egr 403 – project ii team 12 lala garabidian……...( organizer) phat bao………………(...
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EGR 403 – Project II
Team 12Team 12Lala Garabidian……...(Lala Garabidian……...(OrganizerOrganizer))
Phat Bao………………(Phat Bao………………(OrganizerOrganizer)) Samuel Mangampo……..(Samuel Mangampo……..(TechieTechie))Mark Mckinney……..(Mark Mckinney……..(SummarizerSummarizer))
Buying A House Buying A House vs.vs.
Buying A CondoBuying 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 $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 #1Purchasing a HouseDescription
Address: 447 E ADAIR STLong Beach, CA 90805
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 InformationOn 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 #2Purchasing a Condo
Description Address: 3721 COUNTRY CLUB DR Unit: 15
Long Beach, CA 90807 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 InformationOn 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
AssumptionsHouse Condo
Purchase Price $300,000 $300,000
Down Payment(10%) $30,000 $30,000
Closing Cost(0.33%) $2,137 $1,773
Loan Amount $270,000 $270,000
Monthly Payment
Maintenance 5% of yearly payment 2% of yearly payment
Taxes 1.25% of market price 1.25% of market price
Insurance 0.3% of loan amount 0.3% of loan amount
Association Fee 0 $150/month
Appreciation 8% per annum 6% annually
Cash Flow Diagram
House (in 10 years)
Payment
Property Taxes
Maintenance
Insurance
AA A A A A A A A A
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
AA A A A A A A A A
Present Value
FV
$300,000
$537,254
$17,393
Closing Costs
$1,773
$3,750
$810
$348
Rate(%) ROR (house) ROR (condo)
Interest 4 13.16% 6.21%
5 11.88% 4.70%
7 9.27% 0.48%
9 6.67% -3.24%
Tax Savings 25 11.59% 4.49%
28 11.88% 4.70%
31 12.17% 5.08%
Maintenance -1 12.01% 4.84%
1 11.75% 4.56%
3 11.48% 4.30%
Prop. Taxes 0.25 14.29% 6.70%
1.25 11.88% 4.70%
2.25 9.68% 2.08%
Sensitivity Analysis
Sensitivity Analysis continued…
Rate(%) ROR (house) ROR (condo)
Down Payment 10 11.88% 4.70%
20 10.88% 4.65%
30 9.15% 5.26%
6 6.21% 4.70%
7 9.16% 7.73%
Appreciation 8 11.88% 10.51%
9 14.42% 13.10%
10 16.81% 15.54%
10 11.88% 4.70%
Years of keeping the property
20 9.62% 4.98%
30 8.87% 5.13%
Graph I House
HouseRate vs. ROR (10 yrs.)
02468
10121416
6 7 8
Rate (%)
RO
R (
%)
Payment
Tax Savings
Maintenance
Prop. Taxes
Down Payment
Appreciation
Graph II Condo
CondoRate vs. ROR (10 yrs.)
-4
-2
0
2
4
6
8
10
12
6 7 8
Rate (%)
RO
R (
%)
Interest
Tax Savings
Maintenance
Prop. Taxes
Down Payment
Appreciation
Graph III Appreciation Analysis
AppreciationHouse vs. Condo
0
5
10
15
20
6 7 8 9 10
Appreciation(%)
RO
R (
%)
House
Condo
Graph IVBest Alternative
Comparison of Best Alternatives House vs. Condo (10 yrs.)
0
5
10
15
20
0.25 4 10 10.1 30 31
Rate (%)
RO
R (
%)
House
Condo
Graph VBest Alternative
Time VariationHouse vs. Condo
0
2
4
6
8
10
12
14
10 20 30
Years
RO
R (
%)
House
Condo
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.