This project requires you to compare renting versus owning a home. Assume the home can be rented for $15,000 for the first year, with an annual 2 percent rental growth rate. Alternatively, it can be purchased for $160,000 with a $35,000 down payment and financed with a fully amortizing mortgage loan of $125,000 at 2 percent interest for 30 years. Other costs associated with owning include maintenance costs of $450, insurance costs of $350, and property taxes of 3.5 percent of the purchase price. Assume the income tax rate is 21 percent. Growth rates for expenses including insurance, maintenance, and property taxes, are equal to 2.5 percent per year. The property value will grow at a rate of a constant 1.8 percent per year. After five years, the property will be sold. Selling expenses of 6 percent would have to be paid at that time.

Be sure to show your work in Excel. In other words, do not simply type values into the boxes, but reference prior cells when calculating results. In your report, identify and explain the cash flow in each year, for owning relative to renting. If an annual after-tax return of 20 percent is available on an investment of comparable risk, which is the better option, owning or renting?

A) Property Information
	Purchase price
	Initial Yearly Rent
	Rental growth rate
	Property growth rate
	Insurance
	Maintenance
	Expenses growth rate
	Income tax rate
	Property tax
	Selling expenses
B) Loan Information
	Down payment
	Loan amount
	Loan-to-value ratio
	Interest rate
	Loan term (in years)
	Payments (per year)
	Periodic (monthly) rate
	Number of periods
	Monthly loan Payment

Answer rating: 100% (QA)

A Property Information Purchase price 160000 Initial yearly rent 15000 Rental growth rate ... View the full answer