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Buy vs. Rent House in Pasadena: Pros & Cons Analysis

Explore the advantages and disadvantages of buying and renting a house in Pasadena, CA, for a 30-year-old single person with an $80,000 annual income. Compare equity, maintenance costs, tax benefits, and investment returns to make an informed decision.

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Buy vs. Rent House in Pasadena: Pros & Cons Analysis

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  1. Buy VS. Rent a House Group 5 : Christopher Chock Kirstie Choza Akina Trinh Leo Xue

  2. Our Goal:To find out whether we should buy or rent a given house Assumptions: • A 30 year old, single person • Annual income of $80,000.00 • A given house in Pasadena, CA. • 1450 sq-ft with 3 bedrooms • a cost of $540,000

  3. Buying a House Advantages • The house is an investment. • Over time, you can get a return on the house because at the end you can sell it. • If house value does not appreciate • Equity builds • Mortgage Balance declines • When you pay your taxes, you can get an exemption for being a homeowner. • Possibility of increasing house value by fixing or remodeling

  4. Buying a House Disadvantages • Responsible for all maintenance costs which can vary • You have permanent residence until your house is sold. • Requires a larger initial investment • Equity has the possibility of changing or not moving at all

  5. Rent a House Advantages • Do not lose equity • When the contract is up, the renter can just move • Deposit is much smaller than down payment for a house • There are less or no maintenance costs

  6. Rent a House Disadvantages • Never gain equity • No personalization allowed • No tax advantages available • No return on investment • Deposit could have been invested elsewhere

  7. Conclusions • Never a positive cash flow for leasing house • Sale price at 30 years offsets all expenses

  8. Our Decision With our given scenario we decided to buy a house. After a sensitivity analysis was conducted, as the appreciation rate lowers, buying a house becomes less attractive.

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