Team 1- Personal Investing Low-Income vs. High-Income Real Estate

1
Team 1- Personal InvestingLow-Income vs.
High-Income Real Estate

• Andrew Dunn
• Jeff Weintraub
• Silvio Tovar
• Adrian Hernandez

2
Scenarios

• Around 750,000-800,000 to invest
• Buy-out home at time of purchase
• No mortgage
• 30-year period
• 2 specific locations to compare in L.A. County
• Pomona- low-income area to invest
• Claremont- high-income area to invest

3
Pomona

• 1,068 sq.ft. house
• 7298 sq.ft lot
• Contemporary style- 3 bedrooms, 2 bathrooms,
  1-car garage
• 299,750
• Investment equivalent to 3 of these homes

4
Claremont

• 2276 sq.ft. house
• 15310 sq.ft. lot
• Foothills home- 4 bedrooms, 3 bathrooms, attached
  3 car garage, family room with fireplace and bar,
  2 patios, RV parking, laundry room
• 775,000

5
Assumptions

• Pomona
• 1500 rent per month for each home
• 2000 per year on maintenance/repair for each
  home
• 3 inflation
• 1 property tax from purchase price
• 1000 yearly home insurance per home
• 6.34 home appreciation (national average from
  1968-2004)
• Claremont
• 2000 rent per month
• 4000 per year on maintenance/repair
• 3 inflation
• 1 property tax from purchase price
• 2300 yearly home insurance
• 6.34 home appreciation (national average from
  1968-2004)

6
Results and Comparisons

• Pomona
• 5,685,650.05 final sale value for homes
• RoR 9.71

• Claremont
• 4,900,059.82 final sale value for home
• RoR 7.59

Rate of Return analysis used to compare projects.
Since the Incremental RoR of 26 is greater than
our MARR of 5 we choose the higher cost of
alternative Pomona houses.
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Sensitivity Analysis Findings

• Pomona Rent

• Claremont Rent

8
Sensitivity Analysis Findings
As inflation increases, so does the RoR. This is
due to only 2 factors being affected by inflation
rent and maintenance. When greater inflation
is applied, rent increases more than maintenance
because of the big difference in value and is
shown as a positive gain in the cashflow.
9
Sensitivity Analysis Findings
As Appreciation of homes goes up then our Rate of
Return obviously goes up for both investments.
10
References

• http//www.homes.com
• http//homes.realtor.com/
• http//www.realestateabc.com/insights/appreciation
  .htm
• http//www.invest-2win.com/appreciation.html
• http//interactive.web.insurance.ca.gov/survey/sur
  vey?typehomeowners