I have done have of the project. Just finish it.

FIN 3030 Principals of Real Estate - Spring 2016

Rent Verses Buy Analysis

Assignment: You are a successful MTSU graduate that majored in Finance with a concentration in real estate. You have a great job as a Real Estate Analyst for True Blue Investments Co. (TBI). TBI is a private wealth management firm specializing in clients involved in the music industry. An important client of TBI is considering purchasing a single family detached home located in suburban Nashville. The home would be her primary residence and she thinks she would live there for up to five years. The client currently rents an apartment in Nashville. Your manager has asked you to perform an analysis. The client wants to know if she is better continuing to rent the apartment or purchasing this home she has fallen in love with. In order to conduct this analysis you will need to make certain assumptions based on your market knowledge as a real estate professional and estimate the client’s return on the proposed investment.

Instructions: Read these instructions carefully. Failure to follow these instructions will result in deductions from your grade. This is a take home project and it is open note and open book. You can use anything to help you complete this assignment except for the assistance of another individual(s). This Project will be graded on the professionalism exhibited (quality of presentation) as well as content and understanding of the material.

The purpose of this assignment is to teach you how to analyze a contemplated real estate decision. Using a certain set of assumptions, you will complete an Excel spreadsheet that compares renting verses buying and derive an Internal Rate of Return (IRR) on an anticipated cash flow. You will then write up a report for the client describing the quantitative and qualitative results.

The Excel file loaded on the course shell is partially pre-populated for you. It contains two tabs – a Rent v. Own tab and an assumptions tab. You must complete all fields in green. The Project Assumptions tab should be populated with the assumptions given to you below. I suggest you include a small picture of the subject house and a map. You should also include a description of the house and the neighborhood.

Your deliverables are a Word file and an Excel File (both hard and soft copies). In the Word file briefly describe your assignment, state all of your assumptions, cut and paste appropriate charts from your Excel file into the Word file, state your Conclusions and your Recommendation to the client. Please report dollars in whole dollars only (no cents) and report percentages to two decimal places.

Both files will be sent in one email. The student will title their email “YOUR NAME_ Rent V Own analysis”. The student will title the soft files “Your Name _ Rent V Own analysis _ Multifamily”. The student will put their name in the body of both documents as well. The readability of the submitted documents is the student’s responsibility. Failure to follow these instructions will result in a reduction from your grade.

Answer the following questions in the narrative portion of your project:

1. When does it (if ever) start to make sense to own versus rent and why?

2. If interest rates increase by 3.0 percent and all other assumptions stay the same - When does it (if ever) start to make sense to own versus rent and why?

Assumptions: Populate the Assumptions tab of your Excel file to complete your analysis and determine an Internal Rate of Return for each of the five years of the analysis.

• Purchase price of $275,000

• Client is currently paying rent of $1,500/month

• Rent growth per year 3.5%

• House price appreciation per year: 3.25%

• Annual insurance for owner $1,750

• Annual maintenance expense $250 per month (first year)

• Home Owners Association Dues $40 per month (first year)

• Expense growth per year 3.0%

• Marginal tax rate 28%

• Property tax rate 1.15%

• Selling expenses 7.25%

Loan information:

• Bank loan to value 85%

• Interest rate 4.25%

• Loan term 30 years

Additional Information/Assumptions: The client believes she will earn a 12.0% return on her money that she needs to invest as Equity in the house if she purchases the house (client’s target rate of return”). Assume the client can avoid capital gains taxes.

Subject House Information:

http://www.zillow.com/homes/for_sale/Nashville-TN/41115727_zpid/6118_rid/any_days/globalrelevanceex_sort/36.582452,-86.174698,35.789968,-87.396927_rect/9_zm/?3col=true

3508 Geneva Cir,

Nashville, TN 37209