project powerpoint
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example.pptxTED AND ALICE’S RENT OR BUY DECISION
Evaluation of Four Scenarios
Ted and Alice House Purchase Decision
Goal
It is near the end of 2015. Ted and Alice must decide whether to either continue to rent an apartment, or buy a home, with the goal of ensuring the best chance for a positive cash on hand position at the end of 2017.
Ted and Alice House Purchase Decision
Income Streams –
Bob’s 2015 take-home income is $24,000. He expects a 2% pay increase in both 2016 and 2017.
Alice’s 2015 take-home income is $30,000. She expects a 3% pay increase in both 2016 and 2017.
Ted and Alice House Purchase Decision
These are their forecast basic living expenses --
Ted and Alice House Purchase Decision
These are their forecast risk factors --
If rental occupancy in their apartment complex is high, then their rent will increase by 10% for that year. If the occupancy rate is low, then their rent will increase by 3%.
If first time buyer loans are available, then they can qualify for a mortgage rate at 3%. If these loans are not available, then they will get a mortgage rate at 6%.
Ted and Alice House Purchase Decision
This is the model of their cash flows. This run of the model is based on a high rental occupancy rate and the availability of the 3% mortgage rate for 2016 and 2017. All run results are on the next slide.
Ted and Alice House Purchase Decision
Ted and Alice House Purchase Decision
Recommendation: to ensure a positive cash flow at minimal risk, decide to rent an apartment.
Constants201520162017
Non-Housing Living Expenses$36,000$39,000
Mortgage Amount for Home Purchase$200,000
Real Estate Taxes and Insurance on Home$3,000$3,150
Utilities Expenses -- Apartment$2,000$2,200
Utilities Expenses -- Home$2,500$2,600
House Repair and Maintenance Expenses$1,200$1,400
Income and Cash Flow Statement (Rent)201520162017
Beginning of Year Cash on Hand$4,000$5,540
Ted's Take Home Wages$24,000$24,480$24,970
Alice's Take Home Wages$30,000$30,900$31,827
Total Take Home Income$54,000$55,380$56,797
Apartment Rent$14,400$15,840$17,424
Utiities (Apartment)$2,000$2,200
Non-Housing Living Expenses$36,000$39,000
Total Expenses$53,840$58,624
End-of-Year Cash on Hand$4,000$5,540$3,713
Income and Cash Flow Statement (Home)201520162017
Beginning of Year Cash on Hand$4,000$6,562
Ted's Take Home Wages$24,000$24,480$24,970
Alice's Take Home Wages$30,000$30,900$31,827
Total Take Home Income$54,000$55,380$56,797
House Payments$10,118$10,118
Real Estate Taxes and Insurance on Home$3,000$3,150
Utilities (House)$2,500$2,600
House Repair and Maintenance Expenses$1,200$1,400
Non-Housing Living Expenses$36,000$39,000
Total Expenses$52,818$56,268
End-of-Year Cash on Hand$4,000$6,562$7,090
