Armin J Bogosian - TechieAida Beltran - Summarizer

Isaac Miranda - TechieTanya 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: $4,576.32 Annual Insurance: $800

Monthly Payment with Taxes, Insurance, and MIP: $2,500

ApartmentApartment 1245 s.f., 2 bedroom, 2 bath1245 s.f., 2 bedroom, 2 bath $1,000 security deposit $1,000 security deposit Annual rent increase of 3%Annual rent increase of 3%

Monthly payment: $2,000Monthly 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: http://www.ofheo.gov/

Current Interest Rates: www.bankrate.com FHA-home loan information: www.hud.gov/ Wescom Credit Union- CD rates:

www.wescom.org/