CSULB Quantitative Reasoning Approach Renting vs Buying Discussion

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User Generated

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shgbba

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Writing

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California State University Long Beach

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Whether to rent or buy a house is arguably one of the most critical financial decisions one will ever make. Some people claim that renting is "throwing away money" whereas buying a house is a wise financial investment in your future self. This project will provide an opportunity to analyze the validity of such a claim. In this assignment, using Microsoft Excel, and Write a 2-3 page report

you are asked to compare the cost of renting a two-bedroom apartment vs. buying a two-bedroom home. In order to earn the full credit, you must follow the following instruction.

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Quantitative Reasoning in Today’s World Signature Assignment #2: Renting vs. Buying Whether to rent or buy a house is arguably one of the most critical financial decisions one will ever make. Some people claim that renting is "throwing away money" whereas buying a house is a wise financial investment in your future self. This project will provide an opportunity to analyze the validity of such a claim. In this assignment, using Microsoft Excel, you are asked to compare the cost of renting a two-bedroom apartment vs. buying a two-bedroom home. In order to earn the full credit, you must follow the following instruction. Step #1. Pick a city in the state of California that you would like to live in. Use http:realtor.com or redfin.com to find the median price of (i) a two-bedroom home, and (ii) a two-bed apartment. Step #2. Using Microsoft Excel, calculate the 30-year cost of renting the two-bedroom apartment and house you choose in step #1. When calculating the cost of renting, assume a 2% annual inflation rate. Also, when calculating the cost of buying the house, assume the following: (i) you are putting a 20% down payment, and (ii) the fixed mortgage's annual interest rate is 5%. Furthermore, make sure to consider several ongoing costs of home ownership such that closing costs, title fees, loan-related fees, homeowner's insurance rate, monthly association dues, estimated monthly maintenance, annual property tax, etc. Step #3. For the next 30 years, which is cheaper? Buying or renting? To answer this question, in addition to your calculation step #2 , you must consider (i) the tax benefit you could get from mortgage interest deduction, (ii) expected annual home appreciation rate, and (iii) estimated opportunity cost of tying up capital in a home purchase. Step #4. Find out what type of job could support the home of your choice. Pick three occupation that interest you and find out what the average salary is for each. In order to find the average salary for each occupation, use the occupational employment statistics provided by the Bure of Labor Statistics (BLS). Step #5. Write a 2-3 page report (typed, double-spaced, 12 point font, 1-inch margins) that summarizes and answer questions in steps 1-4. Furthermore, your report must address: • What assumption(s) guided your analysis in steps 3 and 4? Identify mathematical concepts we have learned in class that were relevant to this project. • Discuss other things you have learned while working on this project. • In what ways has your work on this project changed the ways you view buying vs. renting? In the long run, is renting really “throwing away money”? What other things or skills have you gained as a result of working on this project? Step #6. Submit both the spreadsheet and report on Canvas. Quantitative Reasoning in Today’s World Signature Assignment #2: Renting vs. Buying Whether to rent or buy a house is arguably one of the most critical financial decisions one will ever make. Some people claim that renting is "throwing away money" whereas buying a house is a wise financial investment in your future self. This project will provide an opportunity to analyze the validity of such a claim. In this assignment, using Microsoft Excel, you are asked to compare the cost of renting a two-bedroom apartment vs. buying a two-bedroom home. In order to earn the full credit, you must follow the following instruction. Step #1. Pick a city in the state of California that you would like to live in. Use http:realtor.com or redfin.com to find the median price of (i) a two-bedroom home, and (ii) a two-bed apartment. Step #2. Using Microsoft Excel, calculate the 30-year cost of renting the two-bedroom apartment and house you choose in step #1. When calculating the cost of renting, assume a 2% annual inflation rate. Also, when calculating the cost of buying the house, assume the following: (i) you are putting a 20% down payment, and (ii) the fixed mortgage's annual interest rate is 5%. Furthermore, make sure to consider several ongoing costs of home ownership such that closing costs, title fees, loan-related fees, homeowner's insurance rate, monthly association dues, estimated monthly maintenance, annual property tax, etc. Step #3. For the next 30 years, which is cheaper? Buying or renting? To answer this question, in addition to your calculation step #2 , you must consider (i) the tax benefit you could get from mortgage interest deduction, (ii) expected annual home appreciation rate, and (iii) estimated opportunity cost of tying up capital in a home purchase. Step #4. Find out what type of job could support the home of your choice. Pick three occupation that interest you and find out what the average salary is for each. In order to find the average salary for each occupation, use the occupational employment statistics provided by the Bure of Labor Statistics (BLS). Step #5. Write a 2-3 page report (typed, double-spaced, 12 point font, 1-inch margins) that summarizes and answer questions in steps 1-4. Furthermore, your report must address: • What assumption(s) guided your analysis in steps 3 and 4? Identify mathematical concepts we have learned in class that were relevant to this project. • Discuss other things you have learned while working on this project. • In what ways has your work on this project changed the ways you view buying vs. renting? In the long run, is renting really “throwing away money”? What other things or skills have you gained as a result of working on this project? Step #6. Submit both the spreadsheet
Purchase answer to see full attachment

