Rent versus Own Analysis This project requires you to compare the costs of owning a home against renting a home. Assume

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Rent versus Own Analysis
This project requires you to compare the costs of owning a homeagainst renting a home. Assume a home can be purchased for $150,000with a $30,000 down payment and financed with a fully amortizingmortgage loan of $120,000 at 4.5 percent interest for 30 years.Other costs associated with owning include annual maintenance(initial cost of $600), insurance (initial cost of $600), andproperty taxes (initial cost of 1.5 percent of property value).These expenses would not need to be paid if renting. Assume thatgrowth rates for expenses (including insurance, maintenance, andproperty taxes) equal to 2 percent per year. Assume the propertyvalue will grow at a rate of a constant 2 percent per year. Aftersix years, the property will be sold. A selling expense of 7percent would have to be paid at that time. Assume the income taxrate is 24 percent. Alternatively, assume the home can be rentedfor $12,000 for the first year, with an annual 2 percent growthrate in rent.
Be sure to show your work in Excel. In other words, do notsimply type values into the boxes, but reference prior cells whencalculating results. Please refer for Exhibits 7-2 and 7-3 forsample calculations. In your report, identify and explain the netcash flow in each year, for owning relative to renting. If anannual after-tax return of 15 percent is available on an investmentof comparable risk, which is the better option, owning orrenting?
Part 1: Property and Loan Information
Formulae: Interest = Beginning loan balance * Periodic rate
Amortization = Monthly payment –Interest
Ending loan balance = Beginning loanbalance – Amortization
Part 2: Loan Schedule
Part 3: Cash Flow Analysis
Formulae: Property taxes = Property value * Property tax rate
Cash outflowsbefore taxes = Property taxes + Insurance + Maintenance + Principal+ Interest
Formulae: Totaltax deductions = Property taxes + Interest
Tax savings = Total tax deductions *Income tax rate
Formulae: Aftertax cost of owning = Cash Outflows before taxes - Tax savings
After tax cash flows Own vs. Rent =Cost of renting - After tax cost of owning
Formulae: Selling costs = Property value * Selling expense rate
Benefit from sale = Property value –Selling costs – Loan balance

Rent Versus Own Analysis This Project Requires You To Compare The Costs Of Owning A Home Against Renting A Home Assume 1 (89.81 KiB) Viewed 11 times

116531 FIND Al Propedyfatormation Loan Information Purchase price Initial Yearly Rent 1711 Yearly Property Data Rental grawdūratė Property growth rate Maintenance Insurance Expenses prowthrate 120 Property value income tax rate Property tax rate Selling expense rate Down payment Loan amount Loan to value ratio Interest rate Loan term (in years) Payments (per year) Number of periods Part 21 toan Schedule and Property Data Periodie (monthly rate Monthly loan Payment SO 109 of Yearly Summary of Loan Schedule 110 End of year Payment Balance interest Principal 121 Part 3) Cash Flow Analysis #241 23 Before Tax Cash Flows from Owning Year Property taxes Insurance Maintenance Prinopal Interest Cash outflows before taxes G) Tax Deductions from Owning 22 A MOTIO 140 CAMINA and party Pampany.com perty Safe G)Tax Deductions from Owning Year Property taxes Interest Total tax deductions Taxsavings 14) Net Cash flows from Owning 16) Not Gash lows and R Year Cash outflows beforetans Tax swines Aftertax cost of owning Cost of seeing Aftertax cash flows Own vs. Rent 151) Cash Flow from Selling in Year 6 Year Property valor Selling costs Loan balance Benefit from s de MOB