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

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).

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

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

Our Goal Choose scenario with the least PV of cost

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

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

Results Lower PV of costs for Scenario 2 $610,803 to $510,049 Renting for 10 years is more beneficial Save more money for down payment Pay less on monthly mortgage payments

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

Resources Personal experience Market prices from internet sources Textbook