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Project #2 Buying a House Urban - Old vs. Suburban - Brand New

Explore the financial implications of purchasing an older house in Los Angeles versus a brand new house in a suburban area for a family planning to resale after 10 years. Detailed scenarios, expenses, rate of return analysis, and conclusion are provided.

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Project #2 Buying a House Urban - Old vs. Suburban - Brand New

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  1. Project #2Buying a HouseUrban - Old vs.Suburban - Brand New Team Members: Scott Tatman Bo Xu David Sacilotto Carmen Ivanescu Veronica Holliday

  2. Introduction • Family of 4 – Parents and 2 high school kids • Annual household income of $100,000 • Purchase either an older house in the city of Los Angeles or brand new house in suburban area. • Planning to resale the house after 10 years. • Which option will yield greater rate return?

  3. Scenario - 1 • Older home located in Los Angeles area. • Built in 1927 • 4 bedroom, 2 bathroom, garage, 1,970 sq ft • Home loan information: - $329,995.00 home cost. - $65,999.00 down payment (20%). - $263,996.00 loan. - $30 years loan at 6% mortgage rate. - $1,598.25 monthly payment.

  4. Scenario 1 Continue • Total first year improvements expenses: $12,456 - $1,500.00 for painting - $2,000.00 for new fence - $2,343.00 for new front door - $3,019.00 for kitchen cabinets - $3594.00 for new appliances • Maintenance costs are higher in the first 5 years and decrease afterwards

  5. Scenario - 2 • New Home Located in Ontario. • Build in 2004 • 4 bedroom, 2 bathroom, 2 car garage, 1,750 sq ft • Home loan information: - $373,990.00 home cost. - $74,798.00 down payment (20%). - $299,192.00 loan. - $30 years loan at 6% mortgage rate. - $1,811.33 monthly payment.

  6. Scenario 2 Continue • House is fully equipped • Total first year expenses: • Landscaping: 5000 square foot - $2,000.00 for grass - $3,000.00 for trees - $5,000.00 for irrigation - $1,000.00 for sculpture • No maintenance costs the first 5 years • $1,000 yearly maintenance after 5 years

  7. Results • Other Assumptions: - Property Tax Rate: 1.25% - city, 1.75% - suburban - Home insurance 1% of value of house - MARR 5% • Using the Rate of Return Analysis, a brand new suburban home is the better choice.

  8. Sensitivity Analysis 1

  9. Sensitivity Analysis 2

  10. Sensitivity Analysis 3

  11. Sensitivity Analysis 4

  12. Conclusion • The sensitivity analysis showed that, with realistic variations of the above assumptions, the brand new home in the suburban area is preferable to the older home in the city.

  13. Resources • http://realestate.yahoo.com • http://assesormap.co.la.us • MLS listing on msn.com • Essentials of Engineering Economic Analysis, 2nd Ed., Newnan, Lavelle, and Eschenbach

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