Armin J Bogosian - Techie Aida Beltran - Summarizer Isaac Miranda - Techie Tanya Cardona - Organizer Team #4
25 year old graduate from Cal Poly Mechanical Engineer Starting salary $70,000 Salary increases 3% every year Has liquid assets for down payment Considering a 10 year period Location: Brea
SFR 1,300 s.f., 3 bed, 2 bath Purchase Price: $350,000 Down Payment: 3% or $10,500 Interest Rate: 5.5% Loan Type FHA with MIP (mortgage insurance) 30 year fix Lender, Bank of America Annual Taxes: $4, Annual Insurance: $800 Monthly Payment with Taxes, Insurance, and MIP: $2,500 Apartment 1245 s.f., 2 bedroom, 2 bath $1,000 security deposit Annual rent increase of 3% Monthly payment: $2,000
Buying End of year refund received from house deductions is put away into a savings account compounded at 4%. Appreciation is assumed to increase at 3% per year. (based on historical average appreciation rate) Leasing Every month, $500 is put away into a savings account compounded at 4%. Inflation/rent increases are 3%
How low does inflation rate have to go where rent makes better sense?
Scenario 1: In 5 years or less: renting is the better option In 5 years or more: buying is the better option Scenario 2: Renting: Available $ amount to put into savings decreases as payments increase Buying: Tax deduction increases as your monthly payment goes up (as a result of interest write off)
Scenario 3: At 1% inflation rate, renting makes better sense- UNREALISTIC 2% inflation rate or higher, buying is the better option
Our calculations proved renting to be more financially beneficial over a 10 year period. If, however you take into consideration the equity that is accumulated in our buying situation, then buying is obviously the better choice. Equity is not considered a “liquid” asset until the property is sold or refinanced.
Office of Federal Housing Enterprise Oversight- historical appreciation rate: Current Interest Rates: FHA-home loan information: Wescom Credit Union- CD rates: