Project #2 Buying a House Urban - Old vs. Suburban - Brand New Team Members : Scott Tatman Bo Xu David Sacilotto Carmen Ivanescu Veronica Holliday

Introduction Family of 4 – Parents and 2 high school kids Family of 4 – Parents and 2 high school kids Annual household income of $100,000 Annual household income of $100,000 Purchase either an older house in the city of Los Angeles Purchase either an older house in the city of Los Angeles or brand new house in suburban area. Planning to resale the house after 10 years. Planning to resale the house after 10 years. Which option will yield greater rate return? Which option will yield greater rate return?

Scenario - 1 Older home located in Los Angeles area. Older home located in Los Angeles area. Built in 1927 Built in bedroom, 2 bathroom, garage, 1,970 sq ft 4 bedroom, 2 bathroom, garage, 1,970 sq ft Home loan information: Home loan information: - $329, home cost. - $65, down payment (20%). - $263, loan. - $30 years loan at 6% mortgage rate. - $1, monthly payment.

Scenario 1 Continue Total first year improvements expenses: $12,456 Total first year improvements expenses: $12,456 - $1, for painting - $2, for new fence - $2, for new front door - $3, for kitchen cabinets - $ for new appliances Maintenance costs are higher in the first 5 years and decrease afterwards Maintenance costs are higher in the first 5 years and decrease afterwards

Scenario - 2 New Home Located in Ontario. New Home Located in Ontario. Build in 2004 Build in bedroom, 2 bathroom, 2 car garage, 1,750 sq ft 4 bedroom, 2 bathroom, 2 car garage, 1,750 sq ft Home loan information: Home loan information: - $373, home cost. - $74, down payment (20%). - $299, loan. - $30 years loan at 6% mortgage rate. - $1, monthly payment.

Scenario 2 Continue House is fully equipped House is fully equipped Total first year expenses: Total first year expenses: - Landscaping: 5000 square foot - $2, for grass - $3, for trees - $5, for irrigation - $1, for sculpture No maintenance costs the first 5 years No maintenance costs the first 5 years $1,000 yearly maintenance after 5 years $1,000 yearly maintenance after 5 years

Results Other Assumptions: Other Assumptions: - Property Tax Rate: 1.25% - city, 1.75% - suburban 1.75% - suburban - Home insurance 1% of value of house - MARR 5% Using the Rate of Return Analysis, a brand new suburban home is the better choice. Using the Rate of Return Analysis, a brand new suburban home is the better choice.

Sensitivity Analysis 1

Sensitivity Analysis 2

Sensitivity Analysis 3

Sensitivity Analysis 4

Conclusion The sensitivity analysis showed that, with realistic variations of the above assumptions, the brand new home in the suburban area is preferable to the older home in the city. The sensitivity analysis showed that, with realistic variations of the above assumptions, the brand new home in the suburban area is preferable to the older home in the city.

Resources MLS listing on msn.com MLS listing on msn.com Essentials of Engineering Economic Analysis, 2 nd Ed., Newnan, Lavelle, and Eschenbach Essentials of Engineering Economic Analysis, 2 nd Ed., Newnan, Lavelle, and Eschenbach