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Group 6: Buying vs Building a house Group members: Organizer Anna Bullara Techies Tri Truong Richard Morrow Summarizers Almautaz Rahman Eugene Pyu Building Lot Location: City of Monrovia Lot size: 6,500 sqft Price: $ 160,000

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group 6 buying vs building a house

Group 6: Buying vs Building a house

Group members:

Organizer Anna Bullara

Techies Tri Truong

Richard Morrow

Summarizers Almautaz Rahman

Eugene Pyu

building lot
Building Lot
  • Location: City of Monrovia
  • Lot size: 6,500 sqft
  • Price: $ 160,000
  • Cost to build: Avg $150/ squarefoot
  • Upgrade: $50,000-> $100,000
house
House
  • Location: City of Monrovia
  • House size: 2400 sqft
  • Lot size: 6500 sqft
  • 4 Bedrooms
  • 3 bathrooms
  • Price: $800,000
methodology
Methodology
  • Comparing between the cost of building a house from scratch and buying an already-built house in the same location.
  • Comparing which one will yield a better profit when selling in 10 years. The rate of inflation of 3% will be considered in our calculations.
assumptions
Assumptions
  • Inflation: 3%
  • Property Tax increase: 2% per year
  • Insurance increase: 2% per year
  • Interest rate: 6%
  • MARR: 7%
  • Appreciation: 5%
cash flow diagrams
Cash Flow Diagrams

Resale

MARR = 7%

Appreciation: 5%

n = 120

Monthly Payment

Down Payment

I=3%

Maintenance

I=2%

Insurance

I=2%

Property tax

sensitivity analysis
Sensitivity Analysis
  • MARR: 7%
  • Adjustment: + 0.5%
  • Result: Buying a house is more profitable.
sensitivity analysis cont
Sensitivity Analysis (cont)
  • Appreciation value: 5%
  • Adjustment: + 0.5%
  • Result: Buying a house is more desirable.
sensitivity analysis cont9
Sensitivity Analysis (cont)
  • Appraised value: $620,000 -> $800,000
  • Result: Building a house is more favorable when the house is appraised at $780,000 or higher.
resources
Resources
  • Internet
    • www.imrmls.com
    • www.century21.com
    • www.bankrate.com
  • Real estate agents
  • General contractors
conclusion
Conclusion
  • Through the use of all the resources stated previously, we were able to do a thorough sensitivity analysis.
  • With the sensitivity techniques that we used, we’ve found that 2 out of the 3 analysis indicated that buying a house is more profitable.
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