EGR 403 – Project II Team 12 Lala Garabidian……...( Organizer) Phat Bao………………( Organizer) Phat Bao………………( Organizer) Samuel Mangampo……..( Techie ) Mark Mckinney……..( Summarizer ) Buying A House vs. Buying A Condo

Scenario Mr. Cal Poly, Pomona alumni graduated in 1999 as an Electrical Engineer who is 32 years old and makes $54K a year. He currently has $27K in his savings account. He is engaged and plans to get married next year and also plans to retire at age 65. He is facing a dilemma of whether to buy a house or a condo—whichever one will be a better investment for him.

Decision-Making Process CondoHouse $300,000 Down Payment (10%) Appreciation (8% per annum) Down Payment (10%) Association Fees $150/month Appreciation (6% per annum) Closing Cost (0.33%) Closing Cost (0.33%)

Scenario #1 Purchasing a House Description  Address: 447 E ADAIR ST Long Beach, CA  Price: $300,000  Living space: 1,102 Sq. Ft  Estimated payment: $1,579 Per Month  Single Family Property  Area: Long Beach; North Long Beach  County: Los Angeles  Single family style

More Detailed Information On The House  2 car garage  Detached garage  Concrete block  Tile roof  Yard(s) on property  Lot is 2925 sq. ft.  High School District: LONG BEACH UNIFIED SCHOOL DISTRICT  Formal dining room  Living room  Approximately 1102 sq. ft  Single level  Year built: 1977  3 total bedroom(s)  2.00 total bath(s)

Scenario #2 Purchasing a Condo Description  Address: 3721 COUNTRY CLUB DR Unit: 15 Long Beach, CA  Price: $300,000  1,120 Sq. Ft  Association fees are $150 mo.  Estimated payment: $1,579 Per Month  Area: Long Beach; Bixby Knolls  County: Los Angeles  Condo style  Single level

More Detailed Information On The Condo  Dining area  Approximately 1120 sq. ft.  Parking space(s): 2  2.00 total bath(s)  Year built: 1974  3 total bedroom(s)  Composition roof  In-ground swimming pool  Community clubhouse(s)  Community sauna/steam room(s)  Patio  Master bedroom  2 car garage

Assumptions HouseCondo Purchase Price$300,000 Down Payment(10%)$30,000 Closing Cost(0.33%)$2,137$1,773 Loan Amount$270,000 Monthly Payment  Maintenance5% of yearly payment2% of yearly payment  Taxes1.25% of market price  Insurance0.3% of loan amount  Association Fee0$150/month  Appreciation8% per annum6% annually

Cash Flow Diagram House (in 10 years) Payment Property Taxes Maintenance Insurance AAAAAAAAAA Present Value FV $300,000 $647,677 $17,393 Closing Costs $2,137 $3,750 $810 $870

Cash Flow Diagram Condo (in 10 years) Payment Property Taxes Maintenance Insurance AAAAAAAAAA Present Value FV $300,000 $537,254 $17,393 Closing Costs $1,773 $3,750 $810 $348

Rate(%)ROR (house)ROR (condo) Interest %6.21% %4.70% 79.27%0.48% 96.67%-3.24% Tax Savings %4.49% %4.70% %5.08% Maintenance 12.01%4.84% %4.56% %4.30% Prop. Taxes %6.70% %4.70% %2.08% Sensitivity Analysis

Sensitivity Analysis continued… Rate(%)ROR (house)ROR (condo) Down Payment %4.70% %4.65% %5.26% %4.70% %7.73% Appreciation %10.51% %13.10% %15.54% %4.70% Years of keeping the property %4.98% %5.13%

Graph I House

Graph II Condo

Graph III Appreciation Analysis

Graph IV Best Alternative

Graph V Best Alternative

Conclusion Summary Table of the Best Choice Alternatives HouseCondo ROR16.34%6.78%

Recommendations To sell the house after 10 years to gain the most Rate of Return on the asset. Buy the house, not the condo, because of higher percentage of ROR. Wait until marriage so that more income can be generated for a better house in a better location. Rent instead of buying. Analyze the Rate of Return in 10 years and decide whether to liquidate or not. Wait until the appreciation goes up then sell it.

Sources Used Internet Book: Newnan,D.G, Essentials of Engineering Economic Analysis Dr.Rosenkrantz