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Explanation & Answer

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Sacramento, California
Rent/month Median Rent Price Rent/year
Year 0% Rent 30YRS assuming 5% Rent increase
$ 1,895.00 $
1,695.00 $ 20,340.00
0 $
20,340.00
$20,340.00
$ 1,670.00
1 $
20,746.80
$21,357.00
$ 2,695.00
2 $
21,161.74
$22,424.85
$ 1,650.00
3 $
21,584.97
$23,546.09
$ 1,825.00
4 $
22,016.67
$24,723.40
$ 2,400.00
5 $
22,457.00
$25,959.57
$ 1,520.00
6 $
22,906.14
$27,257.55
$ 1,305.00
7 $
23,364.27
$28,620.42
$ 2,395.00
8 $
23,831.55
$30,051.44
$ 1,695.00
9 $
24,308.18
$31,554.02
$ 1,459.00
10 $
24,794.35
$33,131.72
$ 2,200.00
11 $
25,290.23
$34,788.30
$ 1,481.00
12 $
25,796.04
$36,527.72
$ 1,594.00
13 $
26,311.96
$38,354.10
$ 2,999.00
14 $
26,838.20
$40,271.81
$ 1,960.00
15 $
27,374.96
$42,285.40
$ 1,295.00
16 $
27,922.46
$44,399.67
$ 2,700.00
17 $
28,480.91
$46,619.65
$ 1,686.00
18 $
29,050.53
$48,950.64
19 $
29,631.54
$51,398.17
20 $
30,224.17
$53,968.08
21 $
30,828.65
$56,666.48
22 $
31,445.23
$59,499.80
23 $
32,074.13
$62,474.79
24 $
32,715.61
$65,598.53
25 $
33,369.93
$68,878.46
26 $
34,037.32
$72,322.38
27 $
34,718.07
$75,938.50
28 $
35,412.43
$79,735.43
29 $
36,120.68
$83,722.20
30 $
36,843.09
$87,908.31

TOTAL(0% Rent 30YRS)
Total(5% Rent increase)
$
861,997.83 $
1,439,274.47

Opportunity cost
RENT
BUY
30 YEAR VALUE $ 1,439,274.47 $

817,394.13

Opportunity cost
1.760808427

Sacramento, California

Amortizatio
Buy

$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$

Median Buy Price

550,000.00 $
388,000.00
383,000.00
355,000.00
423,900.00
210,000.00
440,000.00
285,000.00
279,000.00
179,000.00
339,999.00
750,000.00
499,500.00
312,500.00
589,000.00
393,000.00
649,000.00
304,000.00
611,095.00

388,000.00 $

Downpayment 20%

Principal

77,600.00 $

Interest Rate

310,400.00

Month

0.05

StartingBalance

1

$310,400.00

2
3
4
5
6
7
8
9
10
11

$310,027.04
$309,652.52
$309,276.45
$308,898.81
$308,519.59
$308,138.79
$307,756.41
$307,372.44
$306,986.86
$306,599.68

12
13
14
15

$306,210.88
$305,820.47
$305,428.42
$305,034.75

16
17
18
19
20
21
22
23
24
25
26

$304,639.43
$304,242.47
$303,843.85
$303,443.57
$303,041.63
$302,638.01
$302,232.70
$301,825.71
$301,417.02
$301,006.63
$300,594.53

27
28
29
30
31
32
33
34
35
36
37
38
39

$300,180.72
$299,765.18
$299,347.90
$298,928.89
$298,508.13
$298,085.62
$297,661.35
$297,235.31
$296,807.50
$296,377.90
$295,946.52
$295,513.33
$295,078.35

40
41
42
43
44
45
46
47
48
49
50
51
52
53
54
55
56
57
58
59
60
61
62
63
64
65
66
67
68
69
70
71
72
73
74
75
76
77
78
79
80
81
82
83
84
85
86

$294,641.54
$294,202.92
$293,762.47
$293,320.19
$292,876.06
$292,430.09
$291,982.25
$291,532.55
$291,080.97
$290,627.52
$290,172.17
$289,714.93
$289,255.78
$288,794.72
$288,331.73
$287,866.82
$287,399.97
$286,931.18
$286,460.43
$285,987.72
$285,513.04
$285,036.38
$284,557.74
$284,077.10
$283,594.46
$283,109.81
$282,623.14
$282,134.45
$281,643.71
$281,150.93
$280,656.10
$280,159.21
$279,660.24
$279,159.20
$278,656.07
$278,150.84
$277,643.51
$277,134.06
$276,622.49
$276,108.79
$275,592.95
$275,074.96
$274,554.81
$274,032.50
$273,508.00
$272,981.33
$272,452.45

