3.7% in all markets. Typically, this would be researched for each market as not all markets have property values moving in the same direction at the same time. Rental Growth Rate - Rents are growing at 3.2% in every market. Just like property appreciation rates, this would typically be researched and specific to markets. Also think about at what point would the rental rate likely stop rising. Expenses - We are going to assume that insurance is $1,100, maintenance is $1,250 and property taxes are $23.00 per $1,000 of property value (keep in mind taxes are based on assessed value but we are using the purchase price for simplicity). Expenses will increase 2.3% annually. Selling Expenses - Selling costs are estimated at 7.7% of the property selling price. Buying Costs - Buying costs are estimated at 3.6% of the purchase priceQuestions:Questions #1 - Assume living in the home for seven years. What is your initial IRR and NPV? Would you rather rent or buy? Make a copy of this page in the excel workbook and add your comments. Make sure to PASTE SPECIAL over all the values so the numbers do not change after you make a new page. Question #2 - Assume all the same assumptions in Question #1, expect what if the value of your home dropped by 20% in year 3. What is your NEW IRR and NPV? If you had a crystal ball and extremely confident this would happen, would it impact your decision in question #1? Why?Question #3 - Assuming all the same assumptions in Question #1, what would the rents have to change to for renting to be equal to buying from an investment perspective. (hint - you want a NPV of zero)Question #4 - Let's assume that you rented no matter what. Hypothetically, what would you have invested the down payment in and why? Can you provide an estimate of value and return? Would you model an event such as the Coronavirus? Why or Why not? Make sure to create a tab in excel to answer each question. The submission will be an excel workbook with all the required info included (workbook should have 3 model tabs, 4 data tabs researched above, and 4 answers tabs for questions).