Project 2 Buying a House Urban — Old

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

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

Scenario - 1 n n 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.

Scenario 1 Continue n 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 n Maintenance costs are higher in the first 5 years and decrease afterwards

Scenario - 2 n n 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.

Scenario 2 Continue n n House is fully equipped Total first year expenses: - n n 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

Results n n 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.

Sensitivity Analysis 1

Sensitivity Analysis 2

Sensitivity Analysis 3

Sensitivity Analysis 4

Conclusion n 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.

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

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