Armin J Bogosian - Techie

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Team 4

• Armin J Bogosian - Techie
• Aida Beltran - Summarizer
• Isaac Miranda - Techie
• Tanya Cardona - Organizer

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Our Situation

• 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

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Scenario 1 Scenario 2
BUY LEASE

• Apartment
• 1245 s.f., 2 bedroom, 2 bath
• 1,000 security deposit
• Annual rent increase of 3
• Monthly payment 2,000

• 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

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Assumptions

• 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

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Scenario 1 Years VS Savings
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Scenario 2Monthly Payments VS Savings
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Scenario 3 Inflation Rate VS Savings

• How low does inflation rate have to go where rent
  makes better sense?

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Results

• 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)

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Results cont.

• Scenario 3
• At 1 inflation rate, renting makes better sense-
  UNREALISTIC
• 2 inflation rate or higher, buying is the better
  option

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Summary

• 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.

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Resources

• 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/