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Armin J Bogosian - Techie Aida Beltran - Summarizer Isaac Miranda - Techie

Team #4. Armin J Bogosian - Techie Aida Beltran - Summarizer Isaac Miranda - Techie Tanya Cardona - Organizer. 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

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Armin J Bogosian - Techie Aida Beltran - Summarizer Isaac Miranda - Techie

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  1. Team #4 Armin J Bogosian - Techie Aida Beltran - Summarizer Isaac Miranda - Techie Tanya Cardona - Organizer

  2. 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

  3. Scenario 1 Scenario 2 BUY LEASE • 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 • Apartment • 1245 s.f., 2 bedroom, 2 bath • $1,000 security deposit • Annual rent increase of 3% Monthly payment: $2,000

  4. 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%

  5. Scenario 1: Years VS Savings

  6. Scenario 2:Monthly Payments VS Savings

  7. Scenario 3: Inflation Rate VS Savings • How low does inflation rate have to go where rent makes better sense?

  8. 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)

  9. Results cont. Scenario 3: • At 1% inflation rate, renting makes better sense- UNREALISTIC • 2% inflation rate or higher, buying is the better option

  10. 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.

  11. 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/

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