87
88
89
90
91
92
93
94
95
96
97
98
99
100
101
102
103
104
105
106
107
108
109
110
111
112
113
114
115
116
117
118
119
120
121
122
123
124
125
126
127
128
129
130
131
132
133

$271,921.38
$271,388.09
$270,852.58
$270,314.84
$269,774.86
$269,232.62
$268,688.13
$268,141.37
$267,592.33
$267,041.01
$266,487.38
$265,931.45
$265,373.21
$264,812.63
$264,249.72
$263,684.47
$263,116.86
$262,546.89
$261,974.54
$261,399.81
$260,822.68
$260,243.14
$259,661.20
$259,076.82
$258,490.02
$257,900.76
$257,309.06
$256,714.88
$256,118.23
$255,519.10
$254,917.47
$254,313.33
$253,706.67
$253,097.49
$252,485.77
$251,871.50
$251,254.67
$250,635.27
$250,013.29
$249,388.72
$248,761.54
$248,131.75
$247,499.34
$246,864.29
$246,226.60
$245,586.25
$244,943.23

134
135
136
137
138
139
140
141
142
143
144
145
146
147
148
149
150
151
152
153
154
155
156
157
158
159
160
161
162
163
164
165
166
167
168
169
170
171
172
173
174
175
176
177
178
179
180

$244,297.53
$243,649.15
$242,998.06
$242,344.25
$241,687.73
$241,028.47
$240,366.46
$239,701.69
$239,034.15
$238,363.83
$237,690.72
$237,014.81
$236,336.07
$235,654.51
$234,970.11
$234,282.86
$233,592.74
$232,899.75
$232,203.87
$231,505.10
$230,803.41
$230,098.79
$229,391.24
$228,680.75
$227,967.29
$227,250.86
$226,531.44
$225,809.03
$225,083.60
$224,355.16
$223,623.68
$222,889.15
$222,151.56
$221,410.90
$220,667.15
$219,920.30
$219,170.34
$218,417.26
$217,661.03
$216,901.66
$216,139.12
$215,373.41
$214,604.50
$213,832.39
$213,057.07
$212,278.51
$211,496.71

181
182
183
184
185
186
187
188
189
190
191
192
193
194
195
196
197
198
199
200
201
202
203
204
205
206
207
208
209
210
211
212
213
214
215
216
217
218
219
220
221
222
223
224
225
226
227

$210,711.65
$209,923.32
$209,131.71
$208,336.80
$207,538.57
$206,737.02
$205,932.13
$205,123.89
$204,312.28
$203,497.28
$202,678.90
$201,857.10
$201,031.87
$200,203.21
$199,371.10
$198,535.52
$197,696.45
$196,853.89
$196,007.82
$195,158.23
$194,305.09
$193,448.40
$192,588.15
$191,724.30
$190,856.86
$189,985.80
$189,111.11
$188,232.78
$187,350.79
$186,465.13
$185,575.77
$184,682.71
$183,785.92
$182,885.40
$181,981.13
$181,073.09
$180,161.27
$179,245.65
$178,326.21
$177,402.94
$176,475.83
$175,544.85
$174,609.99
$173,671.24
$172,728.57
$171,781.98
$170,831.45

228
229
230
231
232
233
234
235
236
237
238
239
240
241
242
243
244
245
246
247
248
249
250
251
252
253
254
255
256
257
258
259
260
261
262
263
264
265
266
267
268
269
270
271
272
273
274

$169,876.95
$168,918.48
$167,956.01
$166,989.53
$166,019.03
$165,044.48
$164,065.87
$163,083.18
$162,096.40
$161,105.51
$160,110.49
$159,111.32
$158,107.99
$157,100.48
$156,088.77
$155,072.84
$154,052.69
$153,028.28
$151,999.60
$150,966.64
$149,929.37
$148,887.78
$147,841.86
$146,791.57
$145,736.91
$144,677.85
$143,614.38
$142,546.48
$141,474.13
$140,397.31
$139,316.00
$138,230.19
$137,139.86
$136,044.98
$134,945.54
$133,841.52
$132,732.90
$131,619.66
$130,501.78
$129,379.24
$128,252.03
$127,120.12
$125,983.49
$124,842.12
$123,696.01
$122,545.11
$121,389.42

275
276
277
278
279
280
281
282
283
284
285
286
287
288
289
290
291
292
293
294
295
296
297
298
299
300
301
302
303
304
305
306
307
308
309
310
311
312
313
314
315
316
317
318
319
320
321

$120,228.92
$119,063.58
$117,893.38
$116,718.31
$115,538.34
$114,353.46
$113,163.63
$111,968.86
$110,769.10
$109,564.34
$108,354.57
$107,139.75
$105,919.87
$104,694.91
$103,464.84
$102,229.65
$100,989.31
$99,743.81
$98,493.11
$97,237.21
$95,976.07
$94,709.67
$93,438.00
$92,161.03
$90,878.74
$89,591.11
$88,298.11
$86,999.73
$85,695.93
$84,386.70
$83,072.02
$81...