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Team #4 When to Buy A House
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  1. Team #4When to Buy A House Stephen Tran- Organizer Shake Babakhanyan- Techie Paige Lewis- Summarizer

  2. Buyer Description • 23 year old single engineering • Starting salary of $60,000 • Save 10% of income every year • Want to buy a $500,000 house • Renting an apartment for $1000/mo. (including utilities).

  3. Project Constants • Pay off house in 35 years • 6% interest on mortgage loan • 3% inflation rate • 6% investment rate • $5,000 first year maintenance cost on home • $1,000 annual maintenance cost

  4. Project Scenarios • Scenario 1 • Rent an apartment for 5 years • Pay off the mortgage in 30 years • Scenario 2 • Rent an apartment for 10 years • Pay off the mortgage in 25 years

  5. Our Goal • Choose scenario with the least PV of cost

  6. Scenario 1 Rent Buy Home Annual Savings Annual Tax Benefit=$8,100 N=30 N=5 Rent, utilities, renters insurance with 3% Gradient P= $37,874.31 Mortgage payments, utilities, maintenance, homeowners insurance with 3% Gradient

  7. Scenario 2 Rent Buy Home Annual Savings Annual Tax Benefit=$8,100 N=25 N=10 P= $101,368.74 Mortgage payments, utilities, maintenance, homeowners insurance with 3% Gradient Rent, utilities, renters insurance with 3% Gradient

  8. Results • Lower PV of costs for Scenario 2 • Renting for 10 years is more beneficial • Save more money for down payment • Pay less on monthly mortgage payments

  9. Sensitivity Analysis • Scenario 1 is more effective if savings were doubled to 20% of income • Inflation rate caused the most significant change • Raise rate has little effect on savings and present value

  10. Resources • Personal experience • Market prices from internet sources • Textbook