Project #2 Buying a House Urban - Old vs. Suburban - Brand New Team Members : Scott Tatman Bo Xu...
-
Upload
claire-west -
Category
Documents
-
view
213 -
download
1
Transcript of Project #2 Buying a House Urban - Old vs. Suburban - Brand New Team Members : Scott Tatman Bo Xu...
Project #2Project #2
Buying a HouseBuying a House Urban - Old Urban - Old
vs.vs. Suburban - Brand NewSuburban - Brand New
Team MembersTeam Members::Scott TatmanScott Tatman
Bo XuBo XuDavid SacilottoDavid Sacilotto
Carmen IvanescuCarmen IvanescuVeronica HollidayVeronica Holliday
IntroductionIntroduction
Family of 4 – Parents and 2 high school kidsFamily of 4 – Parents and 2 high school kids
Annual household income of $100,000Annual 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.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 - 1Scenario - 1
Older home located in Los Angeles area.Older home located in Los Angeles area. Built in 1927Built in 1927 4 bedroom, 2 bathroom, garage, 1,970 sq ft4 bedroom, 2 bathroom, garage, 1,970 sq ft Home loan information:Home loan information:
- $329,995.00 home cost.- $329,995.00 home cost.- $65,999.00 down payment (20%).- $65,999.00 down payment (20%).- $263,996.00 loan.- $263,996.00 loan.- $30 years loan at 6% mortgage rate.- $30 years loan at 6% mortgage rate.- $1,598.25 monthly payment.- $1,598.25 monthly payment.
Scenario 1 ContinueScenario 1 Continue
Total first year improvements expenses: $12,456Total first year improvements expenses: $12,456
- - $1,500.00 for painting$1,500.00 for painting
- $2,000.00 for new fence- $2,000.00 for new fence
- $2,343.00 for new front door- $2,343.00 for new front door
- $3,019.00 for kitchen cabinets- $3,019.00 for kitchen cabinets
- $3594.00 for new appliances- $3594.00 for new appliances
Maintenance costs are higher in the first 5 years Maintenance costs are higher in the first 5 years and decrease afterwardsand decrease afterwards
Scenario - 2Scenario - 2
New Home Located in Ontario.New Home Located in Ontario. Build in 2004Build in 2004 4 bedroom, 2 bathroom, 2 car garage, 1,750 sq ft4 bedroom, 2 bathroom, 2 car garage, 1,750 sq ft Home loan information:Home loan information:
- $373,990.00 home cost.- $373,990.00 home cost.
- $74,798.00 down payment (20%).- $74,798.00 down payment (20%).
- $299,192.00 loan.- $299,192.00 loan.
- $30 years loan at 6% mortgage rate.- $30 years loan at 6% mortgage rate.
- $1,811.33 monthly payment.- $1,811.33 monthly payment.
Scenario 2 ContinueScenario 2 Continue
House is fully equippedHouse is fully equipped Total first year expenses:Total first year expenses:
- Landscaping: 5000 square footLandscaping: 5000 square foot- $2,000.00 for grass- $2,000.00 for grass- $3,000.00 for trees- $3,000.00 for trees- $5,000.00 for irrigation- $5,000.00 for irrigation- $1,000.00 for sculpture- $1,000.00 for sculpture
No maintenance costs the first 5 yearsNo maintenance costs the first 5 years $1,000 yearly maintenance after 5 years$1,000 yearly maintenance after 5 years
ResultsResults
Other Assumptions:Other Assumptions:
- Property Tax Rate: 1.25% - city, - Property Tax Rate: 1.25% - city,
1.75% - suburban1.75% - suburban
- Home insurance 1% of value of house- Home insurance 1% of value of house
- MARR 5%- MARR 5% Using the Rate of Return Analysis, a brand Using the Rate of Return Analysis, a brand
new suburban home is the better choice.new suburban home is the better choice.
Sensitivity Analysis 1Sensitivity Analysis 1
Sensitivity Analysis on Appreciation Rate
0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
30.00%
8.00% 9.00% 10.00% 11.00%
Appreciation Rate
Inc
rem
en
tal R
OR
Rate Suburban
Rate Urban
MARR
Sensitivity Analysis 2Sensitivity Analysis 2
Sensitivity Analysis on Mortgage Rate
0.00%
2.00%4.00%
6.00%8.00%
10.00%
12.00%14.00%
16.00%
4.50% 6.50% 8.50% 10.50%
Mortgage Rate
Inc
rem
en
tal
RO
R
IncrementalRORMARR
Sensitivity Analysis 3Sensitivity Analysis 3
Sensitivity Analysis on Upgrade and Repair Costs Spread
0.00%
5.00%
10.00%
15.00%
20.00%
0 2 4 6 8 10 12
Years cost is spread over
Incr
emen
tal
RO
R
City
Suburban
MARR
Sensitivity Analysis 4Sensitivity Analysis 4
Sensitivity Analysis on Analysis Length Variation
0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
0 5 10 15
Length of Analysis in Years
Incr
emen
tal
RO
R
Incremental ROR
MARR
ConclusionConclusion
The sensitivity analysis showed that, with The sensitivity analysis showed that, with realistic variations of the above assumptions, realistic variations of the above assumptions, the brand new home in the suburban area is the brand new home in the suburban area is preferable to the older home in the city.preferable to the older home in the city.
ResourcesResources
http://realestate.yahoo.comhttp://realestate.yahoo.com http://assesormap.co.la.ushttp://assesormap.co.la.us MLS listing on msn.comMLS listing on msn.com Essentials of Engineering Economic Analysis, Essentials of Engineering Economic Analysis,
22ndnd Ed., Newnan, Lavelle, and Eschenbach Ed., Newnan, Lavelle, and Eschenbach